Annual Report • Feb 17, 2017
Annual Report
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In this Annual Report the names 'TomTom' and 'the company' and 'the group' are sometimes used for convenience in contexts where reference is made to TomTom NV and/or any of its subsidiaries in general or where no useful purpose is served by identifying the particular company.
This document contains certain forward-looking statements with respect to the financial condition, results of operations and business of TomTom and certain of the plans and objectives of TomTom with respect to these items. In particular the words 'expect', 'anticipate', 'estimate', 'may', 'should', 'believe', 'outlook', and similar expressions are intended to identify forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.
Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on them. For a discussion of factors that could cause future results to differ from such forward-looking statements see also section Risk management and control of this Annual Report.
Statements regarding market share, including the company's competitive position, contained in this Annual Report are based on outside sources such as specialised research institutes, industry and dealer panels in combination with management estimates.
| · About TomTom | 6 |
|---|---|
| · TomTom's activities at a glance | 9 |
| · Automotive & Licensing | 13 |
| · Telematics | 20 |
| · Consumer | 22 |
| · Strategic priorities | 24 |
| · TomTom Management Board | 26 |
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| · Automotive & Licensing business & financial review | 27 |
| · Telematics business & financial review | 30 |
| · Consumer business & financial review | 32 |
| · Group financial review | 34 |
| · Human resources | 36 |
| · Corporate social responsibility | 40 |
| · Risk management and control | 42 |
| · Corporate governance | 48 |
| · TomTom Supervisory Board | 55 |
|---|---|
| · Supervisory Board report | 57 |
| · Consolidated statement of income | 67 |
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| · Consolidated statement of comprehensive income | 68 |
| · Consolidated balance sheet | 69 |
| · Consolidated statement of cash flows | 70 |
| · Consolidated statement of changes in equity | 71 |
| · Notes to the consolidated financial statements | 72 |
| · Company statement of income of TomTom NV | 109 |
|---|---|
| · Company balance sheet of TomTom NV | 110 |
| · Notes to the company financial statements | 111 |
| · Independent auditor's report | 115 |
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| · Shareholder information | 121 |
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| · Key figures overview 2009-2016 | 123 |
| · Quarterly statement of income 2016 | 124 |
| · Quarterly statement of cash flows 2016 | 125 |
| · Definitions and abbreviations | 126 |
| · Non-GAAP measures | 127 |
Dear stakeholder,
2016 marked our 25th year in business. We started by developing meter-reading software for handheld computers, we developed apps for mobile devices before 'apps' was even a word, and then became famous for our invention of the portable navigation device for consumers. We soon diversified into other products, such as integrated in-vehicle navigation systems, traffic and operational fleet management. We worked hard to make our software more modular and changed our automotive strategy to move away from designing and manufacturing infotainment hardware and to integrating our maps, traffic and navigation into third-party hardware. With our expertise in maps, traffic, and navigation, we are well-positioned for the exciting emergence of self-driving cars.
At its heart, TomTom is a software technology company. In the beginning, our software ran predominantly on specific devices and we still develop device software but, these days, most of our software runs on servers in the cloud, often at scale. When our world-leading traffic service started to use location traces (probes) from vehicles, we got into 'big data' before the term became popular. We receive data probes from half a billion sources every day and with this, TomTom will help cities to become Smart Cities. We now offer current and historical traffic information in 54 countries around the world. We introduced TomTom City, an open access traffic web portal which is available in over 100 cities. By providing traffic conditions across the road network, we help make a driver's journey faster and more predictable and our technology can enable road authorities to get more throughput from their road networks.
TomTom is well placed to provide the kind of map that Autonomous Driving needs. Our HD maps with our innovative RoadDNA positioning technology now covers over 200,000 kilometres across the major highways of the US, France and Germany. We are working with many automotive OEMs to integrate our HD maps into the self-driving systems they are developing. And in early 2017, we acquired Autonomos GmbH, a Berlin-based start-up that will give us greater insights and competencies into the Autonomous Driving software stack.
AUTONOMOUS DRIVING CONTINUES TO GAIN MOMENTUM AND WE HAVE NO DOUBT THAT major opportunities will arise for TomTom in this space
Ultimately, it is our people that underpin our growth ambition. With more than 3,100 people in our R&D units, we invest heavily in our products. We continue to evolve our organisational structure to enable our R&D to deliver more for our customers from the available funds and we work hard at continuously improving the way we develop our software, which is a challenge for any company to do at scale.
We are partnering with technology companies to position TomTom as a leading technology supplier for the future of driving. In 2016, we partnered with NVIDIA to develop artificial intelligence to create a cloud-to-car mapping system for selfdriving cars.
This is an important step for TomTom and will enable us to propose new features to automakers faster, and therefore to make Autonomous Driving a commercial reality sooner. We also announced an agreement with Microsoft to be the supplier of location-based services for the Azure platform. Our locationbased services continue to be sought after by leading technology companies and we extended our relationships with MapQuest, SAP and Pitney-Bowes.
Our Automotive strategy and products continue to be well received by automotive OEMs, resulting in order intake for 2016 of over €300 million. We made good progress in delivering a complete set of connected navigation components to our existing customers as well as securing new deals and partnerships. We announced deals with Volvo Cars, FCA, PSA Groupe, Volkswagen Group, Subaru and ŠKODA.
We have built the largest and fastest growing European fleet management business. Telematics business reached a subscriber base of more than 696,000 subscriptions in 2016, a 15% increase compared with 2015. The extensive vehicle-related data that Telematics technology can deliver is also opening up new opportunities for aftermarket Connected Car services.
Our Consumer business is transitioning from a declining PND market to a growing Sports business, with the strategy of establishing a growing multi-product consumer electronics business. Sports experienced another year of double-digit growth, which executes on our strategy to diversify our Consumer business. To confirm our commitment to the Sports business, we introduced the TomTom Sports brand and an advertising campaign to encourage people to 'Get Going' in 2016. We launched a new range of GPS sports watches, and also announced the new innovative TomTom Touch, a fitness tracker that measures body fat percentage.
The PND market declined faster than expected in 2016, and whilst we succeeded in taking market share, we made the decision to realign the Consumer business accordingly. We will however keep on extracting value from the PND category. In the last five years, we have worked very hard to gain independence from the PND business and we have developed a growing, more predictable and recurring revenue stream, which puts us at the
heart of where the action is, location and mobility services. As the opportunities in location-based services grow, we have aligned our business to better capture these opportunities.
LOCATION-BASED APPLICATIONS REMAIN A SIGNIFICANT GROWTH OPPORTUNITY GLOBALLY across many industries and we will look for opportunities to innovate and play a leading role
We will invest in content and software across these areas as well as in our advanced mapmaking platform. These areas represent growth opportunities for TomTom and we believe will be the drivers of growth across the businesses in the medium to longterm. We saw a strong revenue growth in our Automotive, Licensing and Telematics businesses in 2016, and we expect their combined revenue to grow at a CAGR of around 15% between 2016 and 2020.
I would like to thank all of our stakeholders: our shareholders for their continued support and confidence in TomTom on our journey in this dynamic and fast moving industry; our customers for their loyalty and valuable feedback that drives us to constantly innovate; and finally our employees for their dedication, energy and hard work.
Harold Goddijn Chief Executive Officer TomTom NV
OVERVIEW
TomTom has transformed the lives of drivers with the introduction of portable navigation devices for consumers, enabling drivers to navigate easier and safer. TomTom's enduring purpose is to transform mobility through its products, including location technologies, Connected Car services and consumer products.
Founded in 1991, TomTom has grown from a Dutch-based startup company into a leading European technology company. The original founders are still with the company and together with over 4,700 employees are committed to improving people's lives by transforming mobility.
TomTom began with software development for mobile applications and personal digital assistants (PDAs) in 1991. TomTom soon became the early market leader in navigation applications for PDAs, such as RoutePlanner and Citymaps. In 2002, TomTom launched the Navigator application, for the first time, providing customers across Europe with affordable and easy-to-use turn-by-turn satellite navigation.
A year after the successful launch of TomTom Navigator, it was clear there was a strong demand for an all-in-one, easy-to-use, portable navigation product. The result was not just a new product, but also an entirely new category in consumer electronics: the Portable Navigation Device (PND).
The PND became one of the fastest selling consumer electronics technology in history, becoming the trusted travel companion for millions of drivers. Demand grew rapidly across Europe and North America and in the 12 years since its launch, over 81 million TomTom PNDs have been sold in 41 countries.
In the years that followed, we continued to innovate and diversified our product portfolio, to serve both consumers and businesses.
TOMTOM'S PRODUCTS INCLUDE maps, traffic, navigation software, fleet management services, sports watches and PNDs
In 2013, we entered a new consumer product category when we introduced our first TomTom GPS sports watches. We pioneered optical heart-rate measurement in the watch, eliminating the need for chest straps and we added a music player, removing the need to carry a smartphone for music.
We acquired a number of new businesses including: Datafactory, which has become TomTom Telematics; Applied Generics, which provided the initial technology for TomTom Traffic; the automotive engineering team from the Siemens R&D division, which provided the resources for our diversification into Automotive; Tele Atlas, one of the global digital mapmaking companies in the world, which is now part of the foundation of our location technologies; and Autonomos GmbH, strengthening TomTom's position in Autonomous Driving.
Our Telematics business is now the largest and fastest growing telematics provider in Europe, with an installed base of more than 696,000 vehicles at the end of 2016.
We are revolutionising the way maps are updated and delivered, with our new transactional mapmaking platform, which over time will enable near real-time maps. With the deployment of this technological innovation, we are positioned to address the need for accurate and up-to-date maps. TomTom has invented RoadDNA as an HD map component to enable decimetre-level positioning of vehicles on the road.
Because of the strength of our technologies, we have been able to form strategic collaborations with Automotive customers for Advanced Driver Assistance Systems (ADAS) and Autonomous Driving in recent years. Our leading traffic information and navigation software is transforming mobility for millions of people around the world every day.
WE BELIEVE PRIVACY IS ABOUT FREEDOM AND BEING ABLE TO DECIDE FOR ONESELF how one's data is used and by whom; this is why we have established our Privacy Principles
TomTom is a highly data intensive company. To create and maintain our various products and services, we process billions of data points every day and, for example, we use petabytes of road side imagery every day. We do this on a global scale. A significant part of the information is contributed by our users or in other ways relates to individuals. It is paramount to the continuity of us being able to use our users' data that we retain their trust.
We operate according to the privacy laws applicable in the various countries we are active. Because we are rooted in Europe, European privacy laws also apply. These laws are considered to be some of the most extensive in the world. They offer a high level of protection to our users by only allowing us to use their data when the strict conditions of these laws are met. Our company policy on privacy and processing of personal data reflects these laws and we apply this policy globally. To make it easier for our users to understand this policy, we have translated them into ten promises we make. These can be found on our website: tomtom.com/privacy.
To be able to live up to our promises, we employ what is generally known as 'privacy by design'. Effectively this means that when designing and engineering our products and services, privacy and properly dealing with data from or about our users is a topic we consider right from the start and throughout our engineering and operations.
Our activities are organised around three businesses: Automotive & Licensing, Telematics and Consumer.
Automotive & Licensing business licenses maps, online services such as traffic and navigation software, to customers as components to use in their applications. These location-based application components are licensed through our Automotive business unit to automotive customers (mainly OEMs and Tier1 head unit vendors) for in-vehicle navigation, ADAS and Autonomous Driving. Through our Licensing business unit we provide these components to other than automotive customers such as technology companies, geographical information systems (GIS) providers, governmental bodies and traffic management institutions. Many customers, particularly automotive customers, use our system integration service to help them integrate our components into their navigation application systems.
Telematics business provides a range of telematics services for businesses with a fleet of connected vehicles, including fleet management and other Connected Car services. Telematics also offers under-the-bonnet telematics devices and over-the-dash driver terminals.
Consumer business develops and markets smart consumer electronics devices in the Drive and Sports categories. Drive products consist mainly of consumer portable navigation devices but also includes driver terminals for businesses. Sports products consist mainly of wrist-based wearables for sports and fitness activities.
People first, entrepreneurial, accessible, not standing still, trust and democratisation. These key values are the 'red thread' that binds the TomTom culture. These values are at the core of TomTom. Being able to think for yourself, taking risks and ownership and showing accountability are traits that can be found in almost every employee, at every level in the organisation. At TomTom, everyone acts as a business owner. Everyone is accountable.
After 25 years in business, the start-up mentality has never left the building. It is in our DNA. This environment allows for creative thinking, quick solutions and does not let organisational layers impede the process to just get things done. We aim to remain as flat as possible so that employees are able to work faster, smarter and with few constraints.
Our founder-spirit rubs off on each and every employee. The founders are still very involved in the company. TomTom is more than just an employer. TomTom invests in the growth of employees. It is a company where people can grow and learn faster than they can at other companies. And, given the influx of a new generation of young talent, learning and development is valued as one of the top three drivers and motivators of this generation.
Our employees are motivated, skilled and are ready to push the boundaries of what is achievable every day. At TomTom, they are encouraged to do just that.
TomTom invests a high proportion of its revenue in R&D, which covers all product development, including our map releases, our mapmaking information systems, product-related online services, device software, and hardware development projects.
In 2016, our R&D cash spending totalled to €283 million, an increase of 6% compared with 2015. We have over 3,100 people working in R&D across 36 countries.
In our Automotive & Licensing business, the R&D investments include the following:
Building an HD map for Autonomous Driving applications;
Ongoing development of our mapmaking information systems;
In our Telematics business, the R&D investment include transitioning our WEBFLEET back-end into a telematics service platform that can support a wider set of Connected Car services and modernising the WEBFLEET user interface framework.
In our Consumer business, the majority of R&D investments will be in our Sports category in 2017. We are also investing in our Bridge driver terminal range.
WE REPORTED REVENUE OF €987 MILLION IN 2016 AND GROSS RESULT OF €566 MILLION; we are reducing our dependency on hardware products by growing high gross margin, recurring data, software & services business
In 2016, we delivered revenue of €987 million, a 2% decline compared with €1,007 million in 2015. Automotive, Telematics and Consumer Sports businesses grew strongly, partially offsetting the reduction in Consumer Drive revenue; Consumer Drive remained the biggest revenue contributor for the group. Licensing showed a modest decline year on year. The proportion of hardware revenue was 51% (2015: 55%) of total revenue in 2016 and revenue from data, software & services accounted for 49% of total revenue (2015: 45%). From a regional perspective, 78% of our 2016 revenue was generated in Europe (2015: 77%), 17% in North America (2015: 18%) and the remaining 5% in the rest of the world (2015: 5%).
This year, our gross result increased with 9% to €566 million (2015: €519 million), mainly due to a change in our product mix. Gross margin was 57% compared with 52% in 2015. EBITDA reached €141 million, an increase of 14% compared with 2015 (2015: €124 million). EBIT amounted to €9 million in 2016, (2015: €1 million) reflecting the higher gross result partially offset by an increase in operating expenses. The net result for 2016 was €12 million (2015: €18 million), translating to adjusted earnings per share of €0.23 (2015: €0.21). At the end of 2016, the net cash position was €133 million (2015: €98 million).
For an explanation of the Non-GAAP measures mentioned above please refer to the section Non-GAAP measures.
Our Automotive & Licensing business provides maps and map-based components for customers to integrate into their applications. Our product portfolio includes live map feeds including traffic, APIs for search and routing, device software and supporting products.
Maps have long been used as a navigation guide for travellers and explorers. For the last years however, the usage and development of maps has taken an incredible leap forward. With everyone and everything becoming connected, location and mobility information is more relevant and important than ever before. With this increased reliance on maps, comes an increase in expectations of the use cases the map has to support, how upto-date it is and the level of detail needed within it.
We can see this evolution in the different map layers of the TomTom's map product portfolio. Starting from the road network and street name layers for the early navigation maps, to point-of-interest (POI) layers, 3D layers and others, for more advanced search and navigation experiences to the HD map and RoadDNA layers that will enable Autonomous Driving in the future.
TomTom deploys intelligent mapmaking to deliver accurate and up-to-date maps. We invented a highly efficient hybrid approach that combines professional mapmaking methods with community input. Through this mapmaking approach, we tap into local teams of skilled map technicians located in more than 40 countries, a fleet of mobile mapping vans that drive the streets every day and our growing community of hundreds of millions of data sources. With nearly half a billion sources generating millions of kilometres of probe data each day we have access to the largest live probe network out there. In addition, we continue to explore new sensor data as cars become more and more connected, to further extend our pool of hybrid mapmaking data.
Making maps means dealing with big data and this requires an advanced map production platform. We continuously invest in our state-of-the-art transactional map production platform that allows us to rapidly close the loop between detecting changes in the real world and updating the map. This platform deploys automation and artificial intelligence to achieve short cycle times, efficiency and the right quality levels. Productivity of our map product platform will be key to the future of mapmaking where more data will have to be processed faster than ever before to meet the expectations of ever expanding use cases.
From creating one of the first digital maps in the world, to harnessing the power of community input, and more recently the developments such as our traffic sign categorisation artificial intelligence.
The innovation will not stop there; in 2017, we will further increase the productivity of our production system through automated multi-source map fusion and machine learning, further improve our cycle times to bring the most up-to-date maps to our users and bring new class-leading map layers to the market.
TOMTOM'S LEADING MAPMAKING TECHNOLOGIES ALLOW US TO RAPIDLY DETECT CHANGES HAPPENING IN REALITY and shorten the time for these changes to be reflected in our maps, continuously pushing the boundary towards the most real-time maps
With these maps, TomTom is empowering users to make smarter mobility decisions from simple decisions such as how to navigate to the airport as quickly and efficiently as possible, or calculating the most accurate driving range of your electric vehicle. Also more complex decisions can be made in a smarter way, such as how to change a city's infrastructure to accommodate the mobility of a growing population, and in the future mobility decisions for the Internet of Things.
We generally categorise the applications that use our maps into four groups:
● Analytics: the map is used as a structuring mechanism for data sets of other data, such as marketing data or government population data. The end user is nearly always a business. An example is determining the best location for a shop, based on overlaying population and traffic data on a map. There are many examples in this category where people do not realise that a map is used to make decisions.
Autonomous Driving is set to transform our lives: it is expected to save lives through safer mobility, it will shift from private vehicle ownership to mobility services, and it will free up parking spaces in our cramped cities. TomTom is right at the heart of this technology trend with its products for autonomous vehicles.
Autonomous Driving is about replacing human drivers with robotic drivers. Humans use their senses, brains and limbs to drive. This is changing to sensors, computers and actuators.
Many companies are working in each of these fields to turn Autonomous Driving into a reality, cooperating to solve the challenges that Autonomous Driving brings. We bring several components to the table.
First of all, TomTom's traditional strengths in navigation and traffic information are as important as they ever were for autonomous vehicles. They are the starting point for every autonomous drive: an autonomous car needs to know what route to drive and needs to ensure it avoids traffic jams where it can. The traffic feed is already used today to deliver up-to-the-second information beyond traffic as well, for example for road closures, accidents and hazardous situations.
Secondly, we have our HD map product. The HD map is a recording of the world made under ideal circumstances with superhuman sensors. HD maps are used in autonomous cars to improve safety and comfort. The HD map can be likened to a drone constantly flying over your head, telling the driver what is coming. In situations with dense traffic, poor visibility because of the weather, or at larger distances, the HD map is critical to ensure a safe ride. It allows the driver to see through the car in front or ahead to the next exit or beyond the next corner.
This is not only safer, it is also more comfortable, because decisions can be taken earlier and this reduces abrupt braking or last-minute lane changes.
When using HD maps, it is critical to have reliable localisation. GPS is not good enough, it is accurate to 10-20 metres when driving. It struggles to put the car on the right side of the road, let alone the right lane. TomTom has invented RoadDNA as an HD map layer to enable decimetre-level positioning. TomTom uses highly compressed pictures of the road surroundings which are compared in the car with what the sensors see. By matching the two, the car's position is precisely determined.
Cities already face severe mobility challenges, and as the tendency to live in cities increases, the traffic challenges are also becoming greater. According to the TomTom Traffic Index, drivers in London for example can expect to spend 38% of their travel time stuck in traffic at any time of the day, and up to 45% in evening peak periods. These delays add the equivalent of more than 18 extra working days travelling per year. Smarter and more efficient solutions are required to deal with traffic planning and control in order to organise safer, greener and more comfortable mobility in cities. TomTom believes that governments, automotive companies, service providers and drivers can reduce congestion dramatically by cooperating more closely, and is actively working towards solutions that will enable this goal to be achieved. The future is collaborative!
TomTom's flagship service, TomTom Traffic, has been continuously expanding its coverage reaching 54 countries in the beginning of 2017, spanning all continents. We have come a long way to position TomTom as a global leader of traffic and traffic information services. During the last 10 years, TomTom has created a comprehensive product portfolio for traffic and travel information as well as road data analytics to help improve mobility and provide solutions for better decision-making in transportation.
The success of its traffic incident and congestion service is largely explained by the growing community of half a billion data sources, which generate over 10 billion anonymous speed measurements every day. The community provides the source data that is fused to provide precise and up-to-date traffic information for highways, major roads and secondary roads on a global scale. We provide highly accurate measurements of traffic jams and delays for better route calculation, which helps drivers to make better decisions to save time on their journeys.
To complement the more mature traffic, innovative features and products such as speed cameras, off-street parking, weather and fuel price information services have been added to the portfolio. In 2016, we also announced on-street parking. The initial launch of the on-street parking service includes parking probabilities and search time information in a number of cities in Western Europe, such as Paris, Madrid and London. We intend to expand this service with restrictions and pricing information – all aimed to relieve the omnipresent stressful urban parking experiences.
The whole portfolio of services is used widely across many smart mobility platforms and use cases by automotive OEMs, smartphone manufacturers and 'mobility app' makers, government organisations and a wealth of additional B2B and B2C users.
In 2016, TomTom also announced the TomTom City web-based platform that provides live and historical traffic and travel information services to help transport and mobility stakeholders. The open-access portal showcases TomTom's capabilities to monitor, analyse and display an extensive range of information such as the current traffic situation or the worst bottleneck areas in each city. This platform will allow drivers and traffic management professionals increasingly to understand the situation and manage journeys accordingly.
THIS PLATFORM IS SET TO GROW IN THE COMING YEARS, extending to a full suite of traffic management tools to analyse the road situation in the fastest possible way and also influence driver's behaviour
A NEW GENERATION OF LIVE MAP SERVICES Today, the rise of the Connected Car, Smart Mobility and Autonomous Driving triggers the need for a new generation of connected services largely enabled by a collaborative community and new sources of vehicle sensors data.
Collaboration is key. The popularity of the TomTom services drives the volume of source data as anonymous passive community input, such as location trace data and sensor data, and active community input, such as confirmation of speed camera locations, is collected in conjunction with providing services. This source data is the assurance of an extensive, highquality, portfolio of services in the coming years. By harvesting car sensor data, commonly referred to as extended floating car data (xFCD), in addition to the location trace information, TomTom will add services to cover new use cases such as road safety (e.g. hyper-local road weather service) and Autonomous Driving (e.g. lane-level traffic incidents).
From the day we invented the PND category we have continuously invested in delivering the best navigation experience. End of 2016, we have provided our navigation software to over 100 million users, directly through our consumer business and indirectly through our other business units. We continue to learn from those users, through active and passive feedback, and improve our products accordingly.
Brought-in navigation is playing an increasingly important role, and our products are fit for purpose. Besides our own smartphone applications, in June we announced Volkswagen's release of a brought-in navigation application powered by NavKit, our navigation engine. In-dash navigation remains relevant as well. We expect that in five years from now around 25 million cars will be sold with embedded navigation globally and we will continue to invest in developing products that are relevant and easy to integrate in a vehicle context.
One of our strategic objectives is to adopt relevant industry standards. We have updated APIs for connected services such as Traffic and Speed Cameras. This further eases the integration of our products in an automotive connected navigation system. The NavKit navigation engine based on Navigation Data Standard (NDS) has been enhanced with features such as destination prediction and route learning. The user experience for incrementally updating the NDS maps in the system has also improved, which can now be done in the background, so the driver can continue to use the navigation system while this happens.
We also made great progress with the architectural renewal of NavKit. Our map matcher, the component that derives the actual position on the road from raw GPS and car sensor input, is no longer considering just the actual data, but also takes historic path data into account. This improves the map matching quality, giving a better user experience.
Another strategic goal is to become a global navigation supplier. We have further increased our footprint to navigable coverage in 163 countries and territories, by adding support for Arabic, Albanian, Serbian, Romanian, Indonesian, Hebrew, Latin and Chinese countries. We have also started the development of Korean and Japanese features. Once those are in place, we will have reached our goal and will have a navigation engine, with a software development kit (SDK) and a set of APIs, to provide navigation around the world.
Our online capabilities have been further enhanced throughout the year. Our Online Routing API now supports truck routing, as well as eco routing and range calculations based on dynamic consumption data from the vehicle, which is especially relevant for Electric Vehicles.
In the third quarter of 2016, we won the TIOBE Software Quality award for mid-sized projects (more than 100,000 lines of code) for our new map visualisation component with an all-time top score of 99.77%. In addition, NDS NavKit was second in the large-sized projects (more than one million lines of code) category. These awards demonstrate TomTom's continued efforts to build great software and improve software quality to a worldclass standard.
OUR NEW MAP VISUALISATION WILL BRING A SMOOTHER MAP BROWSING EXPERIENCEincluding planning, zooming, rotating and tilting, scalability to multiple displays, moving lane guidance, and more
In self-driving cars, the navigation system gets a different function. For instance, instead of receiving guidance instructions for every manoeuvre along the route, people in the car will be more interested in getting an abstracted understanding of the trip. Until cars can drive autonomously everywhere, the navigation system will calculate routes that are optimised for Autonomous Driving, so the driver can take his hands off the wheel as long as possible.
When approaching a route segment where Autonomous Driving is not feasible, the driver needs to get informed that a switch to manual mode is forthcoming. Finally, NavKit will be integrated with camera-based lane detection systems and with TomTom's RoadDNA technology to enable lane-level positioning, lane planning and lane guidance. Extending support for ADAS and Autonomous Driving, our navigation components will continue to play an important role in future cars.
Our Telematics business provides a range of services for businesses with a fleet of connected vehicles. These telematics services are provided to customers through a web browser, in reports that can be shared, through mobile phone applications or through an API that allows other systems to access the information.
The services use information related to the vehicle, such as GPS position and acceleration, or data that is collected from the vehicle, such as fuel usage or maintenance codes. They may also be related to the services that are connected to the function of the driver, such as work order status. Our own device, the so-called telematics black box or telematics control unit, that collects and shares the information with a back-end server, is integrated or connected with the vehicle.
We provide a range of devices, including the standard telematics black box, that uses power and ignition, OBD-II connected devices and devices that fully integrate with the CAN-bus, the internal vehicle communication system. The service can be complemented by a selection of driver terminals to provide better support to drivers.
The main telematics services are provided as a per vehicle subscription. Required hardwares are sold directly or provided on a rental basis in the monthly subscription fee.
The bulk of our Telematics sales include subscriptions to our flagship solution WEBFLEET. The platform is sold through a variety of channels, including a large partner network that resells solutions and an internal sales team, which covers 25 countries. WEBFLEET is an operational fleet management service for fleet owners that provides fleet vehicle tracking, fleet management reporting, basic work order services and an eco driving module. It helps fleet managers to make better decisions, have greater control over their vehicles and improve the efficiency of their fleet.
We serve any business that uses vehicles for their operations, from small service and maintenance companies, to long haul transport logistics. For the heavy goods vehicles, we have an additional portfolio to integrate with the vehicle's tachograph, support with special truck routing capabilities and integrate with other accessories in the vehicle, such as load temperature monitoring.
With WEBFLEET we also have one of the largest app development communities in the telematics industry. This community has access to WEBFLEET.connect API, which provides application developers and system integrators with a toolkit to access the data.
This allows vehicle and driving data as well as work order information to be integrated into customer's processes and IT systems, so that further automation can be realised. One example is the integration with Sage Live that was launched in 2016, which provides automatic mileage registration as part of the company's accounting solution.
More than 46,000 customers benefit every day from the high standards of confidentiality, integrity and availability of our ISO 27001:2013 certified service, re-audited by TÜV SÜD in November 2016.
Used in conjunction with WEBFLEET, our TomTom PRO driver terminals enable fleet managers to communicate more effectively with drivers. Next to professional navigation, the TomTom PRO 7250 provides work order integration, allowing users to report on the start and end time of jobs throughout the day.
The TomTom PRO 8270/5 is an open but controlled Android™ platform built around the TomTom Bridge, a unique connected mobility solution where navigation and business apps come together. While work orders are integrated and accessible via other apps, it also creates possibilities to communicate with the drivers about things such as rest times, as recorded by a truck's tachograph.
By combining our experience of providing Software-as-a-Service (SaaS) applications for fleet managers with Connected Car technology, we have extended our platform to also address the needs of the car services industries e.g. leasing, rental, dealers. This has enabled us to help these companies to increase their service performance as well as to build specific applications for their customers.
The services enable companies to monitor the status and whereabouts of the vehicles they provide to their fleet customers. It also allows them to build additional services on top of this. Examples include more information about maintenance and exact mileage driven for e.g. lease companies, or information about driving style for insurance companies.
The Internet of Things is a rapidly growing phenomenon, and the Connected Car is a special case within this; we expect to see a strong increase in Connected Car in the coming years. We also believe that the overall adoption of related services in the fleet sector will be fuelled by offering Connected Car services.
The TomTom Telematics Service Platform is uniquely positioned to take advantage of this growth as it has the capability to integrate multiple types of black boxes as well as to import information from a wide range of OEMs, and then bundle this into services aimed at either end customers or service providers.
Our Consumer business is creating a range of sports watches and activity trackers, portable navigation devices, mobile phone navigation applications and action cameras.
TomTom is one of the world's best known global consumer electronics brands, and one of the few remaining Europeanbased technology pioneers. TomTom is reputed for the ease of use of its products and its rate of innovation using technology to help consumers in their daily lives. Since creating the portable navigation category and expanding to sports wearables we have sold over 84 million consumer devices.
We believe that technology can play a key role in helping people to be healthy and live longer. TomTom sets out to motivate consumers to move more giving them relevant data and a compelling experience.
We help our customers reach their fitness goals and encourage them to go out and explore. This is the philosophy driving the innovations of our wearable product range and its mobile ecosystem. We were the first to integrate an optical heart-rate monitor into a GPS running watch and to integrate a music player directly into the watch. We have recently launched the world's first fitness tracker to combine body composition analysis with step, sleep and all day heart-rate tracking, right from the wrist – answering the age-old question 'Is what I am doing, doing anything for me?'. We have also launched an adventurer watch specially aimed at our customers enjoying the great outdoors, either trail running, skiing or snowboarding.
Marking a significant milestone for the Consumer business, TomTom announced the launch of the TomTom Sports subbrand and an advertising campaign supporting TomTom Sports in 2016. The TomTom Sports brand caters to the needs of audiences ranging from those that are taking their first step down the road, to those that are stepping over the starting line of their first marathon. We are claiming a unique space in the world of sports. TomTom Sports is not here to shout at you to beat the impossible, be unstoppable, go harder, tougher, longer, deeper, rougher or sweatier. We want to help people where they need it most. Right at the beginning, where excuses often beat conviction. We want to be the brand that inspires people to Get Going and take that first step, no matter how big or small their effort might be, time and time again.
Underlying the TomTom Sports product portfolio, and forming the future of our audience engagement, is the TomTom Sports app. This ecosystem has been entirely re-engineered and redesigned for 2017, allowing our brand to provide not just data about users' activities, but insights that will help them to Get Going.
In a world where wearables collect personal data every second, privacy matters more than ever before. At TomTom, we take privacy very seriously and we have worked hard to make our privacy practices the benchmark - we believe that sound data privacy will be one of the key differentiating factors also for wearable brands. We are proud to lead the way, ensuring the data remains secure. More about our promise to protect data is stated in the Privacy and data governance section of this Annual Report.
The Drive business helps people to move and discover new ways of getting to their destination.
Our four product line portfolio includes navigation devices for car, two wheels, large vehicles and mobile devices. We include innovation that ensures customers buying TomTom's products enjoy a feeling of priority driving, no matter their destination.
TomTom's award-winning car navigation devices provide a priority driving experience blending the best of TomTom technologies, including sophisticated routing and awardwinning traffic information. Some of our newest products include Wi-Fi® updates and deliver advanced smartphone integration, allowing for a safer drive with minimal interaction with smartphones.
In the two wheel category, TomTom's products for motorcycles – the TomTom Rider - continue to deliver value and excitement to our customers. Thrilling trips across Europe are now preinstalled in our devices, enhancing overall product experience. TomTom's desire to expand the addressable market moved us into the scooter market by launching the TomTom Vio.
TomTom's market share in the large vehicles market keeps growing. In 2016, TomTom launched the widest and strongest line-up of its TomTom Trucker range ever. That allowed for recruitment of new channel partners and geographic expansion to North America.
TomTom focused on improving the mobile apps and services. My Drive app saw large improvements during 2016, including the capability to download and transfer scenic routes to navigation devices via TomTom's cloud. TomTom also generates a significant business with our subscription-based navigation app GO Mobile. Our app for Android continues to receive multiple awards and excellent consumer ratings, and we are working on the iOS app to replicate the success of the Android version.
Through our technology capabilities, we are well positioned to capture growth opportunities across our Automotive & Licensing, Telematics and Consumer businesses. Many of our growth opportunities are driven by big industry trends, including Wearables, Connected Car, Autonomous Driving and Smart City.
Within the Automotive & Licensing business we aim to grow through technology leadership in mapmaking information systems, traffic and navigation software. To achieve leadership we will invest in automation, modularity and industry standard interfaces. We are targeting new growth opportunities in ADAS and Autonomous Driving, investing in our HD map and RoadDNA technologies.
Our Telematics business strategy is to continue to profitably grow our fleet management business and to diversify to other Connected Car services such as vehicle leasing. We expect to increase our share as the leader in a fragmented European market. We will capitalise on our scale by investing in our telematics technology, to offer a superior service and client devices and to provide APIs for complementary partner products. We will continue to invest in our Telematics service platform to strengthen our leadership position in fleet management, to
enable diversification into other Connected Car services, and to grow our partner ecosystem.
Following a diversification strategy, our Consumer business has established its Sports category and will invest for further growth, with the ambition of being the number one sports wearable brand in Europe. As well as having growth potential, the Sports category is a good fit with the TomTom brand and capabilities in smart devices with associated cloud-based web applications and smartphone apps. Our traditional portable navigation category is still important and we invest at the right level to make the most of a declining category. We will exploit niche growth opportunities in Drive such as our Bridge driver terminals for businesses, which take advantage of our device platform and capabilities.
FORMER POSITIONS AND EDUCATION Harold began his career with a venture capital firm. In 1989, Harold founded and led Psion Netherlands BV, a joint venture with Psion PLC. He also served on the board of Psion PLC. In 1991, he co-founded TomTom together with Corinne Vigreux, Peter-Frans Pauwels and Pieter Geelen. Harold holds a Master's degree in Economics from the University of Amsterdam.
NATIONALITY Dutch YEAR OF FIRST APPOINTMENT 2015 TERM OF OFFICE 2015 - 2019 OTHER POSITIONS None
FORMER POSITIONS AND EDUCATION Taco joined TomTom in 2005 and held various senior management positions in Group Control, Treasury and Investor Relations before his appointment as CFO in 2015. Before joining TomTom, Taco spent eight years with KPN. During this period he held various management roles in Finance and Investor Relations. Taco holds a Master's degree in Business Economics from the University of Groningen.
NATIONALITY Belgian YEAR OF FIRST APPOINTMENT 2008 TERM OF OFFICE 2016 - 2020 OTHER POSITIONS Non-Executive Director of Cyient Ltd
FORMER POSITIONS AND EDUCATION Alain founded Informatics & Management Consultants (I&M) where, next to IT Consultancy, he continued his research work on digital map databases and routing. In 1989, I&M was integrated into the Dutch Tele Atlas Group. As of 1990, Alain headed Tele Atlas, which was acquired by TomTom in 2008. Alain graduated as an engineer-architect from the Ghent University.
head unit vendors.
Car makers increasingly demand future-proof solutions that are open, modular and upgradeable. Given the complexity of building state-of-the-art infotainment systems, they are looking for suppliers who can help create competitive, low-risk products that have a fast time-to-market. TomTom's Automotive connected navigation components can be easily integrated to meet these demands to create location and navigation functions for connected cars.
With regards to components for Autonomous Driving, TomTom has continued to extend its HD map coverage, which now covers over 200,000 kilometres of roads across Europe and North America. TomTom's HD map has also won the prestigious CLEPA Innovation Award for Connectivity, an award that recognises the most innovative products and services launched in the European automotive industry.
Our Automotive strategy and products continue to be well received by automotive OEMs and Tier1 suppliers, resulting in order intake for 2016 of over €300 million. This will continue to support our top-line growth in Automotive business going forward.
We made good progress in delivering a complete set of connected navigation components to our existing customers as well as securing new deals and partnerships. In 2016, TomTom announced the launch of the connected navigation system in FCA's new Uconnect 7-inch HD Nav and Uconnect 7-inch HD Nav LIVE systems available on the all-new Fiat Tipo and Fiat 500S.
TomTom also announced the launch of PSA Groupe's global infotainment platform, built on the full suite of TomTom products, including maps, navigation software and connected services. The flexibility and modularity of these components is highlighted in the new Peugeot i-Cockpit – which was launched at the Paris Motor Show - where TomTom components work smoothly and seamlessly across an 8-inch touchscreen and a 12 inch cockpit display screen.
Our full suite of products has also been selected by Volvo Cars for their 2019 global platform, representing a first time collaboration between TomTom and Volvo Cars. Among the key features and services are automotive-grade digital NDS maps, incremental near real-time map updates, world-class navigation software NavKit, TomTom Traffic and travel-related services.
TomTom technology was also selected by Subaru for their next generation global infotainment platform, which will launch first in North America with the all-new 2017 Subaru Impreza featuring TomTom Maps and navigation software. TomTom also won a deal with Volvo Trucks to provide a customised version of the navigation software particularly aimed at the trucks segment, as well as maps and connected services, marking the first collaboration between TomTom and Volvo Trucks.
In addition, ŠKODA has chosen TomTom as traffic service provider for Europe. Within the Volkswagen Group, TomTom Traffic is already available to Audi, Volkswagen, Porsche and Bentley, and it will be rolled out to all ŠKODA car models across Europe in the course of 2017. We also entered a number of new contracts with Tier1 and Tier2 suppliers, including Digen, through which TomTom components appeared in models from Mitsubishi.
In 2016, we partnered with NVIDIA to develop artificial intelligence to create a cloud-to-car mapping system for selfdriving cars. The partnership will leverage TomTom's extensive HD map coverage with the NVIDIA DRIVE PX2 computing platform to accelerate support for real-time in-vehicle localisation and mapping for Autonomous Driving.
Our Licensing business sells maps, traffic and navigation software products on a global scale to businesses across a multitude of industries. It also offers intelligent location-based services for developers to easily integrate our location content in their location aware applications.
With rapid advancements across the Internet of Things, connected devices, mobility, and smart cities, location intelligence has quickly become an essential component across a broad range of revolutionary products and services. In 2016, we focused on three key objectives: forming strategic partnerships that would allow us to reach a much broader developer community, expanding our existing customer relationship and partnerships to further enhance the location capabilities within their applications and collaborating with cities to develop innovative traffic solutions.
As map usage continues to evolve, we have continued to innovate and advance our location technologies and capabilities. This has provided us with the opportunity to supply location services and data to many globally recognised technology companies. This includes Microsoft, who we have partnered with to integrate location-based services into Microsoft Azure to make it easier and more flexible for developers to build and manage enterprise, mobile, web and Internet of Things applications that are location-aware.
TomTom's strong mapping background has lead companies such as MapQuest, SAP, and Pitney Bowes to choose TomTom as their location partner. In 2016, these three companies have not only extended their partnerships with us, but also expanded them.
The deal with MapQuest, a subsidiary of AOL, Inc., now includes TomTom's traffic solutions in addition to our mapping services. This will provide a better user experience to millions of MapQuest customers who are seeking location information. With Pitney Bowes, we have increased their access to our localisation data. We believe this closer collaboration will redefine GIS products and intelligence services worldwide. Lastly, we are providing geocoding and address validation capabilities across SAP's product portfolio on a global level. This enriched geocoding and address validation with in the cloud and on premise will power SAP HANA's localisation information.
To address the opportunities in smart cities and live up to our commitment to fight against traffic congestion, we launched the TomTom City portal. The portal is a free to access web portal that uses our extensive range of traffic information to connect road users, connected vehicles and traffic authorities. This makes it easier than ever for traffic management experts to get access to our rich data to monitor, identify, analyse and influence traffic. The TomTom City portal currently contains live and historical traffic information for over 100 cities. Many cities, including Amsterdam and Moscow, have already selected TomTom to collaborate on developing traffic solutions to improve traffic flow, air quality, and overall mobility.
The Automotive & Licensing financial review is combined as both segments make use of the same shared technology assets. EBIT and EBITDA for both the Automotive and Licensing segment is given in note 4 to the consolidated financial statements.
Automotive & Licensing generated a combined revenue of €269 million this year, which represents an 8% increase year on year.
Automotive revenue increased by 25% from €106 million in 2015 to €133 million this year. This growth reflects increasing revenue from new contracts that started to kick in during 2016 as well as higher revenue on existing contracts. The deferred revenue position of Automotive increased to €59 million at the end of 2016 from €23 million at the end of 2015.
Licensing revenue for the year was €136 million, compared with €142 million in 2015. The year on year decrease mainly reflects the impact of discontinuation of a business relationship with a customer, which was partially offset by revenue growth from other customers.
The EBITDA of Automotive & Licensing was €82 million compared with €68 million in 2015 while the EBIT improved from -€34 million in 2015 to -€25 million this year. The year on year improved profitability is the result of the revenue growth in Automotive at a stronger gross margin, partially offset by the increase in amortisation expenses of several technology platforms.
| (€ in millions, unless stated otherwise) TABLE_3 KEY FIGURES AUTOMOTIVE AND LICENSING |
2016 | 2015 | y.o.y. change1 |
|---|---|---|---|
| Automotive | 132.6 | 105.9 | 25% |
| Licensing | 136.3 | 142.1 | -4% |
| Total Revenue | 269.0 | 248.0 | 8% |
| EBITDA2, 3 | 82.1 | 68.4 | 20% |
| EBITDA margin (%) | 31% | 28% | |
| Operating result (EBIT)3 | -25.5 | -33.9 | |
| EBIT margin (%) | -9% | -14% |
Change percentages and totals calculated before rounding.
D&A costs mainly relate to our map asset (including acquisition-related amortisation).
The EBIT and EBITDA measure and the reconciliation to our income statement is further explained in note 4 of the consolidated financial statements. This note also provides a split between Automotive and Licensing.
In 2017, we want to extend our Automotive market share. Building on our strategic partnerships with NVIDIA, Bosch SoftTec and other automotive suppliers, we aim to strengthen our position in the automotive industry with the mapping, software and services expertise that enables TomTom to seize ADAS and Autonomous Driving opportunities.
The explosion of connected devices coupled with advances in location awareness will continue to pave the way for growing number of new opportunities in Licensing. As an independent location content and service provider, TomTom is in a unique position to innovate and capitalise on this market. Our transactional mapmaking platform enables us to create fresh and more detailed maps with high quality that takes full advantage of the growing sensor data offered through the connected devices. These maps, combined with our leading traffic products and online services, give us a very competitive and complete product portfolio.
Our Telematics business has continued to grow throughout 2016, reaching more than 696,000 subscribers by the end of the year. This growth has been realised organically, and represents a 15% increase compared with the end of last year.
TomTom Telematics now serves more than 46,000 businesses worldwide, making us one of the leading telematics solution providers based on customers and subscribers.
For the second year in a row, Telematics has been named as Europe's largest and fastest growing provider of fleet management solutions by market research firm Berg Insight.
The award recognises Telematics' strategy of growing through partnerships and integrations using WEBFLEET's open API, which introduces the business to new customer segments and strengthens our ambitions to support the fleet industry in its digital transformation.
Telematics was also named European Telematics Company of the year by Frost & Sullivan. The panel commended us for our successful implementation of industry best practices to innovate and meet changing customer needs and enable partners in different verticals to create applications suited to their individual sectors.
In 2016, Telematics increased its sales in the Connected Car space, with key contracts being kicked off and rolled out in 2017.
One of the biggest developments for 2016 has been the agreement signed with PSA Groupe to make WEBFLEET available for all connected Peugeot, Citroën, and DS fleet vehicles. This kind of alliance with a car manufacturer – using the data sent by manufacturer-fitted telematics units – is a first for TomTom Telematics and has been rolled out in France, Spain, Belgium and the Netherlands.
In 2016, we launched our first driver terminal without navigation, the TomTom PRO 2020. This is a basic driver terminal that allows drivers to report on both the start and end time of work, as well as to select between business and private trips. The TomTom PRO 2020 is an easy and accessible way for fleet managers to work closer and more effectively with their drivers, and helps to remove some of the barriers for companies looking to enter the telematics market.
We also extended our partner network, most notably through the announcement of an integration with the VDO's Tachograph (one of the leading companies in the world of tachographs) and software, making the TomTom LINK 510 a key hardware component to download tachograph information, while the trucks remain on the road.
Telematics revenue in 2016 was €155 million, a 15% increase year on year (2015: €135 million). The recurring subscription revenue for the year was €118 million compared with €98 million in 2015, an increase of 21%.
Hardware and other services revenue was relatively flat compared with 2015. This was mainly due to a higher proportion of hardware rental in our new subscriber sales mix and lower uptake of the Driver Terminals as a category in line with general market developments.
Telematics EBITDA increased by 21% year on year to €59 million in 2016 (2015: €49 million), which led to an EBITDA margin of 38% in 2016 compared with 36% last year. EBIT amounted to €45 million in 2016, a 12% increase compared with last year (2015: €40 million). In 2016, Telematics operating expenses were impacted by the integration and amortisation expenses related to its recent acquisitions.
| (€ in millions,unless stated otherwise) | 2016 | 20151 | y.o.y. change2 |
|---|---|---|---|
| Hardware and other services revenue3 | 36.8 | 37.2 | -1% |
| Subscription revenue | 118.4 | 97.8 | 21% |
| Total Revenue | 155.1 | 135.0 | 15% |
| EBITDA4 | 59.1 | 49.0 | 21% |
| EBITDA margin (%) | 38% | 36% | |
| Operating result (EBIT)4 | 44.5 | 39.7 | 12% |
| EBIT margin (%) | 29% | 29% | |
| Monthly subscription ARPU (€) | 14.9 | 15.9 | -6% |
| Subscriber installed base (# in thousands) | 696 | 605 | 15% |
2015 financial metrics exclude Finder S.A. as the acquisition is effective as of the end of December 2015.
Change percentages and totals calculated before rounding.
Other services revenue comprises installation services and separately purchased traffic service and/or map content.
The EBIT and EBITDA measure and reconciliation to our income statement is further explained in note 4 of the consolidated financial statements.
We are committed to innovation, sustained investment in R&D and capacity to increase scale and capitalise on growth.
New technologies such as Connected Car services provide more opportunities to develop our business beyond the traditional Fleet Management Services.
We are also committed to continue to innovate and develop within our strategic partnerships. This sets us apart from competition, ensuring our technology enables industry partners to enhance their products and services, also allowing customers to continue saving money and improving operational processes.
Together with our partners we want to create new apps, solutions and integrations that will offer innovative benefits to customers in any industry, operating any type of vehicle fleet. These new technologies will help to revolutionise business processes through greater levels of automation and insight, and ultimately bring the technology closer to the driver.
• Grow our Sports wearable brand in Europe • Exploit niche opportunities in Drive taking advantage of our device platforms and capabilities
In 2016, a significant amount of new products were launched that establish TomTom as a credible multi-product sports and fitness consumer electronics brand.
In 2016, we completely refreshed our Sports product ranges and introduced a new portfolio of fitness and sports products. We also reached over one million users on the MySports platform.
In the first quarter, we launched TomTom Golfer 2, our second generation GPS sports watch designed to help golfers improve their game by using automatic shot detection and give detailed post-round analysis. A golfer can see golf course data such as distance to hazards and green, and keep track of the score, distance and time of their round.
In the second half of 2016, we refreshed our Running and Fitness product range with the next generation sports watches that now include route exploration. They came with new, slimmer, sleeker straps in a range of colours to wear every day. Our fitness product offering is extended with the TomTom Touch, our first fitness tracker that combines body composition analysis with steps, sleep and all day heart-rate tracking right from the wrist. With the push of a button, it measures the percentage of body fat and
muscle mass in your body. We also introduced the new GPS Outdoor Watch, the Adventurer, designed for outdoor activities with dedicated sports modes for hiking, trail running, skiing and snowboarding and is equipped with a built-in heart-rate monitor, barometer, compass and automatic lift detection for snow sports.
We also introduced our new sub-brand, TomTom Sports, and our first brand campaign 'Get Going' was launched in the fourth quarter across all media with the objective to drive top-of-mind awareness across key markets.
In the first quarter, we launched the TomTom RIDER 410, our new generation PNDs for motorcyclists. The RIDER 410 'Great Rides Edition' came with a range of new features, including Lifetime World Maps, Lifetime TomTom Traffic, route planning with TomTom MyDrive, hands-free calling and round trip planning. We also introduced the GO Mobile app with on-board maps, TomTom Traffic, routing and speed camera warnings in countries where available. We introduced this through a freemium model allowing the customer to use the app for a certain monthly distance and sign up for a full subscription via an in-app purchase.
In the second quarter, we launched three new TomTom PNDs within the TomTom START range, and also two new TomTom PNDs in the VIA range, with Bluetooth® hands-free calling options and the option for smart phone connected traffic service. We introduced TomTom Traffic Checker on the MyDrive App, targeting 'commuters'. Additionally, we introduced TomTom Jam Ahead Warnings on the Speed Cameras App, alerting drivers to rapidly slowing, or stationary, traffic on the highway ahead. We
also announced the availability of truck trip planning, enabling professional drivers to save on driving time by conveniently planning a route anytime, and anywhere, with TomTom MyDrive.
In September, we launched the new TomTom VIO, the world's first smartphone connected navigation device designed for scooters. We also launched a new GO PND range with Siri voice recognition software and Google Voice Search™ service integration, Bluetooth hands-free calling and smart phone notifications as well as built-in Wi-Fi to enable on-device content management that does not need wires nor desktop computers. We also started shipping the TomTom TRUCKER 600 in North America designed for professional truckers that want a companion device to help reduce worry from the job. Truck drivers can get vehicle-relevant navigation that takes into account truck weight, type, size and cargo to find the perfect route. Finally we introduced the Curfer product which is a performance tracker for cars and consists of an OBD (on-board diagnostics) adapter and a smartphone app connected seamlessly to give instant feedback on both driving technique and the car's performance.
Consumer revenue for the year was €563 million compared with €624 million in 2015. The decrease was driven by lower PND revenue, partially offset by a strong growth in Sports revenue.
As we continued to build a multi-product Sports business and expand our product and service offerings in this category, Sports revenue increased by 53% from €69 million last year to €106 million this year. We shipped over one million sports devices in 2016 (2015: 600,000). This growth was the result of the launch of our new range GPS sports watches and the TomTom Touch activity tracker.
Consumer PND markets were weak during 2016. The European PND market experienced a faster rate of unit decline compared with the first half of the year. This market in units was down by 19% for the year as a whole. We managed to keep our leading market position in Europe.
The Automotive hardware revenue declined by 16% year on year to €61 million due to discontinuation of a legacy platform, that went end of life in the second half of 2016.
Consumer segment EBITDA for the year was €5.9 million (2015: €14 million) and the EBIT was -€3.9 million (2015: €2.6 million). This decline in profitability reflects the overall decline in PND revenue, partially offset by the growth in Sports. At the end of 2016, we rationalised the Consumer organisation to align our cost base with the revenue development.
| (€ in millions, unless stated otherwise) TABLE_1 KEY FIGURES CONSUMER |
2016 | 2015 | y.o.y. change1 |
|---|---|---|---|
| Consumer products | 502.0 | 551.2 | -9% |
| Automotive hardware | 61.2 | 72.4 | -15% |
| Total Revenue | 563.2 | 623.6 | -10% |
| EBITDA2 | 5.9 | 14.1 | -58% |
| EBITDA margin (%) | 1% | 2% | |
| Operating result (EBIT)2 | -3.9 | 2.6 | |
| EBIT margin (%) | -1% | 0% | |
| KEY PND MARKET DATA | |||
| Market size Europe (# units sold in millions)3 |
5.0 | 6.8 | -19% |
| TomTom market share (%) | 53% | 52% |
Change percentages and totals calculated before rounding.
The EBIT and EBITDA measure and reconciliation to our income statement is further explained in note 4 of the consolidated financial statements. 3. Europe refers to the following 12 countries: AT, BE, CH, CZ, DE, ES, FR, GB, IT, NL, PL and SE.
In 2017, we will focus on expanding and enhancing our range of products, apps and services in the Sports category and establish ourselves as a credible sports and fitness consumer electronics brand. We will bring new features to the MySports app, GPS watches and activity trackers to improve overall user experience that contributes to a healthier life.
We aim to grow Drive specialist product sales in the niche markets whilst extracting the value from the PND category, which we believe will remain a meaningful category on its own for the foreseeable future.
| (€ in millions, unless stated otherwise) TABLE_5 KEY FIGURES GROUP |
2016 | 2015 | y.o.y. change1 |
|---|---|---|---|
| Automotive & Licensing | 269.0 | 248.0 | 8% |
| Telematics | 155.1 | 135.0 | 15% |
| Consumer | 563.2 | 623.6 | -10% |
| Total Revenue | 987.3 | 1,006.6 | -2% |
| Gross result2 | 566.2 | 518.5 | 9% |
| Gross margin (%) | 57% | 52% | |
| Operating result (EBIT)2, 3 | 8.9 | 0.6 | |
| EBIT margin (%) | 1% | 0% | |
| Net result2 | 12.0 | 18.3 | |
| Adjusted net result4 | 54.1 | 49.6 | |
| EPS - fully diluted (€) | 0.05 | 0.08 | |
| Adjusted EPS - fully diluted (€)4 | 0.23 | 0.21 | |
| Depreciation & amortisation2 | 132.0 | 123.1 | 7% |
| of which acquisition-related | 55.3 | 52.1 | 6% |
| EBITDA3 | 140.9 | 123.7 | 14% |
| EBITDA margin % | 14% | 12% | |
| Cash flows from operating activities | 144.3 | 118.8 | 22% |
| Cash flows from investing activities | -119.7 | -154.2 | 22% |
| Net cash | 132.5 | 98.3 | 35% |
Change percentages and totals calculated before rounding.
2015 includes a €11 million impairment charge on customer specific technology. 3. The EBIT and EBITDA measure and reconciliation to our income statement is further explained in note 4 of the consolidated financial statements. 4. A reconciliation of adjusted net result and adjusted EPS to our income statement
is provided in note 25 of the consolidated financial statements.
In 2016, we generated revenue of €987 million, a 2% decline compared with €1,007 million in 2015. From a regional perspective, 78% of our 2016 revenue was generated in Europe (2015: 77%), 17% in North America (2015: 18%) and the remaining 5% in the rest of the world (2015: 5%).
Our gross result for 2016 was €566 million, 9% higher compared with last year (2015: €519 million). The year on year increase was mainly due to a change in our product mix, with relatively higher portion of recurring high gross margin data, software & services revenue. We reported a gross margin of 57% compared with 52% in 2015. At constant currency rates for US dollar (USD) and British Pound (GBP), our gross margin would have been one percentage point higher.
Operating expenses for the year were €557 million compared with €518 million in 2015. This increase is mainly caused by higher depreciation and amortisation costs as well as an increase in Selling, general and administrative (SG&A). Both 2016 and 2015 operating expenses included a one-off gain of around €9 million, which resulted from respectively a resolved customs case (2016) and a settlement of a legal case (2015).
Research & Development (R&D) expenses amounted to €190 million in 2016 compared with €185 million last year. The year on year increase is mainly the result of increased usage of server and storage related to our content production platform. Total R&D cash spending during the year, including capital expenditures, amounted to €283 million compared with €268 million last year. The increase is mainly explained by higher investments in our mapmaking platform.
Our marketing expenses were relatively flat year on year, although the focus of our marketing campaigns has shifted more towards Sports products to support our growth in this category.
SG&A expenses increased from €172 million in 2015 to €195 million in 2016. The increase is mainly in our Telematics unit, reflecting an increase in our sales force and higher acquisition-
Total amortisation and depreciation expenses were €132 million compared with €123 million in 2015. Amortisation of technology and database increased by €15 million year on year due to the amortisation of certain technology platforms that went operational in 2016.
Operating result (EBIT) for the year amounted €8.9 million (2015: €0.6 million) reflecting the higher gross result partially offset by the above-mentioned increase in operating expenses.
Total financial expenses for the year were €2.4 million versus €8.3 million in 2015. The year on year decrease was mainly the result of a lower foreign currency loss compared with 2015.
The income tax for the year was a gain of €4.7 million, mainly reflecting a change in estimated prior years' taxable income following the finalisation of the tax returns and the remeasurement of deferred tax assets and liabilities to a lower tax rate due to the application of the innovation box facility in the Netherlands.
The net result for the year was €12 million (2015: €18 million). The net result adjusted for acquisition-related expenses and gains on a post-tax basis was €54 million compared with €50 million in 2015. The adjusted EPS for the year was €0.23 (2015: €0.21).
Total cash used in investing activities in 2016 was €120 million, a decrease of €34 million compared with €154 million in 2015. In 2015, we made two acquisitions for an aggregate consideration of €42 million. Excluding 2015 acquisitions, our cash used in investing activities increased by €8 million year on year due to higher investments in our map database.
The net cash from operating activities increased from €119 million to €144 million this year reflecting higher EBITDA. Net cash used in financing activities for the year was a net cash outflow of €29 million as we were able to reduce the utilisation of our credit facility and have fully repaid the external borrowings from an acquired subsidiary early 2016. Net cash used in financing activity includes a cash inflow of €10 million from the exercise of 2.3 million options related to our long-term employee incentive programmes.
At the end of 2016, our net cash position was €133 million (2015: €98 million) which includes an outstanding borrowing of €10 million (2015: €45 million) that we utilised from our €250 million revolving credit facility.
In 2017, we expect full year revenue of between €925 million and €950 million. Adjusted EPS is expected of around €0.25.
We expect the combined revenue of the Automotive, Licensing and Telematics businesses to grow above 10% year on year in 2017, in line with our previous expectations of their combined revenue CAGR of 15% between 2016 and 2020.
In Consumer, we expect the PND revenue to continue to decline; this will be only partially offset by a growing Sports business. We expect the level of investments (both CAPEX and OPEX) to show a modest increase compared with 2016, excluding acquisitions. In particular, we are investing in advanced content and software for the automotive industry and in our mapmaking activities.
The number of employees in 2017 is expected to modestly increase compared with 2016.
While 2015 laid the foundation to reshape Human Resources to deliver on company and organisational objectives, 2016 proved to be the year in which our HR strategy and objectives around People & Culture, World Class Leadership, and the Employer Brand, started to pay off. Our ambition continues to be the employer of choice in technology and the strong efforts we made in 2016 are getting us closer and closer to this goal.
The key to our future success as a company is reliant on the strength of our people and culture. We want to attract the best people, invest in their development and give them the opportunity to grow and achieve more every day. Entrepreneurialism is valued in our company and we believe that organisational flexibility will allow for people to make their own choices and thrive. TomTom attracts agile and adaptable people,
capable of effectively dealing with and responding rapidly to changing circumstances. Having the best people enables us to deliver the greatest and most innovative products and services to our customers.
In 2016, we sought out ways to give employees a platform and support activities across the business. At the start of the year, we launched a new intranet platform that included Yammer, an employee social sharing network, as well as a daily news feed to share employee stories. The intention of the new platform was to build bridges between global offices and share stories, ideas and projects. Within the first week of launch 100% of our workforce joined the platform. It is the primary content hub for all things happening within TomTom.
Besides improving all internal platforms and communication channels, we focused on supporting employee activities, boosting awareness across all TomTom global sites, and bringing a higher level of communication efforts to everything we do internally. These activities include:
We continue to find new and creative ways to celebrate people and culture within TomTom. 2016 saw a big shift in boosting and improving the level of our employee communication and activities.
TomTom is committed to the advancement and career development of our employees. This is exemplified by our policy to first recruit from within the company, which supports our 'Achieve More' proposition. In support of this policy, we are strongly promoting internal hires for leadership and management roles before recruiting externally. We continue to develop and improve our career track programmes in Finance, Customer Care, Map Operations and Software Development. The World Class Software Development Programme has continued to deliver value to the company in its fourth year of existence. These results have included further refining the way TomTom scales its Agile development, sharing best practices across product units, organising events such as Agile Summits and external speaker series. Our World Class Product Management Programme continued to make progress with strategies and roadmaps continually improving. Through our external engagements TomTom is increasingly visible as a leader in Agile organisations and this visibility has contributed to our recruitment and talent development. Finally, our product units have further refined and documented the different software development frameworks in place and made further improvements in the use of software development key performance indicators.
In 2016, TomTom's graduate programme continued to attract top talent. We attracted over 1,600 graduates from around the world (up by 150% from 2015). Graduates came from top tier universities: MIT, ESSEC, HEC, LSE, and Imperial College London. Due to the very rigorous selection process we have in place for graduates, we only hired six in 2016. It is an elite programme, and we only make offers to the very highest calibre of candidates. For 2016, we hired Product Managers and Marketing Managers, Mobile Developers and Test Engineers. The graduate programme continues to recruit the strongest performing employees who deliver significant results for the business. Our ambition is to continuously raise the level of this programme and to create a competitive engineering track that is a highly sought after placement for those who qualify.
Enabling our people's development and growth is key to delivering our 'Achieve More' promise to employees. Our learning and development platform provides employees with the opportunity to enhance their skills through various online and offline events, such as webinars, classroom courses and external presentations. The platform is tailored with programmes customised for individual employees, job segments, and for leaders. In 2016, we launched Lynda, the online platform for learning. Lynda proved to be a success with over 1,624 course hours completed and 100% participation of registered users.
We started to implement Workday in 2016 and the program will go live in 2017. This platform will improve all levels of employee and manager human resource management, and will give us a competitive advantage around candidate experience and talent management.
Our remuneration strategy is key for attracting and retaining talent. We aim to provide fair, competitive and responsible compensation for each of our employees. However, we recognise that the workforce is changing and markets are becoming highly competitive with respect to benefits, compensation and perks. A one-size-fits-all policy does not make sense for the workforce of the future. Given the changes in the market, especially in the technology sector, we continue to focus on the individual needs of our employees so that we can create customised, personalised programmes for different segments of our employee population. This will lead to a unique attraction and retention approach and will enable us to compete effectively against other benefit and perk-driven employers. In terms of employee benefits, TomTom is committed to offering all employees market competitive benefits such as pension and health care according to each country's unique context. Next to these important benefits, we also offer a product discount programme to encourage ownership of TomTom products. Long-term incentives for senior management and key individuals are part of our remuneration policy. These incentives are intended to attract and retain talent
to the company. Our long-term incentive programme includes phantom stock and stock options which are offered to key talents. All of our long-term incentive programmes are conditional to continued employment of the employee only and have a vesting period of three years. Our performance-related bonus plan is in line with TomTom's vision, which is that success for our business should also mean success for the individual employee. The bonuses paid as a percentage of base salary vary according to the job grade and reflect the level of influence that each role has in the execution of TomTom's strategy.
We want to safeguard what makes us a strong company and therefore need leaders who will cascade that energy and ambition down to the employees to drive our 'Achieve More' proposition and deliver on our company vision for the future.
At TomTom we employ the best people. And the best people need the best leaders. These leaders play a key role in attracting, developing and retaining the right people. In 2016, we created TomTom's leadership model. The model is made up of prerequisites which are intrinsic to a person, and pillars which can be developed and learned. This was based on internal surveys and interviews, as well as external research, and embodies our core value proposition around leadership.
Prerequisites for leadership at TomTom:
Working in partnership with Right Management, experts in the field of leadership assessment and development, we then designed our World Class Leadership assessment programme. The purpose of the programme is to measure the potential that our existing leaders currently have against our leadership model, and to ultimately gain a full overview on where leadership potential is within the organisation. The assessment consists of three online psychometric surveys, an interview with a qualified assessor from Right Management, and a feedback session. All employees with people management responsibilities will go through the assessment during 2017, and will be identified as having high, medium, low or no potential against the model. There is an expectation that leadership teams will follow up on an individual basis with suitable measures, including development programmes for high potential leaders, and removal out of a leadership role for those showing low or no potential. HR will support in those measures.
2016 saw an increase in Employer Brand awareness, including a shorter time to hire, in key markets, as well as increased employee engagement scores in the markets where we focused our efforts. We continue to bring our employees to the forefront of the business and celebrate who we are, our talent, and what we have accomplished at TomTom. We work closely with our talent team on targeted recruitment and retention tactics that will contribute to our goal to be the employer of choice in technology.
To be the employer of choice in technology, TomTom wants the best talent. As the talent market continues to change and accelerate, we are transforming how we attract, develop and retain the right talent for our business – now and for the future. We build relationships. We source actively for all roles. We organise hackathons, use social media, work with our Fellows for thought leadership, and engage with and involve our leadership. At TomTom everyone recruits. 2016 saw a stronger partnership with Employer Brand. As a result, sourcing efforts, increased candidate participation in events, quality of hire and candidate conversion significantly improved.
2016 saw external recognition as a thought leader in Employer Brand and the Future of Work. This is validated by numerous speaking invitations, roundtable discussions and influencer panels around our HR strategies, our views on the Future of Work in Technology and our positioning of the TomTom Employer Brand. Keynotes include: HR Tech, Workday Rising and the Universum Advisory Board roundtable discussions where we presented to 50 leading European companies in technology, finance, FMCG, education and others.
We continue to make ourselves present on the global stage and lead conversations around the Future of Work. We strive to create awareness around how we work, our unique company culture and the value we contribute to the talent market as a leading technology company.
In 2016, we developed our first market campaign for one of our key technology hubs. In support of this campaign, we invested in several candidate activities of which the candidate response rate was more than expected. Time to hire significantly decreased and quality of candidates improved as a result. Furthermore, the campaign influenced employee engagement rates in this market.
While 2015 was the year to build foundations, 2016 was the year to create 'effective content' - observing what resonates with our core target audience and adjusting where necessary to deliver results. Our content engagement rates and interactions in 2016 were significantly above market and competition. From 2015 to 2016, we grew on our social channels by 120%, achieving higher than average per week rates in engagement and impressions without paid content. We continue to encourage employee generated content as well as produce employee digital stories such as Behind the Launch, revealing a behind-the-scenes look at our people and culture. In 2016, we produced over 100 communication campaigns to support our markets and to
encourage employee engagement internally. In 2017, we plan to increase our digital presence with the addition of new social and technical community platforms and invest more in digital campaigns to drive traffic to our career site and relevant TomTom events.
In 2017, we will focus on our World Class Leadership programme, attracting and retaining top talent and celebrating our people and culture.
We will continue to make improvements in HR technology.
With the launch of Workday in 2017, we will launch a brand new career site. With this new applicant tracking system we hope to significantly improve the candidate experience as well as have better transparency on candidate analytics allowing us to create effective communication campaigns in 2017.
TomTom recognises that long-term value creation goes hand in hand with maintaining a sustainable business. We understand the importance of strong environmental business practices, doing business with likeminded partners and engage employees who live up to our goals. Achieving a balance between all stakeholders is essential to meet the needs of the present without compromising the ability of future generations.
TomTom recognises that climate change is one of the biggest challenges facing the world today. Smarter and more efficient solutions are required to deal with traffic planning and control in order to organise safer, greener and more comfortable mobility in cities. TomTom believes that governments, automotive companies, service providers and drivers can reduce congestion dramatically by cooperating more closely, and we are actively working towards solutions that will enable this goal to be achieved.
For example, our fleet management products provide a complete approach to help drivers adapt a responsible driving style and reduce fuel consumption and CO2 emissions. It supports drivers in their commitment of being environmentally responsible. Another example is the launch of TomTom City in 2016, which provides a platform to connect traffic authorities, businesses and citizens to jointly manage sustainable and efficient mobility.
In 2016, we furthered our ambition to improve our sustainability footprint by designing and implementing a social environmental management system (SEMS) which is in compliance with ISO14001 standard and the Electronic Industry Citizenship Coalition (EICC) requirements.
Our SEMS sets out how we approach our social and environmental responsibility as a global organisation, by trying to minimise our environmental impact and maximising our positive contribution to the community we work and live in. It gives guidance to our employees, suppliers, customers and other relevant stakeholders on how we uphold our social and environmental standards in everything we do. The SEMS consists of policies, procedures, process descriptions, business guidelines, and templates and is accessible for our global work force.
TomTom's contribution to society includes the payment of taxes. The taxes we pay are a significant source of funding of public services provided by governmental institutions in the countries where we operate. Annual internal trainings on tax dilemmas were organised to keep internal stakeholders aware of relevant tax legislation and to ensure compliance herewith.
As a global business we are committed to continuously improving our supply chain management practices. TomTom uses its full membership of the EICC to achieve these objectives.
We have adopted and implemented the EICC Code of Conduct in our business processes and operations. This code sets out the electronics supply chain standards and practices for business conduct that we expect from our employees and our suppliers. We use our SEMS to ensure the proper management of the EICC standards within our business. This framework also enables us to identify and mitigate operational risks and facilitates continual
improvement in our supply chain management practices.
We expect our suppliers to comply with all relevant requirements and to share our commitment to corporate social responsibility and continuous improvement in social and environmental performance. Not only in the development and manufacturing of products but also in the way they conduct their businesses. The EICC Code of Conduct is embedded in our vendor selection process and is signed by all our major Tier1 suppliers.
We continue to believe that a risk management approach enables us to spend our resources efficiently by identifying areas of high risk. The risk profile, self-assessments and audits are all based on EICC developed tools and practices which we believe are the most appropriate and relevant to our business and our supply chain. Using EICC tools is not only efficient for TomTom but it also sends a consistent message to our suppliers, and minimises the duplication of their effort between different customer requirements.
In 2016, we completed facility risk assessments for 100% of our Tier1 major suppliers using EICC developed tools. This includes electronics assembly suppliers for the PND, in-dash navigation systems and sports products. These suppliers accounted for 88% of TomTom's total supply chain spend. It also included 50% of our logistics suppliers, accounting for a 6.5% of total supply chain spend. We found that the majority of the supplier facility risk assessments had a low-risk profile and there were no high-risk findings. As a result, we did not conduct any independent supplier audits in 2016.
In 2016, we continued our pledge and commitment to help kids BeActive and support efforts in our local communities in which we work and live. We launched our BeActive programme in Pune, India. This programme is a collaboration between TomTom and eight municipal corporation schools in Pune and aims to allow the children to increase physical activity, channel their energy toward sports and to cultivate team spirit. Over 320 children were chosen to participate and TomTom employees will give back 16,000 volunteer hours plus host a full day cricket tournament.
In the Netherlands, for the second year in a row, we extended our partnership with the 'Richard Krajicek Foundation'. This organisation was founded by Dutch Wimbledon Champion Richard Krajicek and gives underprivileged youth the opportunity to participate in sports. The programme supports these kids by building playgrounds, organising sport activities
and even providing academic scholarships to those who continue to mentor other kids in the programme. Our employees have hosted a number of fundraisers throughout the year to directly support these efforts.
In addition, in the Netherlands we also sponsored local initiatives in Amsterdam such as Girls Day, EU Code Week, the Dam tot Dam Loop, World Solar Challenge and JINC, Future Boss of Tomorrow. JINC is an organisation that helps children aged 8 - 16 to get a good start in the labour market.
Globally, TomTom employees donated 5,635 hours to Dementia research by playing Sea Hero Quest. This is the world's first mobile game where anyone can help scientists fight dementia. This game has been played by almost 2.5 million people generating over 63 years of gameplay, making Sea Hero Quest the largest dementia study in history.
TomTom employees from four countries, Belgium, Germany the Netherlands and Poland, participated in a 24-hour, 250 kilometre relay run to raise money for Juvenile Diabetes and our employees' To the Heart Foundation. Employees raised over €27,000 to support these causes. In 14 years, our employee To the Heart Foundation has raised over €207,000 to support children's charities.
In 2016, we also extended our partnership with 'Kids Run Free' a UK charity that creates opportunities for children to run relay races in and out of school. TomTom supported them with funding for 10 races and provided our GPS watches and coaching for the young runners.
In the United States, we sponsored various employee initiatives including the St Jude Walk to end Cancer, the American Heart Association and by raising funds for our own employees running the Boston Marathon for charity.
Our ambition is to maintain a sustainable company.
Our aim for 2017 is to strengthen our community giving strategy and launch our new global CSR programme 'TomTom Gives'.
We will also further deploy our SEMS within our organisation.
TomTom has implemented comprehensive and structured risk management and internal control systems helping us to achieve our business objectives. Our approach to risk management, the main risks per category and actions to manage, control and mitigate the risks are, among others, described in this section.
Senior management together agrees on the risk management priorities for the group. The group risk profile is discussed and agreed with the Management Board. A single owner is assigned responsibility for each risk, which helps to ensure clear accountability for the mitigating actions. The Business Assurance department facilitates the annual assessment of business risks to achieve an appropriate level of objectivity in our assessment of risks. We update our group risk profile every year in order to manage our most important risks. Over the year, we monitor the mitigating actions in relation to each risk and the trend for each risk. The business risk profile is taken into account when establishing our strategy, annual business plans and budgets.
In 2016, we further strengthened our control environment with the Internal Control department driving risk and control ownership by business process owners (BPOs) as well as upgrading the tools used to monitor our IT general controls. Additionally, BPOs gained better insight into their processes and associated control environment through enhanced dashboards. We also continued to align risk management and control related efforts within the organisation. This allowed Internal Audit to make a more informed decision on what areas to audit and gain more value from our internal audits. The result has been value adding audits with recommendations that where welcomed by the business and strengthened our overall control environment.
TomTom follows a top-down approach whereby management identifies the major risks that could affect the company's business objectives - and assesses the effectiveness of the processes and internal controls in place to manage and mitigate those risks. These internal controls are contained and maintained in the Internal Control Framework. Assurance on the effectiveness of controls is obtained through management reviews, monitoring dashboards, self-assessments, internal audits and testing of certain aspects of our internal financial control systems by the Internal Control team. This, however,
does not imply that certainty as to the realisation of our business and financial objectives can be provided, nor can the approach of the company to control its financial reporting be expected to prevent or detect all misstatements, errors, fraud or violation of law or regulations.
The key features of the systems of our Internal Control are as follows:
Our willingness to assume risks and uncertainties (the risk appetite) differ for each category. The level of the company's risk appetite gives guidance as to whether TomTom would take measures to control such uncertainties. The overview table shows the appetite and the expected impact on the group's achievement of its strategic, operational and financial objectives if one or more of the main risks and uncertainties were to materialise. The likelihood of the risk taking place is also disclosed. The risks are shown net. This means that the risks are described after taking the risk response into consideration.
| RISK OVERVIEW | ||||
|---|---|---|---|---|
| CATEGORY | DESCRIPTION | APPETITE | IMPACT | LIKELI- HOOD |
| FAILURE TO ESTABLISH A MULTI-PRODUCT CONSUMER BUSINESS | ||||
| STRATEGIC | FAILURE TO GROW OUR AUTOMOTIVE BUSINESS | $\bullet$ $\bullet$ | $\bullet\bullet\bullet$ | $\bullet$ $\bullet$ |
| RISKS | REPUTATION DAMAGE | 8 Q | 80 Q | |
| FAILURE TO INCREASE PRODUCTIVITY AND SCALABILITY TO OUR MAPMAKING PROCESS WHILE SHORTENING CYCLE TIMES |
O | . | . . | |
| INABILITY TO ATTRACT, DEVELOP AND RETAIN TALENT | . . | . . | ||
| OPERATIONAL RISKS |
UNAVAILABILITY OF ONLINE SERVICES | $\bullet$ | $\bullet\bullet\bullet$ | $\bullet$ |
| FAILURE TO RECOVER FROM A DISASTER | a a | a a a | ● | |
| INTELLECTUAL PROPERTY CLAIM | . . | $\bullet$ $\bullet$ | $\bullet$ | |
| LEGAL AND COMPLIANCE RISKS |
PRIVACY OF CUSTOMER DATA RISK | |||
| INFORMATION SECURITY RISK | $\bullet$ | . | $\bullet$ | |
| FINANCIAL RISKS |
UNFAVOURABLE MOVEMENTS IN FOREIGN CURRENCIES | $\bullet$ | ||
| OCCHIGH LOW MEDIUM |
Below is an overview of the risks that we believe are most relevant to the achievement of our strategy. The sequence of risks below does not reflect an order of importance, vulnerability or materiality. This overview is not exhaustive and should be considered in connection with forward-looking statements. There may be risks not yet known to us or which are currently not deemed to be material.
Although the PND market shows a declining trend, a significant part of our revenue is still derived from PNDs and we expect this to remain a meaningful category in its own right for the upcoming years. If we are unable to successfully launch new Consumer products and fail to adapt our organisation to remain competitive this could have a material adverse effect on our business and TomTom's financial condition, results of operations and liquidity.
Many of our current competitors are large, well-known organisations with greater financial, technical and human resources than ours. They may have greater ability to fund product research and development and capitalise on potential market opportunities. New competitors interested in the same markets and products may also emerge. Industry consolidation may also result in increased competition.
We aim to continuously develop new innovative products in the Sports category and establish ourselves as a credible sports and fitness consumer electronics brand. Next, we aim to grow Drive specialist product sales in the niche markets whilst extracting value from the PND category.
We might be unable to pursue new automotive opportunities and lose market share versus competition. Also, new map and navigation providers may choose to enter the automotive market, which could increase the level of competition we face. There could be additional operational and technical challenges in growing our Automotive business and maintaining profitability over the longer term in such a rapidly evolving environment. If we are unsuccessful in maintaining and growing a profitable Automotive business, our financial condition, results of operations and liquidity may be materially adversely affected.
We believe TomTom is well positioned to address the future needs of our customers and to successfully pursue Automotive opportunities. With our technological innovation we continuously develop new product and service offerings in the area of navigation, traffic and maps. We believe these innovations will allow us to remain competitive in the automotive market.
All our products and services are brought to market under one brand. This leads to brand concentration risk. Brand value can be severely damaged, even by isolated incidents affecting the reputation of our business or our products and services. Some of these incidents may be beyond our ability to control and can erode customer confidence in our products or services.
Factors that negatively affect our reputation or brand image, such as adverse consumer publicity, inferior product quality, late delivery of customer commitments or poor service, could have a material adverse effect on our financial condition and results of operation.
TomTom employs a rigorous continuous quality management process for its products and services before they are entered into the market. Additionally, TomTom's Customer Care department aims to provide quality, fast response customer service and proactively monitors various digital platforms for customer feedback and issues. Furthermore, internal policies, governance teams and our Code of Conduct are designed to further mitigate the risk of incidents that could result in reputation or brand damage.
The competitive environment requires continuous investment in new technology for creating and updating map databases. Maps need to be continuously updated for changes in the environment and we are continuously adding new geographies and attributes to our map database to enable us to meet the needs of existing and new customers, bring out new products and expand into new markets. If we are unable to invest sufficiently to compete with other global map providers in terms of both the quality and coverage and to modernise our map delivery platforms, our business, our financial condition, results of operations and liquidity may be materially adversely affected.
Over the last few years, we have invested significantly in developing a new Content Production Platform. This transactional mapmaking platform will strengthen TomTom's competitive positioning by moving away from traditional batch processing towards a continuously updated real-time map. Additionally, we have made some changes to the structure of our mapmaking organisation to maximise the productivity and drive a much higher level of automation. Also, we have developed several strategic partnerships to develop technologies to support Autonomous Driving.
Our markets are characterised by rapid technological change, which challenges us to deliver highly competitive products and services on an ongoing basis. In order to be a market leader in our industry, we need to have the most talented people working effectively together.
We aim to employ highly talented people in our organisation. Having the best people enables us to create and deliver highly innovative products and services to our customers. If we are unable to attract, develop and retain the right people, our ability to operate our business successfully could be significantly impaired.
In our ambition to be the employer of choice in technology, our rigorous recruitment process aims to attract the best talents. We monitor the organisational health of the company and have programmes in place to retain and keep (key) employees engaged. Ongoing significant investments are made in understanding what our employees need and want so we can offer customised experiences. We invest in our increasingly agile and talented workforce and in ensuring that we have the right employer brand strategy in place to attract and retain the talent we need. For example, we continuously invest in and develop our software engineering and product management capabilities through initiatives such as our World Class Software Development Programme as described in the section Human Resources.
We provide a variety of customer-facing online services on a 24/7 basis. These include fleet management services, live traffic information, location-based services and sales via our website. To provide these services to our customers we rely on our own, as well as outsourced, information technology, telecommunications and other infrastructure systems. A significant disruption to the availability of these systems could cause interruptions in our service to customers that may cause reputational damage for TomTom and could trigger contractual penalties, which could have a material adverse effect on our financial condition and results of operations.
We have established a process in relation to business continuity for internal infrastructure including full redundancy for key services such as fleet management, location-based services and some traffic delivery platforms. We also agreed minimum service levels with relevant outsourced service providers. Continuous monitoring of system availability is in place.
Unforeseen business disruptions could affect our service to customers and cause loss of, or delays in TomTom's critical business systems, our research and development work and/or product shipments. Any permanent or temporary loss of these systems could result in reputational damage, loss of revenue and liabilities to our clients. In the case of a catastrophic disaster, our company's success rests on our ability to restore our critical data and rebuild our IT business systems.
We have business continuity and disaster recovery planning in place for business critical systems and various eventualities. However, we are unable to plan for every possible disaster or incident. A major failure of a business critical system from which we are not able to quickly recover, could have a material adverse effect on our financial condition, results of operations and liquidity.
We rely on a combination of trademarks, trade names, patents, confidentiality and non-disclosure agreements, copyrights and design rights, to defend and protect our trade secrets and the intellectual property in our expanding range of products. We may be faced with claims that we have infringed the intellectual property rights or patents of others, which if asserted against us may result in us being ordered to pay substantial damages or forced to stop or delay the development, manufacturing or sale of infringing products. Any such outcome could have a material adverse effect on our financial condition, results of operations and liquidity. Furthermore, even if we were to prevail, any litigation could be costly and time-consuming.
We have a dedicated Intellectual Property team responsible for the protection of TomTom's products and services against unauthorised use by third parties. By obtaining and enforcing intellectual property rights, such as patents and trademarks, TomTom can prevent the competition from reproducing our unique products. TomTom has built a substantial prior art portfolio and has a reputation for strongly defending its position in all intellectual property litigation, including against nonpracticing entities (NPE).
We provide location-based and fitness products and services to individual customers and as there is growing public awareness and increased scrutiny by regulatory authorities, this means that compliance with privacy regulations and customer expectations is increasingly important in maintaining our competitive position. Next to this, various governments across the globe are implementing legislation allowing law enforcement and intelligence services bodies direct access to data held by businesses. Depending on country and cultural background, this could raise additional concerns regarding the use of our products and services. Our reputation and brand may suffer and regulatory sanctions may be imposed if we fail to comply with privacy laws and regulations or otherwise fail to meet our customers' expectations in relation to privacy matters.
Inherent in the design and operations of our products and services we apply 'privacy-by-design' to ensure that TomTom's own Privacy Principles as well as obligations from applicable privacy laws and regulations are structurally adhered to in the design of our products and services and throughout our operations.
Our business operations and reputation are substantially dependent on our ability to maintain confidentiality, integrity and availability of information regarding customers, employees, suppliers, proprietary technologies, intellectual property and business processes. Additionally, the volume and sophistication of information security ('cybersecurity') threats continue to grow. The inadvertent disclosure of confidential information, unauthorised access to our systems and networks, defective products and sanctions potentially imposed by regulators could adversely affect our business, our reputation and could have a material adverse effect on our financial conditions, results of operations and liquidity.
We structurally deploy and maintain information security governance, controls, processes and tools in our engineering, operations and products using a risk-based approach, based on ISO information security standards.
The group operates internationally and conducts business in multiple currencies. Revenue is earned in euro (EUR), GBP, USD and other currencies, and do not necessarily match cost of sales and other costs which are largely in EUR and the USD and to a lesser extent in other currencies. Foreign currency exposures on commercial transactions relate mainly to estimated purchases and sales transactions that are denominated in currencies other than reporting currency - EUR (€). Unfavourable foreign currency movements such as a strengthening of the USD will have a negative impact on our profitability.
We manage foreign currency transaction risk through options and forward contracts to cover forecasted net exposures. All such transactions are carried out within the guidelines set by our Corporate Treasury Policy. Furthermore, we try to temper any negative foreign currency effect by conscious and calculated pricing of TomTom products and services to combat the negative impact of the exchange rate movement. For additional information, see note 28 to the consolidated financial statements.
The Management Board is responsible for TomTom's risk management and internal control systems. The Management Board believes that the company maintains an adequate and effective system of risk management and Internal Control that complies with the requirements of the Dutch Corporate Governance Code (the Code).
The internal control systems are designed to manage, rather than eliminate, the risk that we fail to achieve our business objectives and can provide reasonable, but not absolute, assurance against financial loss or material misstatements in the financial statements. The Management Board reviews the effectiveness of TomTom's systems of internal control relative to strategic, financial, operational and compliance risks and discusses risk management and internal controls with the Audit Committee on at least a quarterly basis.
The Management Board believes, based on the activities performed in 2016 and in accordance with best practice provision II.1.5 of the Code, that the risk management and control systems with regard to the financial reporting risks have functioned effectively in 2016, and that the risk management and control systems provide a reasonable assurance that the 2016 financial statements do not contain any errors of material importance. With reference to section 5.25c paragraph 2c of the Financial Markets Supervision Act, the Management Board states that, to the best of its knowledge:
Amsterdam, 8 February 2017
Harold Goddijn/Chief Executive Officer Taco Titulaer/Chief Financial Officer Alain De Taeye/Member of the Management Board
TomTom is committed to conducting business in a transparent, ethical and accountable manner. Our corporate governance structure supports and contributes to fulfilling this commitment to all our stakeholders.
TomTom NV is a public limited liability company incorporated under Dutch law and listed on Euronext Amsterdam in the Netherlands. We have a two-tier board structure, consisting of a Management Board and an independent Supervisory Board, accountable to the General Meeting for the performance of their duties.
Our corporate governance structure is based on the company's Articles of Association, the requirements of the Dutch Civil Code, the Dutch Corporate Governance Code (the Code), applicable securities laws, and the rules and regulations of Euronext Amsterdam.
We continuously monitor and assess our corporate governance structure and compliance with the Code, applicable laws and regulations and relevant developments. In order to drive governance, consistency and functional excellence throughout the company, the Management Board has established a Code of Conduct, and a set of business policies and procedures which have been rolled out to all employees globally.
In this paragraph, we address our overall corporate governance and provide information on our compliance with the best practice provisions of the Code. Occasional deviations from the Code are explained and information on the reasons for any such deviations are provided at the end of this paragraph.
In case of any substantial changes to the corporate governance structure of TomTom and its compliance with the Code, the shareholders shall be informed hereof at a General Meeting.
The Management Board is responsible for the day-to-day management of the operations of the company. Its responsibilities involve setting and achieving the company's strategic objectives, managing the company's strategic risks, legal compliance and corporate social responsibility matters insofar as relevant to the company's business. The Management Board is accountable for this to the Supervisory Board and to the General Meeting.
In fulfilling its duties, the Management Board is guided by the interests of the company, taking into consideration the interests of the company's stakeholders as a whole. The Management Board provides the Supervisory Board in a timely manner with all information necessary for the Supervisory Board to fulfil its duties. Furthermore, the Management Board consults with the Supervisory Board on important matters and submits important decisions to the Supervisory Board for its prior approval.
The company's Articles of Association provide that the Management Board must consist of at least two members. Each member of the Management Board is appointed for a maximum period of four years with the possibility of re-appointment for consecutive four year terms in accordance with the Code. The General Meeting appoints the members of the Management Board, subject to the right of the Supervisory Board to make a binding nomination.
The General Meeting may at all times, by a resolution passed with a majority of at least two-thirds of the votes cast, and representing more than 50% of the issued share capital, resolve that the nomination submitted by the Supervisory Board is not binding. In such a case, the appointment of a member of the
Management Board in contravention of the Supervisory Board's nomination requires a resolution of the General Meeting adopted with a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital. If the Supervisory Board fails to use its right to submit a binding nomination, the General Meeting may appoint members of the Management Board with a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital.
A resolution of the General Meeting to suspend or dismiss members of the Management Board requires a majority of at least two-thirds of the votes cast, representing more than 50% of the company's issued share capital.
The Management Board currently consists of three members: Harold Goddijn, Taco Titulaer and Alain De Taeye. The members of the Management Board are jointly authorised to represent the company. Biographies of the members of the Management Board, as well as other details relating to their careers can be found in this Management Board Report section under TomTom Management Board.
TomTom does recognise the benefits of diversity throughout the company. When selecting a candidate for appointment to the Management Board, the Supervisory Board will consider, among others, specific experience, knowledge, skills and gender diversity within the Management Board. When nominating a candidate for appointment the qualifications of the candidate will prevail.
The remuneration of each member of the Management Board is determined by the Supervisory Board, upon a proposal by the Remuneration Committee, and based on the company's Remuneration Policy for the Management Board as established by the General Meeting in 2014.
For further information about the Remuneration Policy and how it is applied in 2016, reference is made to the Remuneration Report in the Supervisory Board Report section, and note 33 Remunerations of members of the Management Board and the Supervisory Board in the consolidated financial statements.
Members of the Management Board must report any (potential) conflict of interest to the Chairman of the Supervisory Board. The Supervisory Board shall decide whether a conflict of interest exists.
The member of the Management Board who has a (potential) conflict of interest shall not participate in discussions and decision-making on a subject or transaction in relation to which the member has a conflict of interest with the company. Decisions to enter into transactions under which members of the Management Board have conflicts of interest that are of material significance to the company and/or to the relevant member(s) of the Management Board, require the approval of the Supervisory Board.
During 2016, no such conflicts of interest were reported.
The Supervisory Board supervises the management of the Management Board and the general course of affairs of the company and supports the Management Board by providing advice. In performing its duties, the Supervisory Board acts in the interest of the company as well as that of its stakeholders.
The company's Articles of Association require that certain decisions of the Management Board be subject to the approval of the Supervisory Board, such as resolutions of the Management Board to issue shares, to grant rights to acquire shares, to restrict or exclude pre-emptive rights, to amend the Articles of Association, to conclude a legal merger or a legal demerger, and to reduce the issued share capital.
The company's Articles of Association provide that the Supervisory Board shall consist of a minimum of three members. Members of the Supervisory Board may be appointed for a maximum period of twelve years in accordance with the Code.
The Supervisory Board appoints a Chairman and a Deputy Chairman from amongst its members. The members of the Supervisory Board retire periodically in accordance with a rotation plan, which can be downloaded from TomTom's corporate website:
corporate.tomtom.com/responsibilities-structure.cfm.
The General Meeting appoints the members of the Supervisory Board, subject to the right of the Supervisory Board to make a binding nomination. The full procedure of appointment and dismissal of members of the Supervisory Board is explained in article 17 of the company's Articles of Association.
The General Meeting may at all times, by a resolution passed with a majority of at least two-thirds of the votes cast, and representing more than 50% of the issued share capital, resolve that the nomination submitted by the Supervisory Board is not binding. In such a case, the appointment of a member of the Supervisory Board in contravention of the Supervisory Board's nomination requires a resolution of the General Meeting adopted with a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital.
A resolution of the General Meeting to suspend or dismiss members of the Supervisory Board requires a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital.
With the resignation of Guy Demuynck as of the 2016 annual General Meeting, the Supervisory Board consisted of five members. At the 2016 annual General Meeting, Jack de Kreij was appointed as a member of the Supervisory Board with effect of 1 January 2017. As a result, as per 1 January 2017, the Supervisory Board consists of six members. Biographies of the members of the Supervisory Board as at 31 December 2016, as well as other details relating to their careers, can be found in the Supervisory Board Report section.
The Supervisory Board has determined a profile regarding its size and composition, taking into account the nature of TomTom's business, its activities and the desired expertise. The Supervisory Board aims for a diverse composition and will strive for a fair balance between nationality, experience, expertise, gender, age, and background. When nominating a candidate for (re-) appointment, however, the qualifications of the candidate and the specific requirements of the positions to be filled will prevail. The Supervisory Board profile and Supervisory Board Rules covering, among others, its decision-making process are posted on TomTom's corporate website:
corporate.tomtom.com/responsibilities-structure.cfm.
The Supervisory Board confirms that its current composition has the necessary experience, expertise, and independence to ensure that its members are able to properly execute their duties. All current members of the Supervisory Board were appointed in accordance with the Supervisory Board profile. As at 31 December 2016, two out of five members of the Supervisory Board were female. No member of the Supervisory Board holds more than five supervisory positions at Dutch 'large companies'.
In line with the Code, the Supervisory Board has established an Audit Committee, a Remuneration Committee and a Selection and Appointment Committee. Each of these committees is staffed by members of the Supervisory Board and at least one of the members of the Audit Committee is a financial expert. For an overview of all activities performed by the committees, reference is made to the Supervisory Board Report section. The terms of reference of each committee can be found on TomTom's corporate website:
The remuneration of the members of the Supervisory Board and the additional remuneration of the Chairman and the members of its committees is determined by the General Meeting, last
amended in 2009. Members of the Supervisory Board are not authorised to receive any payments under the company's pension or bonus schemes or under the option or share plans. No shares or rights to shares were granted to a Supervisory Board member by way of remuneration. At present, none of the Supervisory Board members own any shares in the company.
The annual remuneration of the Supervisory Board and committees' membership remained unchanged during 2016. Respective amounts are shown in the below table.
| Role | Chairman | Member |
|---|---|---|
| Supervisory Board TABLE_79 ANNUAL REMUNERATION SVB |
€50,000 €40,000 | |
| Audit Committee | €10,000 | €7,000 |
| Remuneration Committee | €7,000 | €4,000 |
| Selection and Appointment Committee | €7,000 | €4,000 |
For more detailed information about the remuneration of individual members of the Supervisory Board see note 33 Remunerations of members of the Management Board and the Supervisory Board in the consolidated financial statements.
Members of the Supervisory Board (excluding the Chairman) must report any (potential) conflict of interest to the Chairman of the Supervisory Board. If the (potential) conflict of interest involves the Chairman of the Supervisory Board, it must be reported to the Deputy Chairman of the Supervisory Board. The Supervisory Board shall decide whether a conflict of interest exists.
The member of the Supervisory Board who has a (potential) conflict of interest shall not participate in discussions and decision-making on a subject or transaction in relation to which the member has a conflict of interest with the company. Decisions to enter into transactions under which members of the Supervisory Board have conflicts of interest that are of material significance to the company and/or to the relevant member(s) of the Supervisory Board, require the approval of the Supervisory Board.
During 2016, no such conflicts of interest were reported.
In accordance with provision III.6.4 of the Code, TomTom reports that no transactions occurred in 2016 between the company and legal or natural persons who hold at least 10% of the shares in the company.
FUNCTIONING OF THE GENERAL MEETING The General Meeting is held at least once a year and generally takes place in Amsterdam, the Netherlands. The General Meeting is convened by public notice via the company's corporate website: corporate.tomtom.com/agm.cfm.
The compilation of the Annual Report is a recurring agenda item, as well as the adoption of the annual accounts, the release from liability of the members of the Management Board and Supervisory Board and the execution of the Remuneration Policy during the previous year. When deemed necessary in the interests of the company, an Extraordinary General Meeting may be convened by resolution of the Management Board or the Supervisory Board.
Each shareholder is entitled, either personally or by proxy authorised in writing, to attend the General Meeting, to address the meeting and to exercise his or her voting rights. The minutes and the resolutions of the General Meeting are recorded in writing. The minutes will be made available to the shareholders on TomTom's corporate website no later than three months after the meeting.
Each of our ordinary shares and preferred shares is entitled to one vote. The voting rights attached to any shares held by the company are suspended as long as they are held in treasury.
Resolutions of the General Meeting are adopted by an absolute majority of the votes cast, except where Dutch law or the company's Articles of Association provide for a special majority.
According to the company's Articles of Association, the following decisions of the General Meeting require a majority of at least two-thirds of the votes cast, representing more than 50% of our issued share capital:
In addition, in accordance with Dutch law, the company's Articles of Association provide that, if less than 50% of our issued share capital is represented at the meeting, certain decisions of the General Meeting require a majority of at least two-thirds of the issued capital represented. This includes decisions of the General Meeting regarding:
The General Meeting may resolve to amend the Articles of Association of the company if it acts on a proposal by the Management Board that has also been approved by the Supervisory Board.
A resolution of the General Meeting to amend the Articles of Association requires an absolute majority of the votes cast, irrespective of the share capital represented at the General Meeting.
The company's authorised share capital amounts to €180,000,000 and is divided into 600,000,000 ordinary shares with a nominal value of €0.20 each and 300,000,000 preferred shares, with a nominal value of €0.20 each. As at 31 December 2016, a total of 232,886,736 ordinary shares were issued and outstanding.
The Management Board may issue shares or grant rights to subscribe for shares if so designated by the General Meeting or the company's Articles of Association. This Management Board resolution is subject to the prior approval of the Supervisory Board. No resolution of the General Meeting or the Management Board is required for the issuance of shares pursuant to the exercise of a previously granted right to issue shares or to subscribe for shares.
The Management Board continues to believe it is in the company's best interests that it should be in a position to react promptly when business opportunities arise that require the issuance of ordinary shares. When such occasions arise, the Management Board therefore wishes to be authorised to issue ordinary shares and to grant rights to subscribe for such shares without the need to obtain prior approval from the shareholders at an Extraordinary General Meeting. Such meetings take time to convene and could generate disruptive market speculation.
On 22 April 2016, the General Meeting passed a resolution extending the Management Board's authorisation to resolve the issuance of ordinary shares or grant rights to subscribe for such shares until 22 October 2017. This authority is limited to 10% of the number of issued ordinary shares for general purposes, and an additional 10% in connection with or on the occasion of a merger or acquisition, and authorises the restriction or exclusion of the pre-emption rights for existing shareholders for such issue or grant of rights.
Separately, the Management Board has been authorised to grant, subject to the prior approval of the Supervisory Board, rights to subscribe for ordinary shares and to restrict or exclude the preemption rights for existing shareholders for those rights, up to 1,300,000 ordinary shares for the purpose of executing the TomTom Employee Stock Option Plan and the Management Board Stock Option Plan. It was granted for a period starting from the 2016 General Meeting and ending with the General Meeting to be held in 2017.
The 2016 General Meeting has resolved to authorise the Management Board to acquire shares in the capital of the company up to 10% of the issued share capital, subject to certain conditions. The authorisation was granted for a period of 18 months and will be in effect until 22 October 2017.
Foundation Continuity TomTom (Stichting Continuïteit TomTom) is a foundation established in 2005, with a board independent of TomTom (the Foundation). The purpose of the Foundation is to safeguard the interests of the company and its stakeholders. It does so by ensuring that the company is in a position to resist influences that could affect its independence, continuity and/or corporate identity in any manner that would be in contravention of the interests of the company or its stakeholders. The granting of rights to subscribe for preferred shares to the Foundation may help to prevent, discourage or otherwise delay unsolicited attempts to obtain (de facto) control of the company.
The General Meeting adopted the proposal of the Management Board to grant the Foundation a call option entitling it to subscribe for preferred shares up to 100% of the aggregate nominal value of the outstanding ordinary shares at the time of issue, up to a maximum of the number of preferred shares included in the authorised capital at the time of issue.
The Foundation shall subscribe for the preferred shares at par. Immediately after subscribing for preferred shares, the Foundation shall proceed to pay one-fourth of the nominal value of the preferred shares at the time of issue. Three-fourths of the nominal amount shall only need to be paid upon call by the company, without prejudice to the provisions of section 2:84 of the Dutch Civil Code. The Foundation is entitled to exercise the option right in one or more tranches. The possible issuance of preferred shares to the Foundation will be temporary and subject to the company's Articles of Association and the legislation on takeovers. Currently, there are no preferred shares outstanding.
Unless the preferred shares have been issued pursuant to a resolution of the General Meeting, the company's Articles of Association require that a General Meeting be held within one year after the issue of preferred shares to consider their purchase or withdrawal. If no resolution on the purchase or withdrawal of
the preferred shares is adopted at such a General Meeting, a General Meeting will be held every year thereafter for as long as preferred shares remain outstanding.
Shareholders owning 3% or more of the issued capital of a listed company (a substantial shareholding or short position) must report this to the Netherlands Authority for Financial Markets (AFM) as soon as this threshold is reached or exceeded.
Subsequently, notification to the AFM must be done as soon as a substantial shareholding or short position reaches, exceeds or falls below set thresholds. The thresholds for substantial shareholding notifications are: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95% of the company's issued share capital.
At 31 December 2016, the following shareholders owning 3% or more of the company's voting rights were registered with the AFM:
| Name TABLE_6 SUBSTANTIAL SHAREHOLDINGS |
% voting rights1 |
|---|---|
| Founder - Harold Goddijn | 11.30% |
| Founder - Corinne Vigreux | 11.22% |
| Founder - Pieter Geelen/Stichting Beheer Moerbei | 11.22% |
| Founder - Peter-Frans Pauwels/Stichting Beheer Pillar Arc | 11.22% |
| J.H.H. de Mol | 5.01% |
| Flevo Deelnemingen IV BV | 4.99% |
As a Dutch listed company, TomTom is subject to the Code. The Management Board and Supervisory Board recognise the importance of good corporate governance and are committed to complying with the best practice provisions of the Code and continuously monitors developments in this area.
TomTom complies with all of the relevant provisions of the Code, with the exception of the following provisions: II.2.4 and IV.1.1. The nature of and reasons for these deviations are explained below.
Best practice provision II.2.4 provides that if options are granted, they shall, in any event, not be exercised in the first three years after the date of granting. The number of options to be granted shall be dependent on the achievement of challenging targets specified beforehand.
At the 2014 General Meeting, the proposal to amend the Remuneration Policy with regard to the long-term incentive component laid down in the TomTom NV Management Board Stock Option Plan (the Plan) was adopted. As a result of this decision, the performance conditions for the vesting of the options were removed. All options granted under the Plan shall be granted conditional to continued employment of the members of the Management Board only. TomTom deviates from best practice provision II.2.4 to the extent that it does not specify targets beforehand. A vesting period of three years is applicable.
The reason for amending the Remuneration Policy was to align it better with international high-tech sector practice. Under the new Plan, the Management Board remains continuously focused on creating more value for the company's shareholders.
TomTom's comparable and competitor companies are international companies in the high-tech sector. These companies continue to favor stock option plans and operate in environments not subject to the Code. The current Plan is reflective of competitive practices and enables TomTom to be competitive for international senior leadership talent.
Furthermore, the inclusion of vesting conditions in addition to the increase of TomTom's share price results in multiple hurdles for the Management Board to potentially obtain value. Stock options carry an innate de facto performance condition that focuses on achieving stock price growth before value can be derived from stock option grants. The value of the stock option remains wholly dependent on the development of TomTom's share price.
Best practice provision IV.1.1 provides that the General Meeting may pass a resolution to cancel the binding nature of a nomination for the appointment of a member of the Management Board or the Supervisory Board and/or a resolution to dismiss a member of the Management Board or of the Supervisory Board by an absolute majority of the votes cast. It may be provided that this majority should represent a given proportion of the issued capital, which proportion may not exceed one-third.
The company's Articles of Association provide that a binding nomination for the appointment of members of the Management Board or of the Supervisory Board may only be set aside by a resolution of the General Meeting passed with a twothirds majority representing more than 50% of its issued share capital. The same provision applies to any resolution to dismiss a member of the Management Board or of the Supervisory Board.
The company deviates from the best practice provision outlined in the preceding paragraph, because it believes that maintaining continuity in its Management Board and Supervisory Board is critical for delivering long-term shareholder value. The company would like to protect its stakeholders against a sudden change in management by maintaining the qualified majority and voting quorum requirement, which is consistent with Dutch law.
Article 2a of the Dutch Decree on additional requirements for annual reports, last amended on 1 November 2015 (the Decree) requires companies to publish a statement concerning their approach to corporate governance and compliance with the Corporate Governance Code. The information required to be included in this corporate governance statement as described in articles 3, 3a and 3b of the Decree are incorporated in this paragraph.
The main characteristics of the company's internal risk management measures and control systems connected to its financial reporting process, as required by article 3a sub a of the Decree, are described in the Risk Management and Control section.
www.commissiecorporategovernance.nl. The Monitoring Committee Corporate Governance has published an amended version of the Dutch Corporate Governance Code on 8 December 2016, which will be applicable to the company for the financial year starting on 1 January 2017.
The Management Board states that all information, which must be disclosed pursuant to Article 10 of the EU Takeover Directive Decree, is included in this paragraph, the Supervisory Board Report section and the notes referred to herein, to the extent that it is applicable to TomTom.
SUPERVISORY
As at 31 December 2016
NATIONALITY Dutch
DATE OF FIRST APPOINTMENT 28 April 2009 TERM OF OFFICE 2013 - 2017
FORMER POSITIONS Member of the Executive Board of Royal Ahold NV
CURRENT POSITIONS Founding partner of Spinath + Wakkie BV, Chairman of the Supervisory Board of Wolters Kluwer NV and member of the Supervisory Board of BCD Holdings NV COMMITTEES Remuneration Committee, Selection and Appointment Committee (Chairman)
NATIONALITY British DATE OF FIRST APPOINTMENT 13 May 2005 TERM OF OFFICE 2015 - 2017
FORMER POSITIONS Chief Executive Officer and President of ASML Holding NV CURRENT POSITIONS Non-Executive Director of Soitec SA and Global Foundries, Vice-Chairman of the Supervisory Board of BE Semiconductor Industries NV COMMITTEES Audit Committee
NATIONALITY Dutch DATE OF FIRST APPOINTMENT 1 October 2008 TERM OF OFFICE 2016 - 2017
FORMER POSITIONS Member and Chairman of the Board of Management of KPMG NV CURRENT POSITIONS Non-Executive Director of RELX Group PLC, RELX PLC and RELX NV and member of the Supervisory Board of AEGON NV and Royal Friesland Campina NV COMMITTEES Audit Committee (Chairman)
DATE OF FIRST APPOINTMENT 1 May 2014 TERM OF OFFICE 2014 – 2018
FORMER POSITIONS Non-executive Director of Tesco PLC, Vivendi and Director General at the Dutch Ministry of Transport, responsible for Civil Aviation and Freight Transport and Chairman of the High Level Group for the future of aviation regulation in Europe
CURRENT POSITIONS Non-Executive Director of CNH Industrial NV, member of the Supervisory Board of Unibail- Rodamco and the Groupe Wendel, Chairman of the Van Leer Group Foundation and Member of the advisory board of the Bath School of Management
COMMITTEES Remuneration Committee (Chairman), Selection and Appointment Committee
NATIONALITY American DATE OF FIRST APPOINTMENT 1 May 2014 TERM OF OFFICE 2014 – 2018
FORMER POSITIONS Visiting Fellow and Lecturer at The Wharton School University of Pennsylvania (2001-2003) CURRENT POSITIONS Lincoln Filene Professor of Business Administration at Harvard Business School COMMITTEES Audit Committee
TomTom's Supervisory Board is responsible for supervising and advising the Management Board in setting and achieving the company's strategy and its objectives. In performing its duties, the Supervisory Board is guided by the interests of the company and its stakeholders. The Supervisory Board is assisted in its decision-making process by the Audit Committee, the Remuneration Committee, and the Selection and Appointment Committee.
During 2016, the company continued to gain momentum in the Automotive and Licensing business, and Telematics continued to grow. The Sports business showed double-digit growth again, while the PND market declined faster than expected. The company prepared itself to capture the opportunities in locationbased services. With its innovative product portfolio and supportive technology, the company remains uniquely well placed to address the need for an accurate and up-to-date map.
The efforts and commitment of the employees of the company and its Management Board are greatly appreciated by the Supervisory Board. The Supervisory Board looks forward to a further successful execution of TomTom's growth strategy.
As at 31 December 2016, the Supervisory Board of TomTom consisted of five members: Peter Wakkie (Chairman), Doug Dunn (Deputy Chairman), Ben van der Veer, Jacqueline Tammenoms Bakker and Anita Elberse.
Guy Demuynck stepped down from the Supervisory Board after the 2016 General Meeting by which time he had served for eleven years.
Per 1 January 2017 the Supervisory Board of TomTom consists of six members, due to Jack de Kreij who was appointed at the 2016 General Meeting as a member of the Supervisory Board with an effective date of 1 January 2017 for a term of four years. At the 2016 General Meeting, Ben van der Veer was re-appointed for a term of one year. This means that at the 2017 General Meeting Ben van der Veer will have served for nine years. Jack de Kreij will succeed Ben van der Veer as Chairman of the Audit Committee as of the 2017 General Meeting.
At the 2017 General Meeting the second term of Peter Wakkie will expire. Peter Wakkie will be proposed for re-appointment for a two-year term at this meeting, which means that after that time he will have served for ten years.
Doug Dunn will step down from the Supervisory Board after the 2017 General Meeting, by which time he will have served for twelve years, the maximum term according to the Corporate Governance Code (Code). Furthermore, Anita Elberse has decided to step down as a member of the Supervisory Board after the 2017 General Meeting. Her new leadership position at the Harvard Business School does not allow her to combine these duties with a seat on the Supervisory Board of TomTom.
The Supervisory Board nominated Michael Rhodin for appointment as a new member of the Supervisory Board for a term of four years, to be resolved upon and effective from the 2017 General Meeting. He will also become a member of the Audit Committee.
As a result of the above changes and provided that the proposed nominations will be adopted by the 2017 General Meeting, the Supervisory Board will consist of four members: Peter Wakkie (Chairman), Jacqueline Tammenoms Bakker (Deputy Chairman), Jack de Kreij and Michael Rhodin.
The Supervisory Board confirms that all members are independent as meant within the terms of the Code.
The composition of the Supervisory Board is in line with the Supervisory Board profile, as drawn up by the Supervisory Board and published on the company's website, in terms of experience, expertise, nationality, gender and age. As at 31 December 2016, two out of five members of the Supervisory Board were female.
No member of the Supervisory Board holds more than five directorships at Dutch 'large companies'.
Biographies of the members of the Supervisory Board as at 31 December 2016, as well as the information on the members as prescribed by the Code, can be found in the Profiles of the Supervisory Board section of this report. This section also provides details on the committees of the Supervisory Board.
The Supervisory Board met fourteen times in 2016: six physical meetings and eight conference calls. The non-physical meetings were held to discuss financial updates and recent developments within the company in the months when no physical meeting was scheduled. The Management Board members attended all those meetings either in full or in part. The meetings of the Supervisory Board achieved an overall average attendance rate of 88%.
All members have had sufficient time available for their duties relating to their membership of the Supervisory Board. No members were frequently absent from the meetings. Their availability for ad-hoc calls, prompt response on emails and the fact that the members prepared the meetings well, regardless of their attendance at the meetings, and actively participated in the meeting discussions, demonstrate that they were all able to devote adequate attention to the company.
The agenda for the meetings was prepared through consultation with the Chairman, the Management Board and the Company Secretary. In addition to the regular meetings, the Chairman of the Supervisory Board had regular contact with the CEO of the company. Further, the members of the Supervisory Board also held informal consultations with members of the Management Board and senior management of the company to remain closely informed about the business.
Meetings of the Supervisory Board are preceded by committee
meetings. The chairs of the committees work closely together with senior management and conduct regular face-to-face meetings to set the agendas and prepare all relevant information for the committee meetings.
To facilitate open and productive discussions, the Management Board and senior management provided the Supervisory Board with comprehensive quarterly reports that outline the developments, achievements, challenges and opportunities in each business unit of the company before each physical meeting. These reports also included insight into noticeable market developments, trends and analyses. During the year, senior management was frequently invited to present a range of topics to the Supervisory Board.
It is important for the Supervisory Board to stay in touch with the talents within the company. For this purpose, among others, quarterly breakfast sessions were organised to facilitate a Meet & Greet between members of the Supervisory Board and a selective number of talents. In an open and transparent setting the Supervisory Board members were provided with feedback from the talents on several topics, such as the TomTom culture and dynamics, and operational challenges. The Supervisory Board strongly supports the company's efforts with regard to talent management as well as succession planning for key positions within the organisation and the Supervisory Board was regularly kept updated on these items, including the vacancy status of key positions.
The Supervisory Board devoted considerable time to reviewing strategic options and discussing the company's long-term strategy. An active role was played in ensuring that the Management Board's ideas were challenged and tested in order to reach decisions that would underpin the company's strategy. The group strategy and the business unit strategies were presented, reviewed, and constructive discussions were held with the Management Board and senior management. In addition, the Supervisory Board was kept regularly informed of major commercial opportunities, deals and partnerships.
During discussions with the Management Board, specific attention was paid to the execution of the strategy to diversify the Consumer business. The introduction of the next generation sports watches and fitness products (the TomTom Touch) and its traction in the market, were closely monitored during the year. The product roadmap, the marketing campaigns, which were planned for the launch of the new products in 2016, and the TomTom Sports brand proposition 'Get Going' were shared with the members of the Supervisory Board.
Frequent updates were provided to the Supervisory Board on the order intakes made which, together with orders secured earlier,
will support the growth strategy of the Automotive business. In addition, the Supervisory Board closely followed the continued growth in the Telematics business.
The Supervisory Board was frequently updated on the innovative progress made with maps, traffic and navigation software and the positioning and traction of these technology components in the market. The new transactional mapmaking platform enables TomTom to address the need to provide for accurate and up-todate maps for navigation applications and driver assistance applications, including Autonomous Driving.
The Supervisory Board was regularly updated on the efforts of management to align its business to better capture the growth opportunities in location-based services and to anticipate on the PND market, which declined faster than expected. There was also time dedicated to discussing the organisational structure, including the Research & Development set-up.
The company's financial results, its operating result and its cash generation from operations were presented and closely supervised throughout the year. The level of investment (both CAPEX and OPEX) in the core technologies of the company were thoroughly observed every quarter by the Supervisory Board. The Supervisory Board reviewed and approved the budget for 2017.
The Supervisory Board regularly gained insights into the constantly changing landscape which TomTom is operating in. During 2016, several demonstrations of innovative products (such as the TomTom Touch and TomTom City) were presented to the Supervisory Board.
Every quarter, the Supervisory Board was updated on the company's Investor Relations activities, such as share price developments and analysts' research and communication with shareholders. The press releases regarding the full-year and halfyear results, and the quarterly trading updates were all reviewed and approved by the Supervisory Board. The Supervisory Board also reviewed and approved the other press releases which qualified as inside information and were published during the year, such as the preliminary disclosure of the financial results of the third quarter.
Through its Audit Committee, the Supervisory Board was kept informed about the company's strategic, operational, financial, legal and compliance risks, as well as the actions taken and systems in place to manage these risks.
The Supervisory Board received updates on the company's corporate social responsibility programmes and its intellectual property strategy. The Supervisory Board members were also informed about corporate governance developments and relevant regulations. Among others, the new Market Abuse
Regulation, effective as of 3 July 2016, was discussed with the members, as well as the measures undertaken to comply with this new regulation. Further, the company's compliance programme was explained, including the online Code of Conduct game which was developed as part of this programme and demonstrated to the members of the Supervisory Board.
The composition, functioning and succession planning of the Management Board and the performance of its individual members were discussed.
The Supervisory Board assessed its own succession planning. With the anticipated retirement of Doug Dunn and the departure of Anita Elberse after the 2017 General Meeting, the Supervisory Board engaged with an external executive search agency. To secure that sufficient technology expertise is available within the Supervisory Board, it was decided to search for a new member with a strong technology background. The search was successfully completed, resulting in the decision of the Supervisory Board to make a nomination to the 2017 General Meeting to appoint Michael Rhodin as member of the Supervisory Board. For more information, reference is made to the Selection and Appointment Committee report.
The Supervisory Board discussed with the Management Board the talent management process for senior management within the organisation, including succession planning.
The Supervisory Board reviewed and discussed its own functioning, as well as that of its individual members, its committees and the Chairman. The evaluation of the Chairman was discussed by the entire Supervisory Board, without the Chairman present. In preparation of these discussions, the members of the Supervisory Board and Management Board provided feedback through a written assessment. The assessment included reviews of the composition and expertise of the Supervisory Board, its time management, its effectiveness, its dynamics and succession planning. The Supervisory Board's oversight on the company's strategy and the effectiveness of the strategy day, human resources management, risk management and internal controls were also reviewed.
The relationships between the individual members of the Supervisory Board and between the Supervisory Board and the Management Board were rated very high overall. The same applied in view of the atmosphere in the boardroom in terms of encouraging equal contribution, candid discussion and critical thinking. The induction of the new Supervisory Board member will be an attention point for the Supervisory Board in 2017. The Supervisory Board will continue to spend ample time in further understanding the opportunities for the company in Autonomous Driving and its innovative location technologies
and, also in this respect, aims to visit one of the TomTom locations outside the Netherlands.
The Supervisory Board intends to bring in a third party to assess its functioning every three years; the next such occasion being in 2018.
This Remuneration Report describes the activities of the Remuneration Committee (Committee), the Remuneration Policy for the Management Board and its application in 2016, as well as an outlook for 2017. The Remuneration Policy was first adopted by the General Meeting in 2005 and has since been amended several times, most recently in 2014. In line with Dutch legislation, the execution of the Remuneration Policy in 2016 will be put on the agenda for discussion as a separate agenda item at the 2017 General Meeting.
The Committee consists of two members: Jacqueline Tammenoms Bakker (Chairman) and Peter Wakkie.
The Committee met four times in the course of 2016, with an overall attendance rate of 100%. Each meeting was also attended by Alain De Taeye, the Head of HR, the Head of Reward & Operations and the Company Secretary. Preparation meetings attended by the Chairman of the Committee, the Head of Reward & Operations and the Company Secretary were held prior to each Committee meeting.
The Committee monitored the effectiveness and relevance of the Remuneration Policy throughout the year. It also considered the extent to which the individual remuneration packages of the Management Board members were in line with the company's policy.
The Committee agreed on the key performance indicators (KPIs) and weighting levels set for the short-term variable remuneration of the Management Board and periodically reviewed the progress on the achievement of these KPIs. A scenario analysis was carried out within the terms of the Code to evaluate the variable components of the remuneration packages of the Management Board members.
The Committee spent time on the preparation for the 2016 General Meeting where the execution of the Remuneration Policy in 2015 appeared on the agenda as a separate agenda item.
The Committee defined a new peer group in 2015, which serves as an essential yardstick to determine the overall competitiveness of the company's Management Board
remuneration and gives an appropriate reflection of the competitive markets in which TomTom is operating. The peer group consists of the following 22 companies: Wolters Kluwer, Harman, Garmin, ASM International, Temenos Group, Imagination Technology Group, SimCorp, CompuGroup Medical, Arris Group, Kudelski, GoPro, Trimble Navigation, Fleetmatics, Elektrobit, Telenav, Mix Telematics, Fitbit, LoJack, HERE, ASML, Philips, and NXP Semiconductors.
In 2015, the Committee concluded that the annual long-term incentive award levels continued to be below market median level, i.e. are the least competitive remuneration component. In 2016, the Committee reviewed and discussed the outcome of a study performed on long-term incentive structures against prevalent practice in the Netherlands, Europe and the US among the peer group companies as well as in the high-tech and general industry sectors overall. The Committee concluded to recommend to the Supervisory Board to bring the long-term incentive component more in line with the market, by increasing the percentage of the fixed salary of the Management Board members that determines the annual stock option grants. The Supervisory Board supported the recommendation of the Committee and concluded to increase, with effective date 1 January 2017, the long-term incentive grant level to 140% (was 100%) for the CEO, and to 100% (was 60%) for the other two members of the Management Board. This will be reflected in the 2017 long-term incentive grant.
The Committee evaluated its own functioning and concluded that its activities are satisfactory and adequately serve the company's needs.
The company's Articles of Association state that the Supervisory Board must propose to the General Meeting the Remuneration Policy for the members of the Management Board and that the Remuneration Policy must be adopted by the General Meeting. The Supervisory Board determines the remuneration of individual members of the Management Board on the basis of criteria laid down in the Remuneration Policy. The Supervisory Board reviews this policy regularly in the light of internal and/or external developments. The full text of the policy can be found on the company's corporate website:
corporate.tomtom.com/remuneration.cfm.
The company's Remuneration Policy must ensure that the company is able to attract and retain highly qualified executives to its Management Board in an international competitive market. It must also ensure that the Management Board members' remuneration is consistent with the company's strategy, its operational and financial results, and delivery of value to shareholders. Additionally, the policy must apply a responsible and sustainable remuneration framework in line
with the general result-driven remuneration principles and practices throughout the company. The Remuneration Policy establishes that remuneration for the Management Board consists of four components: base salary, short-term incentive, long-term incentive and benefits (including pension scheme contributions).
The details of the individual remuneration of all members of the Management Board and its costs to the company are presented in note 33 - Remuneration of Members of the Management Board and the Supervisory Board in the consolidated financial statements. The information described in the best practice provision II.2.13 (d) of the Code applicable to the financial year 2016, is also provided there.
The Remuneration Policy and the remuneration components of each of the members of the Management Board are benchmarked against a peer group whenever such benchmark is deemed to be necessary by the Committee.
The objective is to align the base salary levels of TomTom Management Board members with median market practice in a measured way. Fixed remuneration consists of base salary plus holiday allowance, where applicable and in accordance with market practice.
Based on the outcome of the benchmark performed in 2015, it was concluded that the base salaries of Alain De Taeye and Taco Titulaer were in line with the median market level and did not need adjustment for 2016. The base salary of Harold Goddijn remains under median market level. However, it was decided not to bring his base salary closer to the median.
The intention of the percentage-of-salary bonus scheme is to ensure a uniform bonus structure throughout the organisation.
The level of cash payment is determined according to predetermined criteria and objectives. TomTom's 'on-target' bonus percentages are assessed relative to the median 'on-target' bonus percentages of our peer group companies. The on-target bonus percentage for the CEO position is 80% of his base salary. It is 64% of the base salary for the other members of the Management Board. The maximum bonus potential is 1.5 times the 'on-target' bonus amounts (for the CEO this means a maximum of 120% and for the other two Management Board members 96%). In addition, the Supervisory Board may at its own discretion decide to reward bonuses for exceptional individual performance.
The performance criteria continued to be the same for 2016: the revenue KPI weighted at 50% and the EBIT KPI weighted at 50%. It is the Supervisory Board's opinion that these strong financially driven KPIs appropriately measure the company's strategy focused on profitable growth. These KPIs are an important measure of the success of the execution of the company's strategy and, as such, the remuneration is directly linked to performance of the company's strategy.
The pre-determined performance criteria in relation to the 2016 results of the company, did not allow for any pay-out under the short-term incentive scheme for any of the Management Board members.
The Supervisory Board is of the opinion that the continuous challenging economic environment and competitive market warranted strong financial control and therefore the strictly financial nature of the KPIs set for 2016 was appropriate.
The long-term incentive scheme, laid down in the TomTom NV Management Board Stock Option Plan, is aimed at attracting and retaining key talent in order to ensure the company's continued high performance in line with common practices within international companies in the technology sector.
With regard to the Management Board Stock Option Plan, options shall be granted conditional to continued employment of the Management Board member. The vesting of the options is not subject to the achievement of pre-determined performance criteria. The options will vest three years after the grant date.
The Supervisory Board confirmed that the unconditional option plan reflects the company's long-term focus on growth where value only materialises upon the successful execution of the company's strategy by the Management Board.
The annual stock option grants are set as a percentage of the fixed salary of the Management Board members. The level for the CEO was set to a grant value equivalent to 100% of the fixed salary (resulting in 2016 in 112,500 stock options), and for the other two members of the Management Board to a grant value equivalent to 60% of the fixed salary (resulting in 2016 in 56,500 stock options for Alain De Taeye and 48,500 stock options for Taco Titulaer).
Members of the Management Board are eligible for and can opt to participate in the company's pension plans or receive a contribution to their respective private pension plan. According to the Remuneration Policy, the contribution to be paid by the company on behalf of a member of the Management Board is based on a percentage of the gross annual base salary and is capped at 20% of the gross annual base salary.
Harold Goddijn has opted to waive his rights to take part in the company's pension plan or to receive a pension allowance; as a result, he does not receive any contribution from the company.
The contributions to the private pension plan of Alain De Taeye are capped at 20% of the individual gross annual base salary.
The 2016 company's pension plan is based on a defined contribution plan with age-defined contribution percentages. For the financial year 2016, the pensionable salary was capped at €100,000. Under the 2016 company pension plan, Taco Titulaer paid a pension premium contribution of approximately 6.1% out of his pensionable-bearing salary. The company's total pension contribution includes the company's contribution to the company's pension plan and a gross allowance that can be spent on private pension savings, and is capped at, in total, 20% of the CFO's gross annual base salary in accordance with the Remuneration Policy.
In addition to the above-mentioned remuneration components, the Management Board members are entitled to remuneration for items such as medical insurance, death and disability insurance, housing and car allowances. They also benefit from directors' and officers' liability insurance coverage. These benefits are in line with market practice. The company does not provide loans to members of the Management Board.
The base salary for the CEO remains under median market level. However, it was decided not to bring the CEO's base salary closer to the median in 2017. The base salaries of the other two members of the Management Board are in line with the median market level and do not need adjustment for 2017.
For the short-term incentive scheme for 2017, the Supervisory Board feels it is appropriate to apply KPIs and weighting that measures the company's strategy. Given the continued focus on growing the business, a revenue KPI for 2017 will continue to be applied weighted at 50%. The second KPI will change from EBIT to EBITDA minus CAPEX weighted at 50% in order to optimise profitability.
The Supervisory Board is of the opinion that the unconditional Management Board Stock Option Plan is appropriate and corresponds with the company's long-term focus on growth. To bring the long-term incentive component more in line with the market, the Supervisory Board decided to increase the long-term incentive grant level to 140% (was 100%) for the CEO, and to 100% (was 60%) for the other two members of the Management Board. This will be reflected in the 2017 long-term incentive grant.
The term of appointment for all members of the Management Board is four years, while the term of employment is indefinite. Management Board members may be re-appointed for another term of four years at a time.
The employment of a member of the Management Board may be terminated by or on the initiative of the company with a notice period of 12 months. In such event, the Management Board member is entitled to a severance payment limited to 50% of one year's base salary, unless a higher statutory severance compensation applies.
These terms will not apply if the employment of a member of the Management Board is terminated for any reason as set out in articles 7:677 (1) and 7:678 of the Dutch Civil Code. In such situations the Management Board member will not be entitled to any severance compensation. A member of the Management Board will not be entitled to severance compensation if the employment is terminated by himself, or on his own initiative.
Members of the Supervisory Board are not entitled to any benefits upon the termination of their appointment.
This Selection and Appointment Committee Report describes the main items discussed by the Selection and Appointment Committee (Committee) during the year 2016.
The Committee consists of two members: Peter Wakkie (Chairman) and Jacqueline Tammenoms Bakker.
The Selection and Appointment Committee met five times during the course of 2016, with an overall attendance rate of 100%. Each meeting was also attended by Alain De Taeye, the Head of HR and the Company Secretary.
The Committee spent ample time on the composition of the Supervisory Board and its succession planning. It continued to pay strong attention to the company's talent management and succession planning for key positions.
With the retirement of Guy Demuynck in 2016 and Doug Dunn in 2017, it was concluded that a candidate with a strong background in the technology sector would best complement the Supervisory Board moving forward. The Committee reviewed and concluded on the profile of the new member of the Supervisory Board. The Committee engaged with an external agency and conducted a thorough search and selection process
that included candidates from the US East Coast and Europe. Interviews were held with several candidates which resulted in a recommendation by the Committee to the Supervisory Board.
The Committee resolved to recommend to the Supervisory Board to nominate for appointment at the 2017 General Meeting Michael Rhodin as member of the Supervisory Board for a term of four years. He will join the Audit Committee after the 2017 General Meeting. With the nomination of Michael Rhodin, the Supervisory Board is confident that it reflects the company's positioning as a leading technology company and that its composition will remain well suited to perform its duties.
The HR strategy within the company was shared with the Committee and quarterly updates were provided by the Head of HR. Topics which were shared in this respect were initiatives from management in view of career development, management and leadership, and compensation and benefits. Those initiatives all underpin the company's attention for talent management with the aim to attract, retain and develop TomTom talent. The Committee focused on the company's progress on its succession planning for key positions within the company. On a quarterly basis the Committee was updated on the recruitment status of vacant key positions and the leadership programme developed for talented senior leaders.
The Committee carried out a self-assessment of the functioning of the Committee. The composition of the Supervisory Board and its succession planning shall remain a priority for the Committee in 2017. The members of the Committee will also closely monitor the World Class Leadership Programme aimed at gaining a full overview on where potential leadership is within the organisation.
The Committee had two meetings with the Dutch Works Council in 2016.
This report describes the main items discussed by the Audit Committee (Committee) during 2016.
The role and responsibility of the Committee as well as the composition and the manner in which it discharges its duties are set out in the Audit Committee Charter, which is available on TomTom's corporate website:
During 2016, the Committee consisted of three members: Ben van der Veer (Chairman), Doug Dunn and Anita Elberse. With the appointment at the 2016 General Meeting of Jack de Kreij as a member of the Supervisory Board, effective 1 January 2017, the Committee consists per that date of four members.
The Committee met four times during the course of 2016, with an overall attendance rate of 75%. All four meetings were held prior to the publication of the financial results. All meetings were attended in full by the CFO and the Head of Internal Audit. The other members of the Management Board attended the meetings as required (for instance, where group risks and internal controls were discussed). The external auditor attended each of the four Committee meetings in full to report on its audit, quarterly procedures and management letter. The Committee and the external auditor also met separately, without the Management Board present, in order to facilitate free and open discussions. Other heads of departments (e.g. Treasury, Tax, Legal and IT) were invited when the Committee deemed it necessary and appropriate.
The Committee assisted the Supervisory Board in its responsibility to oversee the system of internal controls and risk management, the effectiveness of the internal auditors, and the company's financing, financial statements and financial reporting process. In relation to the external auditor, the Committee monitored its performance and the effectiveness of the external audit process, as well as its independence.
Throughout the year, the Committee monitored and reviewed the quarterly financial results and full year financial statements as presented under IFRS, including the respective disclosures prior to their releases. Attention was paid to the (upcoming) transition to new accounting standards, revenue recognition, the valuation of goodwill and intangible assets, significant estimates, the tax position and the clarity of the rules for disclosure, as well as the company's compliance with accounting standards, the requirements of Euronext Amsterdam and other corporate governance, legal and regulatory bodies.
During all quarterly Committee meetings, updates were provided on the maintenance and effectiveness of the system of internal controls and risk management relating to strategic, financial, operational, and compliance matters. The company monitors its internal controls through a systematic approach, which is supported by the risk management process and the Internal Audit team. The Head of Internal Audit reports functionally to the Committee and administratively to the CFO.
The Committee further discussed items including the company's policies related to financing, cash and foreign exchange management. In relation to tax, the Committee discussed the status of ongoing tax audits, the innovation box ruling, 'Country by Country' reporting, tax risk management, and the tax strategy/policy. Regular updates were received by the Committee on TomTom's compliance programme (including whistle-blower reporting). The Committee was provided with quarterly updates
on the company's ongoing effort to maintain the appropriate level of a risk-based information security management.
The effectiveness of the Committee was reviewed as part of the 2016 overall evaluation of the Supervisory Board which confirmed that the Committee continues to function effectively.
The role and functioning of the Internal Audit function, including its independence, were regularly discussed and the internal audit plan was approved by the Committee. This plan considers the key risk areas of the business, important IT projects and information security, as well as the geographical spread of TomTom offices including local compliance (e.g. finance, HR and tax controls) and the core activities performed there. In consultation with senior management, Internal Audit selects the areas of the business to be audited during the year. Members of the Committee and the Management Board may at any time request Internal Audit to carry out an internal audit or a special consulting service. The follow up on the recommendations made by Internal Audit, were observed by the Committee. The Head of Internal Audit reported each quarter to the Committee.
Ernst & Young Accountants LLP (EY) was appointed as external auditor by the 2015 General Meeting for a term of three years up to and including the financial year 2017.
The 2016 external audit plan, including the scope and materiality applied, were approved by the Committee. The Committee evaluated the performance of the external auditor. Reviews and discussions were held between the Committee and the Management Board on the findings of the external auditor in its
management letter and the actions taken by management to address the recommendations and observations made by the external auditor.
TomTom has a policy on external auditor independence, whereby the auditor is not allowed to perform non-audit services that would compromise its independence or violate any other requirements or regulations affecting its appointment as auditor. The external auditor may, however, provide non-audit services which do not conflict with its independence, subject to pre-approval of the Head of Internal Audit and, when above €25,000, also the Audit Committee.
The Committee reviewed the independence of the external auditor EY, taking into account qualitative and quantitative factors, and concluded that EY had sufficient objectivity and independence to perform the external audit function. EY confirmed its independence and compliance with TomTom's policy on auditor independence to the Audit Committee. A summary is provided below of services performed by EY, its network affiliates and the fees earned.
| TOTAL FEES | 663 | 100% | 591 | 100% |
|---|---|---|---|---|
| Other | 6 | 1% | 0 | 0% |
| Tax compliance1 | 83 | 13% | 76 | 13% |
| Audit - statutory | 196 | 30% | 155 | 26% |
| Audit - group | 378 | 57% | 360 | 61% |
| (€ in thousands) | 2016 TABLE_7 AUDIT FEES |
% of total |
2015 | % of total |
The consolidated annual Financial Statements of the company for 2016, as prepared by the Management Board, have been audited by EY. The Financial Statements, the report and management letter of the external auditor were discussed extensively with the auditors by the Audit Committee in the presence of the Management Board, and by the full Supervisory Board with the Management Board.
The Supervisory Board is of the opinion that the 2016 Financial Statements of TomTom NV meets all requirements for correctness and transparency. The Supervisory Board has approved the Financial Statements for 2016. All members of the Supervisory Board and members of the Management Board have signed the Financial Statements for 2016 pursuant to the statutory obligations under article 2:101 (2) of the Dutch Civil Code.
The Supervisory Board recommends to the General Meeting to adopt the Financial Statements for 2016 and requests that the 2017 General Meeting discharges the members of the Management Board of their responsibility for the conduct of business in 2016 and the members of the Supervisory Board for their supervision in 2016. The Annual Report for 2016 is available at the company's offices on request and on TomTom's corporate website: corporate.tomtom.com/annuals.cfm.
The Supervisory Board would like to thank Guy Demuynck for his highly valued contributions to the company.
Further, the Supervisory Board would like to thank TomTom's shareholders for their trust in the company and its management. A special appreciation is made by the Supervisory Board to all employees and the Management Board for their continued dedication and commitment to the company.
Amsterdam, 8 February 2017
Peter Wakkie Doug Dunn Ben van der Veer Jacqueline Tammenoms Bakker Anita Elberse Jack de Kreij
for the year ended 31 December
| (€ in thousands) | Notes | 2016 | 2015 |
|---|---|---|---|
| REVENUE | 4 TABLE_8 CONSOLIDATED STATEMENT OF INCOME |
987,329 | 1,006,607 |
| Cost of sales | 5 | 421,101 | 488,080 |
| GROSS RESULT | 566,228 | 518,527 | |
| Research and development expenses | 190,473 | 185,443 | |
| Amortisation of technology and databases | 91,526 | 76,694 | |
| Marketing expenses | 80,609 | 83,438 | |
| Selling, general and administrative expenses | 194,726 | 172,352 | |
| TOTAL OPERATING EXPENSES | 6-9 | 557,334 | 517,927 |
| OPERATING RESULT | 8,894 | 600 | |
| Interest result | 30 | -1,371 | -925 |
| Other financial result | 30 | -1,010 | -7,343 |
| Result of associates | 16 | 736 | 167 |
| RESULT BEFORE TAX | 7,249 | -7,501 | |
| Income tax gain | 10 | 4,709 | 25,794 |
| NET RESULT | 11,958 | 18,293 | |
| Attributable to: | |||
| - Equity holders of the parent | 11,987 | 18,122 | |
| - Non-controlling interests | 26 | -29 | 171 |
| NET RESULT | 11,958 | 18,293 | |
| EARNINGS PER SHARE (€) | 25 | ||
| Basic | 0.05 | 0.08 | |
| Diluted | 0.05 | 0.08 |
for the year ended 31 December
| (€ in thousands) | Notes | 2016 | 2015 |
|---|---|---|---|
| NET RESULT TABLE_9 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME |
11,958 | 18,293 | |
| OTHER COMPREHENSIVE INCOME: | |||
| Items that will not be reclassified to profit or loss: | |||
| Actuarial (losses) on defined benefit obligations | 6 | -147 | -96 |
| Items that may be subsequently reclassified to profit or loss: | |||
| Currency translation differences | 261 | 11,571 | |
| OTHER COMPREHENSIVE INCOME FOR THE YEAR | 114 | 11,475 | |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR | 12,072 | 29,768 | |
| Attributable to: | |||
| - Equity holders of the parent | 11,750 | 30,113 | |
| - Non-controlling interests | 322 | -345 | |
| TOTAL COMPREHENSIVE INCOME FOR THE YEAR1 | 12,072 | 29,768 |
as at 31 December
| (€ in thousands) | Notes | 2016 | 2015 |
|---|---|---|---|
| Goodwill TABLE_10 CONSOLIDATED BALANCE SHEET |
14 | 400,318 | 403,437 |
| Other intangible assets | 12 | 795,771 | 810,908 |
| Property, plant and equipment | 13 | 40,398 | 38,869 |
| Investments in associates | 16 | 3,941 | 3,546 |
| Deferred tax assets | 11 | 12,046 | 7,512 |
| TOTAL NON-CURRENT ASSETS | 1,252,474 | 1,264,272 | |
| Inventories | 17 | 54,078 | 48,657 |
| Trade receivables | 18 | 132,424 | 138,593 |
| Other receivables and prepayments | 19 | 46,115 | 53,533 |
| Other financial assets | 20 | 1,210 | 967 |
| Cash and cash equivalents | 21 | 142,527 | 147,565 |
| TOTAL CURRENT ASSETS | 376,354 | 389,315 | |
| TOTAL ASSETS | 1,628,828 | 1,653,587 | |
| Share capital | 24 | 46,577 | 46,099 |
| Share premium | 1,051,890 | 1,035,451 | |
| Other reserves | 234,502 | 228,216 | |
| Accumulated deficit | -338,138 | -340,956 | |
| EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT | 994,831 | 968,810 | |
| Non-controlling interests | 26 | 1,906 | 1,723 |
| TOTAL EQUITY | 996,737 | 970,533 | |
| Borrowings | 27 | 9,586 | 44,254 |
| Deferred tax liability | 11 | 97,282 | 123,825 |
| Provisions | 31 | 54,406 | 35,065 |
| Deferred revenue | 4 | 107,151 | 83,726 |
| TOTAL NON-CURRENT LIABILITIES | 268,425 | 286,870 | |
| Trade payables | 22 | 76,630 | 94,951 |
| Income taxes | 10 | 1,289 | 4,382 |
| Other taxes and social security | 9,383 | 13,056 | |
| Borrowings | 27 | 0 | 4,287 |
| Provisions | 31 | 36,410 | 32,573 |
| Deferred revenue | 4 | 97,256 | 103,147 |
| Accruals and other liabilities | 23 | 142,698 | 143,788 |
| TOTAL CURRENT LIABILITIES | 363,666 | 396,184 | |
| TOTAL EQUITY AND LIABILITIES | 1,628,828 | 1,653,587 | |
for the year ended 31 December
| (€ in thousands) | Notes | 2016 | 2015 |
|---|---|---|---|
| Operating result TABLE_11 CONSOLIDATED STATEMENT OF CASH FLOWS |
8,894 | 600 | |
| Financial gains/(losses) | 1,235 | -2,364 | |
| Depreciation, amortisation and impairment | 8 | 132,003 | 123,096 |
| Equity-settled stock compensation expense | 7 | 3,275 | 3,788 |
| Change in provisions | 9,649 | -15,386 | |
| Change in working capital: | |||
| Change in inventories | -5,817 | 2,468 | |
| Change in receivables and prepayments | 14,183 | -18,038 | |
| Change in current liabilities (excluding provisions)1 | -5,301 | 29,115 | |
| CASH GENERATED FROM OPERATIONS | 158,121 | 123,279 | |
| Interest received | 30 | 185 | 504 |
| Interest paid | 30 | -1,227 | -958 |
| Corporate income taxes (paid) | 10 | -12,762 | -4,050 |
| CASH FLOWS FROM OPERATING ACTIVITIES | 144,317 | 118,775 | |
| Investments in intangible assets | 12 | -96,444 | -86,154 |
| Investments in property, plant and equipment | 13 | -21,141 | -21,577 |
| Acquisition of subsidiaries and other businesses | 15 | -2,331 | -46,651 |
| Dividend received | 16 | 190 | 167 |
| CASH FLOWS FROM INVESTING ACTIVITIES | -119,726 | -154,215 | |
| Repayment of borrowings | 27 | -4,287 | 0 |
| Change in utilisation of credit facility | 27 | -35,000 | -5,000 |
| Change in non-controlling interest | -98 | -126 | |
| Dividends paid | -138 | 0 | |
| Proceeds on issue of ordinary shares | 7 | 10,039 | 34,397 |
| CASH FLOWS FROM FINANCING ACTIVITIES | -29,484 | 29,271 | |
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS | -4,893 | -6,169 | |
| Cash and cash equivalents at the beginning of period | 147,565 | 152,949 | |
| Effect of exchange rate changes on cash balances held in foreign currencies | -145 | 785 | |
| CASH AND CASH EQUIVALENTS AT THE END OF PERIOD | 142,527 | 147,565 |
| (€ in thousands) | Notes | Share capital |
Share premium TABLE_12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY |
Other reserves1 |
Accumulated deficit |
Total Non-controlling interests |
Total equity |
|
|---|---|---|---|---|---|---|---|---|
| BALANCE AS AT 31 DECEMBER 2014 | 44,714 | 986,683 | 202,289 | -335,163 | 898,523 | 2,073 900,596 | ||
| COMPREHENSIVE INCOME | ||||||||
| Result for the year | 0 | 0 | 0 | 18,122 | 18,122 | 171 | 18,293 | |
| OTHER COMPREHENSIVE INCOME | ||||||||
| Currency translation differences | 0 | 0 | 12,087 | 0 | 12,087 | -516 | 11,571 | |
| Actuarial losses on defined benefit obligations | 0 | 0 | 0 | -96 | -96 | 0 | -96 | |
| TOTAL OTHER COMPREHENSIVE INCOME | 0 | 0 | 12,087 | -96 | 11,991 | -516 | 11,475 | |
| TOTAL COMPREHENSIVE INCOME | 0 | 0 | 12,087 | 18,026 | 30,113 | -345 | 29,768 | |
| TRANSACTIONS WITH OWNERS | ||||||||
| Change in non-controlling interest | 0 | 0 | 0 | 126 | 126 | -5 | 121 | |
| Stock compensation related movements | 7 | 1,385 | 48,768 | -12,063 | 1,958 | 40,048 | 0 | 40,048 |
| OTHER MOVEMENTS | ||||||||
| Transfer to legal reserves | 0 | 0 | 25,903 | -25,903 | 0 | 0 | 0 | |
| BALANCE AS AT 31 DECEMBER 2015 | 46,099 1,035,451 | 228,216 | -340,956 | 968,810 | 1,723 | 970,533 | ||
| COMPREHENSIVE INCOME | ||||||||
| Result for the year | 0 | 0 | 0 | 11,987 | 11,987 | -29 | 11,958 | |
| OTHER COMPREHENSIVE INCOME | ||||||||
| Currency translation differences | 0 | 0 | -90 | 0 | -90 | 351 | 261 | |
| Actuarial losses on defined benefit obligations | 0 | 0 | 0 | -147 | -147 | 0 | -147 | |
| TOTAL OTHER COMPREHENSIVE INCOME | 0 | 0 | -90 | -147 | -237 | 351 | 114 | |
| TOTAL COMPREHENSIVE INCOME | 0 | 0 | -90 | 11,840 | 11,750 | 322 | 12,072 | |
| TRANSACTIONS WITH OWNERS | ||||||||
| Stock compensation related movements | 7 | 478 | 16,439 | -3,129 | 581 | 14,369 | 0 | 14,369 |
| Change in non-controlling interest | 0 | 0 | 0 | -98 | -98 | -1 | -99 | |
| Dividend paid | 0 | 0 | 0 | 0 | 0 | -138 | -138 | |
| OTHER MOVEMENTS | ||||||||
| Transfer to legal reserves | 0 | 0 | 9,505 | -9,505 | 0 | 0 | 0 | |
| BALANCE AS AT 31 DECEMBER 2016 | 46,577 1,051,890 | 234,502 | -338,138 | 994,831 | 1,906 | 996,737 |
The notes are grouped into six sections. The notes contain the relevant financial information as well as a description of the specific accounting policy applied for the topic of the individual notes.
| 1. General | 73 | |
|---|---|---|
| 2. Basis of preparation | 73 | |
| 3. Accounting estimates | 74 |
| 4. Segment reporting and revenue | 75 |
|---|---|
| 5. Cost of sales | 78 |
| 6. Personnel expenses | 78 |
| 7. Share-based compensation | 80 |
| 8. Depreciation and amortisation | 81 |
| 9. Government grants | 82 |
| 10. Income tax | 82 |
| 11. Deferred income tax | 83 |
| 12. Intangible assets | 85 |
|---|---|
| 13. Property, plant and equipment | 87 |
| 14. Impairment testing of non-financial assets | 88 |
| 15. Business combinations | 89 |
| 16. Investments in associates | 90 |
| 17. Inventories | 92 |
|---|---|
| 18. Trade receivables | 92 |
| 19. Other receivables and prepayments | 93 |
| 20. Other financial assets/liabilities | 94 |
| 21. Cash and cash equivalents | 94 |
| 22. Trade payables | 94 |
| 23. Accruals and other liabilities | 94 |
| 24. Shareholder's equity | 95 |
|---|---|
| 25. Earnings per share | 96 |
| 26. Non-controlling interests (minority interests) | 97 |
| 27. Borrowings | 97 |
| 28. Financial risk management | 98 |
| 29. Financial instruments | 100 |
| 30. Financial income and expenses | 101 |
| 31. Provisions | 102 |
|---|---|
| 32. Commitments, contingent assets and liabilities | 103 |
| 33. Remunerations of members of the Management | 104 |
| Board and the Supervisory Board | |
| 34. Related party transactions | 107 |
| 35. Auditor's remuneration | 107 |
| 36. Subsequent events | 107 |
This section introduces the basis of preparation and the general accounting policy applied to the consolidated financial statements as a whole, as well as a summary of the areas that involve significant judgements and estimates.
TomTom NV (the company) has its statutory seat and headquarters in Amsterdam, the Netherlands (registered under trade registration number of 34224566 in the Chamber of Commerce in Amsterdam). The activities of the company include the development and sale of navigation and location-based solutions, which include among others: PNDs, sports watches, action cameras, maps, traffic, navigation software and fleet management services.
The consolidated financial statements comprise the company and its subsidiaries (together referred to as the group).
The financial statements have been prepared by the Management Board and authorised for issue on 8 February 2017. The financial statements will be submitted for approval to the General Meeting on 24 April 2017.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the European Union.
The financial statements have been prepared on the historical cost basis, except for financial instruments (including derivatives) classified at fair value through profit or loss and derivatives used for hedging, which are stated at fair value. Income and expenses are accounted for on an accrual basis.
The general accounting policies applied to the consolidated financial statements as a whole are described below, while other significant accounting policies related to specific items are described under the relevant note. The description of accounting policy in the notes forms an integral part of the description of the accounting policies in this section. Unless otherwise stated, these policies have been consistently applied to all the years presented.
Certain assets and liabilities in the comparative figures have been reclassified/netted to conform with current year's presentation.
To the extent relevant, all IFRS standards and interpretations including amendments that were in issue and effective from 1 January 2016, have been adopted by the group from 1 January 2016. These standards and interpretations had no material impact for the group.
All IFRS standards and interpretations that were in issue but not yet effective for reporting periods beginning on 1 January 2016 (including IFRS 9), have not yet been adopted and are expected to have no material impact to the group except for the following standards:
IFRS 15 'Revenue from contracts with customers': IFRS 15 is expected to primarily impact the timing of revenue recognition of certain types of customer contracts. In particular, the specific guidance for licensing arrangement and the requirement to estimate the variable considerations at contract inception are expected to affect the accounting of the revenue from various license and service arrangements that we have within our Automotive and Licensing business. In addition, the new standard will also impact the timing of revenue from hardware sales within our Telematics business that are sold in combination with a service offering.
IFRS 16 'Leases': IFRS 16 is expected to result in recognition of additional leased tangible fixed assets and their corresponding lease liability (representing the groups obligation to make lease payments) on our balance sheet. Based on our existing lease agreements we estimate that both our reported assets and liabilities will increase by approximately €100 million to €125 million assuming a certain number of years as probable extension period for current contracts.
The group plans to adopt both IFRS 15 and IFRS 16 in its consolidated financial statements for the year ending 31 December 2018 and intends to apply the full retrospective transition approach. TomTom is well underway in transitioning to both new standards and expects to disclose additional quantitative information before it adopts IFRS 15 and IFRS 16.
The group has changed the expected useful life of its database from 20 years to 20, 12, 8 or 4 years depending on the type of content. The change is effective from 1 January 2017 onwards to better reflect the pace of technological change in the sector. TomTom historically focused on creating the foundation for maps which was mainly related to content with a long useful life such as road networks, geometry and address points. Customer needs and requirements are changing (e.g. because of Autonomous Driving) and more accurate and detailed map content is required. The map content we expect to create in the future relates to elements that have a shorter economic life. TomTom is at the forefront of these changes with its new mapmaking platform and the changes made to the maps organisation.
The change of this useful life will have limited impact to the group amortisation charge in 2017 as the database that existed on 31 December 2016 will remain at a useful life of 20 years. All content created from 1 January 2017 onwards is expected to be amortised over 12, 8 or 4 years.
The consolidated financial statements incorporate the financial statements of the company and entities controlled either directly or indirectly by the company.
Control is achieved when the parent is exposed to, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policy in line with the group.
All intercompany transactions, balances and unrealised gains and losses on transactions between group companies are eliminated.
The company's primary activities are denominated in EUR. Accordingly, EUR is the company's functional currency, which is also the group's presentation currency. Items included in the financial information of individual entities in the group are measured using the individual entity's functional currency, which is the currency of the primary economic environment in which the entity operates.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Foreign exchange gains and losses resulting from the settlement
of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised under 'Other financial result' in the income statement, except for gains and losses that arise from intercompany borrowings that form part of net investment in subsidiaries which are recognised in 'Other comprehensive income'.
For consolidation purposes, the assets and liabilities of entities that have a functional currency other than the group's presentation currency are translated at the closing rate at the date of the balance sheet, whereas the income statement is translated at the average exchange rate for the period. Translation differences arising thereon are recognised in 'Other comprehensive income'.
Cash flow statements are prepared using the indirect method. Cash flows from derivative instruments are classified consistently with the nature of the instruments.
The preparation of these financial statements requires management to make certain assumptions, estimates and judgements that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and the future periods if the revision affects both current and future periods.
The table below presents the areas that involve a higher degree of judgement or areas where assumptions and estimates are significant to the financial statements:
| Note | |
|---|---|
| Revenue recognition TABLE_13 NOTE 3 - ACCOUNTING ESTIMATES |
4 |
| Internally generated intangible assets | 12 |
| Impairment of non-financial assets | 14 |
| Income tax | 10 - 11 |
| Provisions and contingent assets/liabilities | 31 - 32 |
Detailed explanations of the degree of judgement and assumptions used are included under each of the respective sections in the notes to the financial statements as referenced above.
This section presents the notes related to items in the income statement (except for financial income and expenses) and disclosure on operating segments. If applicable, relevant notes on balance sheet items related to the respective items in the income statement are presented in this section. A detailed description of the results for the year is provided in the business and financial review by business unit and group financial review sections in the Management Board report.
The operating segments are identified and reported on the basis of internal reports about components of the group that are regularly reviewed by the Management Board to assess the performance of the segments.
The group's internal management reporting is structured primarily on the basis of the market segments in which the four operating segments - Automotive, Licensing, Telematics and Consumer - operate. Automotive and Licensing are engaged in developing and selling similar location-based application components such as maps, online services (e.g. traffic) and navigation software to customers in different market segments. Automotive serves automotive customers (mainly OEMs and Tier1 head unit vendors) while Licensing serves a wide range of non-Automotive customers. Telematics provides a wide range of telematics services and related products to fleet owners including sale and/or rental of hardware products associated with the services. Consumer generates revenue mainly from the sale of smart consumer electronics devices in the Drive and Sports categories, such as PNDs and sports watches.
Management assesses the performance of segments based on the measures of revenue and operating result (EBIT), whereby the EBIT measure includes allocations of expenses from supporting functions within the group. Such allocations have been determined based on relevant measures that reflect the level of benefits of these functions to each of the operating segments. As the four operating segments serve only external customers, there is no inter-segment revenue. The effects of non-recurring items such as goodwill impairment are excluded from management's measurement basis. Interest income and expenses and tax are not allocated to the segments. There is no measure of segment (non-current) assets and/or liabilities provided to the Management Board. The non-current assets within the group include a significant portion of the carrying value of the step up resulting from the Tele Atlas acquisition in 2008. As this step up is not geographically allocated to the respective regions for internal management reporting, we believe that disclosure of geographic allocation would be highly judgemental and would not give a true representation of geographical spread of the group's assets.
| TOTAL SEGMENT EBITDA | 147,196 | 131,504 |
|---|---|---|
| Consumer | 5,949 | 14,055 |
| Telematics | 59,132 | 49,030 |
| Licensing | 41,172 | 42,286 |
| Automotive | 40,943 | 26,133 |
| Automotive & Licensing | 82,115 | 68,419 |
| The EBITDA of each segment is as follows: | ||
| TOTAL SEGMENT OPERATING RESULT (SEGMENT EBIT) | 15,193 | 8,446 |
| Consumer2 | -3,853 | 2,636 |
| Telematics | 44,516 | 39,686 |
| Licensing | 1,939 | 48 |
| Automotive1 | -27,409 | - 33,924 |
| Automotive & Licensing | - 25,470 | - 33,876 |
| The EBIT of each segment is as follows: | ||
| TOTAL REVENUE | 987,329 | 1,006,607 |
| Consumer | 563,242 | 623,648 |
| Telematics | 155,131 | 134,958 |
| Licensing | 136,340 | 142,117 |
| Automotive | 132,616 | 105,884 |
| Automotive & Licensing | 268,956 | 248,001 |
| (€ in thousands) | 2016 | 2015 |
Automotive EBIT in 2015 includes an impairment charge of €11.5 million.
Consumer EBIT in 2016 includes a one-off gain of €9.5 million from a resolved customs case. Consumer EBIT in 2015 includes a one-off gain of €9.0 million from a settlement of a legal case.
The difference between EBIT and EBITDA for each segment is fully explained by the depreciation and amortisation charge of the respective segment. A reconciliation of the segment performance measure (EBIT) to the group's result before tax is provided below.
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Total Segment EBIT TABLE_15 RECONCILIATION SEGMENT EBIT RBT |
15,193 | 8,446 |
| Unallocated expenses | -6,299 | -7,846 |
| Total Operating result (EBIT) | 8,894 | 600 |
| Interest result | -1,371 | -925 |
| Other finance result | -1,010 | -7,343 |
| Result of associates | 736 | 167 |
| RESULT BEFORE TAX | 7,249 | - 7,501 |
A breakdown of the external revenue to types of products and services and to geographical areas is as follows.
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| External revenue by products and services TABLE_16 EXTERNAL REVENUE BY PRODUCTS AND SERVICES |
||
| Sale of goods1 | 527,256 | 586,089 |
| Rendering of content and services | 213,842 | 202,562 |
| Royalty revenue | 246,231 | 217,956 |
| TOTAL | 987,329 | 1,006,607 |
The geographical split of the group's revenue from sale of goods and content and services is based on the location of the customers, while the split for royalty revenue is based on the coverage of the group's geographical map data and other contents.
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| External revenue by geographical areas TABLE_17 EXTERNAL REVENUE BY GEOGRAPHICAL AREAS |
||
| Europe1 | 773,235 | 771,491 |
| North America2 | 167,361 | 186,115 |
| Rest of world | 46,733 | 49,001 |
| TOTAL | 987,329 | 1,006,607 |
Total revenue generated in the Netherlands during 2016 amounted to €63 million (2015: €65 million). The group has no significant concentration of sales from a particular individual external customer.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for products and/or services delivered in the normal course of business. Revenue is recognised net after deductions of estimated probable customer returns, rebates and other similar allowances whenever applicable. The revenue recognition policy for each type of revenue or their combination is presented below:
Revenue from the sale of goods is only recognised when the risks and rewards of ownership of goods are transferred to the customers, which include distributors, retailers, end users and OEMs. The risks and rewards of ownership are generally transferred at the time the product is shipped and delivered to the customer and, depending on the delivery conditions, title and risk have passed to the customer and acceptance of the product, when contractually required, has been obtained. In cases where contractual acceptance is not required, revenue is recognised when management has established that all aforementioned conditions for revenue recognition have been met.
Royalty revenue is generated through licensing of geographic and/or other traffic-/location-based content to customers. Revenue is recognised on an accrual basis based on the contractual terms and substance of the relevant arrangements with the customers.
Services revenue is generated from the sale of traffic and map update services, content sales, connected navigation and fleet management services to commercial fleets. The revenue relating to the service element is recognised over the agreed or estimated service period on a straight-line basis. In arrangements where devices are rented out to the customer in Telematics, the rental revenue is included in the revenue from subscriptions.
The group's product and services offerings include arrangements that require the group to deliver equipment (e.g. navigation hardware) and/or a number of services (e.g. map update services) under one agreement, or under a series of agreements that are commercially linked (referred to as 'multiple-element arrangements'). In such multiple-element arrangements, the consideration received is allocated to each separately identifiable element, based on the estimated relative fair values of each identifiable element. To the extent that there is a discount on the arrangement, the discount is allocated between the elements of the contract in such a manner as to reflect the fair value of the elements and the substance of the transaction. The amount of revenue allocated to the hardware element is recognised in line with the accounting policy for the sale of goods as described above. The revenue relating to the service element is recognised over the agreed or estimated service period on a straight-line basis, which varies on average from 3 months to 48 months (for lifetime services).
Significant revenue estimates include the estimates of various pricing allowances deducted from the revenue as well as the estimates of relative fair value of various elements in multiple-element arrangements.
The estimated sales return deduction is based upon historical data on the return rates and information on the inventory levels in the distribution channel. For sales incentives including channel- and end user rebates, the reduction in revenue is based on the group's historical experience, taking into account future expectations on rebate payments. If there is excess stock at retailers when a price reduction becomes effective, the group will compensate its customers on the price difference for their existing stock, provided certain criteria are met. To reflect the costs related to known price reductions in the income statement, an accrual is created against revenue based on an estimate of the inventory levels in the channel and future price reductions.
In the absence of a stand-alone selling price, the fair value of each element under a multiple-element arrangement is estimated using other methods
allowed under IFRS, such as the cost plus reasonable margin or the residual method or a combination thereof. In making such estimates, management make use of judgement and assumptions to arrive at an outcome that best reflects a transaction's substance. Total deferred revenue balance relating to the elements deferred under such multiple-element arrangements as at 31 December 2016 amounted to €115 million (31 December 2015: €106 million).
Deferred revenue amounted to €204 million at the end of the year (2015: €187 million). Automotive and Consumer deferred revenue is mostly driven by upfront payments of our customers for longer term (multiple years) content and service deliveries (e.g. traffic and map updates). The Licensing deferred revenue is mostly related to some customers who prepay TomTom each year for their annual license to our content.
| Consumer | 132,689 | 130,385 |
|---|---|---|
| Telematics | 1,737 | 2,694 |
| Licensing | 11,406 | 31,180 |
| Automotive | 58,575 | 22,614 |
| Automotive & Licensing TABLE_80 DEFERRED REVENUE |
69,981 | 53,794 |
| (€ in thousands) | 2016 | 2015 |
The group's cost of sales consists of material costs for goods sold to customers, royalty and license expenses and fulfillment costs incurred on inventory sold during the year as well as amortisation and impairment of certain technologies specifically developed/used for particular customers.
Included in the operating expenses are, amongst others, the following items:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Salaries TABLE_18 ADDITIONAL INFORMATION RE OPERATING EXPENSES |
188,133 | 178,776 |
| Social security costs | 32,818 | 34,257 |
| Pensions | 9,367 | 9,415 |
| Share-based compensation1 | 5,189 | 20,511 |
| Other2 | 26,362 | 28,661 |
| PERSONNEL EXPENSES | 261,869 | 271,620 |
Share-based compensation decreased mainly due to a decrease of the share price over 2016 (31 Dec 2016: €8.5, 31 Dec 2015: €11.6).
Other personnel expenses include costs of secondary benefits such as health insurance, vehicle lease costs, sales commissions and bonuses offset by capitalised personnel expenses in an amount of €62.6 million (2015: €60.0 million).
| TOTAL | 4,676 | 4,301 |
|---|---|---|
| Sales, general and administrative | 1,455 | 1,274 |
| Marketing | 136 | 114 |
| Research and development TABLE_19 #FTE ACROSS FUNCTIONAL AREAS |
3,085 | 2,913 |
| 2016 | 2015 |
At 31 December 2016, the group had 4,776 (2015: 4,666) employees (headcount). During 2016, 3,509 employees (FTE equivalent) worked outside the Netherlands (2015: 3,169). The increase in our average employees is mainly driven by increased headcount in our R&D departments as well as in Telematics sales force.
The group's pension plans primarily comprise of defined contribution plans, limiting the employer's legal obligation to the amount it agrees to contribute during the period of employment and a defined benefit plan for a German subsidiary. This defined benefit plan is unfunded and has no plan assets. Management is of the opinion that the plan has limited risks to the group as it was frozen in 2007. In the extraordinary event that the group is unable to meet its obligations, the participants will receive (partial) payments from a state-
The total pension costs of €9.4 million (2015: €9.4 million) consist of the costs of the defined contribution plans of €9.1 million (2015: €9.2 million) and of the German-defined benefit plan of €0.3 million (2015: €0.2 million).
The movement of the German-defined benefit obligation is presented below:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| PRESENT VALUE OF OBLIGATION AS AT 1 JANUARY TABLE_20 GERMAN-DEFINED BENEFIT OBLIGATION |
8,735 | 8,383 |
| Current service cost | 74 | 60 |
| Interest cost | 183 | 192 |
| 8,992 | 8,635 | |
| Remeasurements: | ||
| - Experience (gains)/losses due to change in demographical assumptions | 8 | -130 |
| - Losses from change in financial assumptions | 320 | 265 |
| 328 | 135 | |
| Benefits paid | -132 | -35 |
| PRESENT VALUE OF OBLIGATION AS AT 31 DECEMBER | 9,188 | 8,735 |
The defined benefit obligation is included as part of 'Other provisions' as disclosed in note 31.
The significant actuarial assumptions were as follows:
| 2016 | 2015 | |
|---|---|---|
| Discount rate TABLE_21 SIGNIFICANT ACTUARIAL ASSUMPTIONS |
1.9% | 2.1% |
| Average life expectancy1 | 20 | 20 |
A 0.1% increase or decrease in discount rate would result in a decrease or increase in the defined benefit obligation of approximately €0.1 million and a 1-year increase or decrease in average life expectancy would result in a €0.1 million increase or decrease in the defined benefit obligation.
In Italy, employees are paid a leaving indemnity on termination of their employment. This is a statutory payment based on Italian civil law. An amount is accrued each year based on the employee's remuneration and previously revalued accruals. The indemnity has the characteristics of a defined contribution obligation and is an unfunded, but fully provided liability. This liability is included as part of 'Other provisions'.
Employees in the United States are offered the opportunity to participate in the 401K pension plan, which involves no contribution or obligation from the group besides withholding and paying the employee's contribution.
For defined contribution plans, the group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when service has been rendered to the group. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction of future payments is available.
In relation to the defined benefit plan, the group recognised a liability on the balance sheet based on the present value of the defined benefit obligation at the end of the reporting period. The defined benefit obligation is calculated at least annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and which have terms to maturity approximating to the terms of the related pension obligation. The service cost and the interest cost are recognised as pension costs, while the actuarial (gains)/losses are credited/charged to 'Other comprehensive income'.
The group operates two equity-settled plans as well as a cash-settled phantom share plan. The purpose of the share-based compensation is to retain management and employees and align the interests of management and eligible employees with those of shareholders, by providing additional incentives to improve the group's performance on a long-term basis.
The group's equity-settled share-based payment plans comprise of stock option plans and a restricted stock plan.
The group has adopted stock option plans for members of the Management Board and eligible employees. The General Meeting has extended the authority of the Management Board to grant, subject to the prior approval of the Supervisory Board, rights to subscribe for shares under the respective stock option plans. The Management Board in turn has granted options to eligible employees. The options granted from 2011 onwards will vest after three years (cliff vesting). The options cannot be transferred, pledged or charged and may be exercised only by the option holder over a period of seven years from the grant date but only after completion of the three year vesting period. Options expire after the exercise period. The options will be covered at the time of exercise by issuing new shares.
As from 2011, the group also introduced a restricted stock plan to retain a selected group of talented employees. Each restricted-stock unit gives the right to receive one TomTom share after a three-year vesting period and qualifies as an equity-settled plan. The costs that arise from this plan are spread over the vesting period and have been determined based on TomTom's share price at the grant date. Total 2016 stock compensation expenses charged to the stock compensation reserve for this plan amounted to €36 thousand (2015: €133 thousand). As this plan is not material and has been fully settled in 2016, no further disclosures are provided.
The following table summarises movements in the equity stock compensation reserve relating to the stock options and the restricted stock units during 2016:
| Balance as at 31 December | 14,213 | 17,342 |
|---|---|---|
| Stock options exercised and settlement of restricted stock units | -6,350 | -15,641 |
| Transfer to accumulated deficit | -54 | -210 |
| Stock compensation expense | 3,275 | 3,788 |
| Balance as at 1 January TABLE_22 STOCK OPTIONS BALANCE |
17,342 | 29,405 |
| (€ in thousands) | 2016 | 2015 |
The following table summarises information about the stock options outstanding at 31 December 2016:
| Year of grant | Number outstanding at 31-12-2016 |
Exercise price per share (€) TABLE_23 STOCK OPTIONS OUTSTANDING |
Weighted average remaining life |
Number exercisable at 31-12-2016 |
Weighted average exercise price (€) |
|---|---|---|---|---|---|
| 2010 | 1,283,933 | 5.32-5.48 | 0.35 | 1,283,933 | 5.33 |
| 2011 | 386,500 | 6.08-6.20 | 1.36 | 386,500 | 6.12 |
| 2012 | 1,066,500 | 3.34-3.51 | 2.36 | 1,066,500 | 3.48 |
| 2013 | 1,769,200 | 3.36-5.90 | 3.35 | 1,769,200 | 3.53 |
| 2014 | 1,565,880 | 4.93-5.28 | 4.36 | 102,000 | 5.28 |
| 2015 | 1,287,660 | 7.60-7.83 | 5.36 | - | n/a |
| 2016 | 765,370 | 7.50-7.58 | 6.36 | - | n/a |
A summary of the group's stock option plans and the movements during the years 2016 and 2015 are presented below:
| Option plans 2016 |
2015 | |||
|---|---|---|---|---|
| No. TABLE_24 STOCK OPTION PLANS AND MOVEMENTS |
Weighted average exercise price (€) |
No. | Weighted average exercise price (€) |
|
| OUTSTANDING AS AT 1 JANUARY | 10,532,136 | 5.07 | 16,461,793 | 4.80 |
| Granted | 796,240 | 7.57 | 1,594,420 | 7.80 |
| Exercised | -2,340,255 | 4.81 | -6,864,159 | 5.03 |
| Expired | -304,348 | 5.81 | -14,568 | 5.94 |
| Forfeited | -558,730 | 5.73 | -645,350 | 4.80 |
| OUTSTANDING AS AT 31 DECEMBER | 8,125,043 | 5.32 | 10,532,136 | 5.07 |
The fair value of the stock options granted was determined using the binomial tree model. This model contains the input variables, including the risk-free interest rate, volatility of the underlying share price, exercise price and share price at the date of grant. The fair value calculated is allocated on a straight-line basis over the vesting period, based on the group's estimate of equity instruments that will eventually vest.
| 2016 | 2015 | |
|---|---|---|
| Share price at grant date (€) TABLE_25 INPUT FAIR VALUE STOCK OPTIONS CALCULATION |
7.50 | 7.60 |
| Exercise price (€) | 7.50-7.58 | 7.60-7.83 |
| Expected volatility | 46% | 42% |
| Expected average option life in years | 5.3 | 5.3 |
| Weighted average risk-free rate | 0.27% | 0.60% |
| Expected dividends | Zero | Zero |
The option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Volatility is determined using industry benchmarking for listed peer group companies as well as the historic volatility of the TomTom NV's stock. The group's employee stock options have characteristics that are significantly different from those of traded options, and changes in the subjective input assumptions can affect the fair value estimate.
TomTom has granted phantom shares to certain employees. Under this plan, eligible employees are entitled to receive a cash payment equal to the value of the number of shares that have vested. These cash-settled phantom shares are conditional on the employee completing three years of service (the vesting period). As at 31 December 2016, the outstanding liability with regard to the phantom share plan was €13.4 million (2015: €18.4 million).
The following table provides the movement in the number of phantom shares.
| 2016 | 2015 | |
|---|---|---|
| OUTSTANDING AS AT 1 JANUARY TABLE_26 PHANTOM SHARES BALANCE |
2,811,500 | 2,994,330 |
| Vested and paid out | -861,700 | -769,100 |
| Granted | 628,170 | 850,350 |
| Forfeited | -265,450 | -264,080 |
| OUTSTANDING AS AT 31 DECEMBER | 2,312,520 | 2,811,500 |
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equitysettled share-based payments is expensed on a straight-line basis over the vesting period. The costs are determined based on the fair value of the granted instruments and the number expected to vest. At each balance sheet date, the group revises its estimates of the number of instruments expected to vest. Cash-settled share-based payments are initially recognised at the fair value of the liability and are expensed over the vesting period. The liability is remeasured at each balance sheet date to its fair value, with all changes recognised immediately as either a profit or a loss.
Total depreciation, amortisation and impairment for the year was €132.0 million (2015: €123.1 million) of which €8.8 million (2015: € 21.6 million) is included in cost of sales. In 2016, the amortisation charge was slightly higher mainly driven by several technology platforms that went operational in 2016.
| TOTAL | 132,003 | 123,096 |
|---|---|---|
| Depreciation | 18,536 | 14,487 |
| Amortisation1 TABLE_27 DEPRECIATION & AMORTISATION |
113,467 | 108,609 |
| (€ in thousands) | 2016 | 2015 |
Amortisation charges totalling €113.5 million (2015: €108.6 million) are included in the following line items in the Income Statement:
Reference is made to note 14 for an explanation of the impairment charge.
In 2016, the group received government grants amounting to €5.8 million, in relation to the research and development activities performed by the group (2015: €5.6 million) which have been accounted as a deduction of wage tax expense in line with the nature of the grants.
Government grants are recognised at their fair value when there is a reasonable assurance that the group will comply with the conditions attached to them, and that the grants will be received. Government grants that are receivable as compensation for expenses or losses already incurred, or for the purpose of giving immediate financial support to the group with no future related costs, are recognised as a deduction of the related expense in the period in which they become receivable.
Income tax comprises of the current tax gain/expense as well as deferred tax gain as specified in the following table.
| INCOME TAX (GAIN)/EXPENSE | -4,709 | -25,794 |
|---|---|---|
| Deferred tax | -18,381 | -24,914 |
| Current tax TABLE_28 INCOME TAX |
13,672 | -880 |
| (€ in thousands) | 2016 | 2015 |
The current tax expense represents the tax charge on profit for current year as well as adjustments relating to prior periods. The amount of cash tax paid in 2016 was €12.8 million which is broadly in line with the recorded current tax charge of €13.7 million. The income tax gain positively impacted our 2016 earnings per share by €0.02.
The activities of the group are subject to corporate income tax in several countries, depending on presence and activity. The applicable statutory tax rates of the tax jurisdictions in which the group operates vary between 12.5% and 41% and can cause the group Effective Tax Rate (ETR) to deviate from the Dutch corporate tax rate. The following table presents a numerical reconciliation between the tax charge on the basis of the Dutch tax rate and the ETR.
| 2016 | 2015 | |
|---|---|---|
| Dutch tax rate TABLE_29 EFFECTIVE TAX RATE (ETR) |
25.0% | 25.0% |
| Higher/(lower) weighted average statutory rate of group activities | 21.8% | -13.2% |
| Income exempted from tax | -11.1% | 38.8% |
| Non-deductible expenses and non-expense deductibles | 21.5% | 14.3% |
| Capitalisation/utilisation of losses not previously capitalised | -25.3% | 14.0% |
| Effect of prior years' settlements and/or adjustments1 | -68.5% | 148.3% |
| Remeasurement of deferred tax2 | -30.8% | 103.5% |
| Other | 2.3% | 13.3% |
| EFFECTIVE TAX RATE | -65.0% | 343.9% |
The effect of prior year's settlements and/or adjustments for 2016 was €5.0 million (2015: €11.1 million).
Remeasurement of deferred tax resulted in a gain of €2.3 million in 2016 (2015: €7.8 million).
Our 2016 ETR of -65% (2015: 343.9%) is primarily impacted by the effect of prior years' adjustment as well as the impact of a remeasurement of our deferred tax assets and liabilities. The prior years' adjustments mainly reflected a change in estimated prior years' taxable income following the finalisation of the tax returns. The remeasurement of deferred tax assets and liabilities to a lower tax rate mainly related to the application of the innovation box facility in the Netherlands as well as change in the tax rates in other countries.
The income tax debited directly to equity in 2016 amounted to €0.4 million (2015: credit of €9.3 million), of which €0.6 million related to the deferred tax assets and liabilities as disclosed in note 11. The income tax debited in equity mainly related to a net tax gain from the foreign currency revaluation of certain intercompany borrowings that form part of the net investment in subsidiaries.
Current and deferred taxes are recognised as an expense or income in the profit and loss account, except when they relate to items that arise from initial accounting for a business combination or items credited or debited directly to equity. For the latter, the tax is also recognised either in Other comprehensive income or directly in equity. The group's income tax expense is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.
As at 31 December 2016, the group had a deferred tax liability of €97.3 million (2015: €123.8 million) and a deferred tax asset of €12.0 million (2015: €7.5 million).
| TOTAL | -85,236 | -116,313 |
|---|---|---|
| Deferred tax liabilities | -97,282 | -123,825 |
| Deferred tax assets TABLE_32 DEFERRED TAX IN BALANCE SHEET |
12,046 | 7,512 |
| (€ in thousands) | 2016 | 2015 |
The deferred tax asset and liability mainly results from the timing difference between the tax and accounting treatment of intangible assets, cash-settled share-based payments and certain provisions as well as from the capitalisation of the tax loss carry forwards. The following table presents the movement in each of the category on a gross basis.
| (€ in thousands) TABLE_31 MOVEMENT OF DEFERRED TAX |
Stock compensation expense |
Other Intangible assets |
Provisions Assessed | losses | Total | |
|---|---|---|---|---|---|---|
| BALANCE AS AT 31 DECEMBER 2014 | 1,994 | -358 | -190,279 | 6,711 | 33,819 | -148,113 |
| Acquisitions through business combination | 0 | 129 | -2,012 | 0 | 0 | -1,883 |
| (Charged)/credited to income statement | 2,607 | 631 | 16,757 | -1,413 | -991 | 17,591 |
| (Charged)/credited to equity | 0 | 0 | 0 | -31 | 9,3051 | 9,274 |
| Impact of remeasurement (charged)/credited to income statement | -553 | 0 | 7,916 | 0 | -30 | 7,333 |
| Currency translation differences | 0 | 102 | -3,166 | 679 | 1,870 | -515 |
| BALANCE AS AT 31 DECEMBER 2015 | 4,048 | 504 | -170,784 | 5,946 | 43,973 | -116,313 |
| Reclassification to provisions | 0 | 0 | 0 | 0 | 13,201 | 13,201 |
| (Charged)/credited to income statement | -1,100 | -776 | 43,306 | 138 | -25,418 | 16,150 |
| (Charged)/credited to equity | 0 | 0 | 0 | 233 | -8791 | -646 |
| Impact of remeasurement (charged)/credited to income statement | -94 | 0 | 2,325 | 0 | 0 | 2,231 |
| Currency translation differences | 0 | -106 | 301 | 258 | -312 | 141 |
| BALANCE AS AT 31 DECEMBER 2016 | 2,854 | -378 | -124,852 | 6,575 | 30,565 | -85,236 |
The decrease in our deferred tax liability on intangibles and deferred tax assets on losses is mainly driven by settlement of an intercompany relationship within the group.
The group has in some jurisdictions remaining tax losses that have not been recognised as a deferred tax asset as the possible future recovery of these losses against future taxable income is uncertain. As at 31 December 2016, these losses amounted to €28.9 million (2015: €86.0 million). These losses have no future expiry date.
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| DEFERRED TAX TABLE_30 DEFERRED INCOME TAX |
||
| To be reversed within 12 months | -3,438 | -3,270 |
| To be reversed after more than 12 months | -81,798 | -113,043 |
| TOTAL | -85,236 | -116,313 |
Deferred taxes are calculated using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes (accounting base) and the amounts used for income tax purposes (tax base).
Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the group expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets are recognised when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilised. The carrying amounts of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
The determination of the group's provision for income tax as well as deferred tax assets and liabilities involves significant judgements and estimates on certain matters and transactions, for which the ultimate outcome may be uncertain. If the final outcome differs from the group's estimates, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
The notes in this section specify the group's non-current assets including investments made during the year either through separate asset acquisitions or business combinations.
| Goodwill 400,318 TABLE_33 INTANGIBLE ASSETS Other intangible assets 795,771 |
TOTAL INTANGIBLE ASSETS | 1,196,089 | 1,214,345 |
|---|---|---|---|
| 810,908 | |||
| 403,437 | |||
| (€ in thousands) | 2016 | 2015 |
| (€ in thousands) | Goodwill | Database and tools3 TABLE_34 MOVEMENTS OF INTANGIBLES ASSETS |
Internally generated |
Other1 | Total |
|---|---|---|---|---|---|
| BALANCE AS AT 31 DECEMBER 2014 | |||||
| Investment cost | 1,902,489 | 1,036,892 | 139,741 | 250,795 | 3,329,917 |
| Accumulated amortisation and impairment | -1,520,920 | -366,960 | -76,488 | -183,397 | -2,147,765 |
| 381,569 | 669,932 | 63,253 | 67,398 | 1,182,152 | |
| Movements | |||||
| Investments | 0 | 44,649 | 36,140 | 13,183 | 93,972 |
| Acquisitions through business combination | 21,868 | 10,942 | 0 | 15,459 | 48,269 |
| Disposal (net)2 | 0 | 0 | 0 | -36 | -36 |
| Amortisation charges | 0 | -66,051 | -18,377 | -12,697 | -97,125 |
| Impairment4 | 0 | 0 | -11,484 | 0 | -11,484 |
| Currency translation differences | 0 | -1,846 | 283 | 160 | -1,403 |
| 21,868 | -12,306 | 6,562 | 16,069 | 32,193 | |
| BALANCE AS AT 31 DECEMBER 2015 | |||||
| Investment cost | 1,924,357 | 1,068,496 | 171,443 | 239,146 | 3,403,442 |
| Accumulated amortisation and impairment | -1,520,920 | -410,870 | -101,628 | -155,679 | -2,189,097 |
| 403,437 | 657,626 | 69,815 | 83,467 | 1,214,345 | |
| Movements | |||||
| Investments | 0 | 56,873 | 35,949 | 4,432 | 97,254 |
| Adjustment to initial purchase price allocation | -2,441 | 0 | 0 | 0 | -2,441 |
| Disposal (net)2 | 0 | 0 | 0 | -149 | -149 |
| Amortisation charges | 0 | -71,215 | -23,401 | -18,851 | -113,467 |
| Currency translation differences | -678 | 1,575 | 225 | -575 | 547 |
| -3,119 | -12,767 | 12,773 | -15,143 | -18,256 | |
| BALANCE AS AT 31 DECEMBER 2016 | |||||
| Investment cost | 1,921,238 | 1,127,712 | 207,392 | 233,865 | 3,490,207 |
| Accumulated amortisation and impairment | -1,520,920 | -482,853 | -124,804 | -165,541 | -2,294,118 |
| 400,318 | 644,859 | 82,588 | 68,324 | 1,196,089 |
Other intangible assets include technology, customer relationships, brand name and software.
During the year we disposed certain intangibles. The total gross amount of the assets disposed across all asset classes was €14.8 million (2015: €66.9 million).
The database as acquired at acquisition date (June 2008) represents geographical content data used for the group's digital maps and has a remaining useful life of 11 years and 5 months.
For further disclosures on impairment please see note 14.
For goodwill adjustment to the initial purchase price allocation see further details in note 15.
Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition and is carried at cost less accumulated impairment losses.
Intangible assets other than goodwill comprise of assets that have been acquired separately either through separate asset acquisitions or business combinations and assets that have been generated internally such as the group's core technology and geographical content database.
Internal development costs for core technology are recognised as an intangible asset if, and only if, all of the following have been demonstrated:
Internally generated databases are capitalised until a certain level of map coverage is reached and ongoing activities focus on maintenance. At this point, capitalisation is discontinued.
Internal software costs relating to development of non-core software with an estimated average useful life of less than one year and engineering costs relating to the detailed manufacturing design of new products are expensed in the period in which they are incurred.
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. All expenditures on research activities are expensed in the income statement as incurred.
Definite-lived intangible assets acquired separately are initially recognised at cost. The cost of assets acquired separately includes directly attributable costs to bring the asset to its intended use. Intangible assets acquired in a business combination are identified and recognised separately from goodwill where they satisfy the definition of an intangible asset and their fair values can be measured reliably. The cost of such intangible assets is their fair value at the acquisition date.
Subsequent to initial recognition, all intangible assets other than goodwill are carried at cost less accumulated amortisation and accumulated impairment losses.
The amortisation of other intangible assets is recorded on a straight-line basis over the following estimated useful lives as follows:
Intangible assets generated for certain customer specific projects are amortised based on actual units of products sold to the customers.
Customer relationships include customers for maps; there is a high cost involved in changing map providers and historically there is a high customer retention.
Management made use of assumptions and judgement in assessing the expected future economic benefits that can be attributed to the internally generated technology, databases and tools, as well as their expected useful lives. For internally generated databases, assumption is also made on the level of completion, at which point the capitalisation is discontinued and future activities are considered as maintenance.
Such estimates are made on a regular basis, as they can be significantly affected by changes in technology and other factors.
| (€ in thousands) | Furniture and fixture TABLE_35 PROPERTY, PLANT & EQUIPMENT |
Computer and hardware |
Other1 | Total |
|---|---|---|---|---|
| BALANCE AS AT 31 DECEMBER 2014 | ||||
| Investment cost | 10,499 | 53,769 | 36,811 | 101,079 |
| Accumulated depreciation and impairment | -7,161 | -37,918 | -25,706 | -70,785 |
| 3,338 | 15,851 | 11,105 | 30,294 | |
| Movements | ||||
| Investments | 2,217 | 11,437 | 8,950 | 22,604 |
| Acquisitions through business combination | 134 | 859 | 133 | 1,126 |
| Disposals (net)2 | -12 | -1,013 | -118 | -1,143 |
| Depreciation charges | -1,117 | -7,849 | -5,521 | -14,487 |
| Currency translation differences | 65 | 284 | 126 | 475 |
| 1,287 | 3,718 | 3,570 | 8,575 | |
| BALANCE AS AT 31 DECEMBER 2015 | ||||
| Investment cost | 12,441 | 63,974 | 45,779 | 122,194 |
| Accumulated depreciation and impairment | -7,816 | -44,405 | -31,104 | -83,325 |
| 4,625 | 19,569 | 14,675 | 38,869 | |
| Movements | ||||
| Investments | 1,472 | 10,945 | 8,939 | 21,356 |
| Adjustment to initial purchase price allocation | 0 | 0 | 187 | 187 |
| Disposals (net)2 | -52 | -623 | -485 | -1,160 |
| Depreciation charges | -1,375 | -9,873 | -7,288 | -18,536 |
| Currency translation differences | 5 | 4 | -327 | -318 |
| 50 | 453 | 1,026 | 1,529 | |
| BALANCE AS AT 31 DECEMBER 2016 | ||||
| Investment cost | 12,133 | 65,883 | 48,451 | 126,467 |
| Accumulated depreciation and impairment | -7,458 | -45,861 | -32,750 | -86,069 |
| 4,675 | 20,022 | 15,701 | 40,398 |
The costs for operating leases in 2016 amounted to €16.0 million (2015: €14.1 million). For disclosures of our operating lease commitments reference is made to note 32 Commitments, contingent assets and liabilities.
The group leases certain property, plant and equipment. Leases are classified as finance leases whenever the terms of the lease substantially transfer all the risks and rewards of ownership to the group. All other leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment charges. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets as follows:
The estimated useful lives, residual values and depreciation methods are reviewed at each year-end, with the effect that any changes in estimate are accounted for on a prospective basis. The gain or loss arising on disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset, and is recognised in profit or loss.
Non-financial assets comprises of goodwill, other intangible assets and property, plant and equipment.
For 2016 no impairment charge has been recorded (2015: €11.5 million). The 2015 impairment related to certain technologies which have been specifically developed and attributed to certain customer contracts in Automotive. This impairment was triggered by lower projections of future cash flows on those contracts which resulted in lower recoverable amounts (determined based on discounted cash flow model) in comparison with their respective carrying value.
Goodwill is allocated to the operating segments identified according to the core business activities as monitored by management for the purpose of impairment testing. The allocation is made to those operating segments that are expected to benefit from the business combination in which the goodwill arose.
A segment-level summary of the goodwill allocation for the group's segments in 2016 and 2015 is presented below:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Automotive & Licensing TABLE_36 SEGMENT-LEVEL GOODWILL ALLOCATION |
168,606 | 168,606 |
| Automotive | 83,389 | 83,389 |
| Licensing | 85,217 | 85,217 |
| Telematics | 63,025 | 66,144 |
| Consumer | 168,687 | 168,687 |
| TOTAL | 400,318 | 403,437 |
Assets, such as goodwill, that have an indefinite useful life, which are not subject to amortisation, and intangible assets not yet ready to use are tested for impairment at least annually, or whenever management identifies conditions that may trigger a risk of impairment. Assets that are subject to amortisation/depreciation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount and is recognised immediately in the income statement. The recoverable amount is the higher of an asset's fair value less costs of disposal and value in use. In estimating the recoverable amount, management is required to make an estimate of the expected future cash flows from the cash-generating unit in the forecasted period and also to determine a suitable discount rate in order to calculate the present value of those cash flows. Such estimates might be subject to a certain degree of judgement and uncertainty.
Non-financial assets, other than goodwill, which have been subject to an impairment, are reviewed for possible reversal of the impairment at each reporting date.
The recoverable amount of a segment is determined based on the higher of the value in use or fair value less costs of disposal calculations. The fair value less costs of disposal calculation resulted in a higher recoverable amount.
The calculations of fair value less costs of disposal use post-tax cash flow projections based on financial forecasts approved by management covering a five-year period (forecasted period). Management's cash flow projections for each of the segments in the forecasted period are based on management's assumptions on the expected revenue growth rate, gross margin and operating margin after allocation of operating expenses from shared units, taking into account management's expectation of market size and market share development.
Automotive and Telematics revenue are projected to grow significantly throughout the forecasted period. Licensing revenue in the forecasted period shows a single digit growth rate, while the revenue projections of Consumer are slightly declining in the forecasted period. Given the limited visibility on the longer-term growth, the growth rates in the later years are more subject to uncertainty compared with the earlier years. Gross margin and operating margin projections of each of the segments are consistent with the expected revenue developments. The growth rates after the forecasted
period as well as the discount rate used for each of the segments are presented in the table below. The input to the group's key assumptions include those that are based on non-observable market data (level 3 input in accordance with IFRS 13).
| Consumer | Automotive | Licensing | Telematics | |
|---|---|---|---|---|
| 2016 | TABLE_37 IMPAIRMENT TEST FOR GOODWILL | |||
| Revenue - perpetual growth1 | 0.0% | 2.0% | 0.0% | 2.0% |
| Discount rate2 | 9.0% | 9.0% | 9.0% | 9.0% |
| 2015 | ||||
| Revenue - perpetual growth1 | 0.0% | 2.0% | 0.0% | 2.0% |
| Discount rate2 | 9.0% | 9.0% | 9.0% | 9.0% |
Weighted average growth rate used to extrapolate cash flows beyond the forecasted period.
Post-tax discount rate applied to the cash flow projections.
Discount rates used are post-tax and reflect specific risks relating to the relevant operating segments. Management considered the effects of applying a pre-tax approach and concluded that this will not materially change the outcome of the impairment test.
Expectations and input to the impairment calculation, as well as the overall outcome, have been compared with the available external information from various analysts and to the extent available with market information on recent comparable transactions.
The impairment test performed resulted in no goodwill impairment for 2016 and 2015 for any of the segments. Management performed a sensitivity analysis on the relevant key assumptions in the group's 2016 year-end annual impairment testing.
The sensitivity test for the Licensing segment showed that the level of headroom available at year-end 2016 (headroom: €74 million, 2015: €27 million) would fall to nil should the compound annual revenue growth rate in the forecasted period decrease from 3% to -1% while other factors remain constant.
For Consumer, Automotive and Telematics, a reasonably possible change in any of the above-mentioned key assumptions as well as other assumptions in the forecasted period would not cause the fair value less costs of disposal of any of these units to fall below the level of their respective carrying value.
No business combination has taken place in 2016. During the year, the group made an adjustment to the initial purchase price allocation of Finder acquisition resulting mainly in a decrease of goodwill balance (€2.4 million) and the related contingent consideration (€2.0 million).
In 2015, the group made two acquisitions for an aggregate consideration of €42.4 million. This consideration includes cash considerations as well as an estimated contingent consideration of €2.0 million, which has been determined based on certain financial and non-financial key performance indicators. The acquisitions comprise of Location Navigation Pty. Ltd, a mapping company in Australia on 30 April 2015 and Finder S.A., a leading Polish fleet management service provider on 23 December 2015. With these acquisitions, we expanded our global map footprint and our fleet management business.
Both acquisitions were effectuated through the acquisition of 100% of the shares. The main assets and liabilities that arose from both acquisitions combined were intangible assets of €48.3 million, which includes €21.9 million goodwill and deferred tax liabilities of €1.8 million. The fair value of the assets and liabilities acquired have been determined using discounted cash flow technique, which includes inputs that are not based on observable market data (level 3 input). The acquired businesses contributed a revenue of €2.9 million and a net profit of €1.7 million in 2015. Excluding the impact of the acquisition-related amortisation from the purchase price allocations, the contributed result in 2015 was a net profit of €2.2 million. If the group had acquired all companies from 1 January 2015, the group revenue and net result for 2015 would have been €1,023.6 million and €18.8 million respectively. The acquisition of Finder added over 60,000 subscribers to our Telematics subscriber installed base.
As none of the transactions are material individually, they are not disclosed separately in accordance with IFRS 3.
The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.
Acquisition of additional interest in associates, which results in the group gaining control over the associate, is accounted for as a business combination. The previously held interest in the associate is considered as part of the consideration and hence is remeasured to its fair value. The gain or loss from this remeasurement is included in the 'Result of associates' in the income statement. The associate is accounted for as a subsidiary and included in the consolidated financial statements from the date the control passes to the group.
As of 31 December 2016, the group held non-controlling interests in a number of associates: Cyient Ltd. ('Cyient'), WayTag (Pty) Ltd. ('WayTag') and Beijing Golden Tom Information Technology Co. Ltd. ('Beijing Golden Tom'). Cyient provides content development and support services. WayTag is a South Africa-based company that allows people and businesses to create a unique location identifier that either refers to a fixed location or to an individual's current location. Although we will continue our activities in China, Beijing Golden Tom is in process to be liquidated.
The movements in the investments in associates can be specified as follows:
| BALANCE AS AT 31 DECEMBER | 3,941 | 3,546 |
|---|---|---|
| Other direct equity movements | -151 | 257 |
| Dividend received | -190 | -167 |
| Result of associates1 | 736 | 167 |
| BALANCE AS AT 1 JANUARY TABLE_38 INVESTMENTS IN ASSOCIATES |
3,546 | 3,289 |
| (€ in thousands) | 2016 | 2015 |
As the associates are not material to the group, no further information is provided other than those detailed below. The group has no commitment in providing additional financing to any of its associates. The (estimated) full year revenue and net profits of the associates and their assets and liabilities are as follows:
| Name of associate TABLE_39 OVERVIEW ASSOCIATES |
Country of incorporation |
Assets Liabilities | Revenue | Net result |
Interest held |
|
|---|---|---|---|---|---|---|
| (€ in thousands) | (%) | |||||
| 2016 | ||||||
| Cyient Ltd.1 | India | 376,827 | 113,883 | 437,556 | 44,631 | 1.33% |
| Beijing Golden Tom | China | 9 | 1,109 | 0 | -279 | 49.00% |
| WayTag | South Africa | 48 | 2 | 17 | 16 | 26.00% |
| 2015 | ||||||
| Cyient Ltd.1 | India | 358,605 | 102,149 | 406,997 | 50,304 | 1.35% |
| Beijing Golden Tom | China | 106 | 1,217 | 132 | 294 | 49.00% |
| WayTag | South Africa | 48 | 11 | 0 | 6 | 26.00% |
Cyient is regarded as an associate as TomTom is represented in its Board of Directors. The fair value of the investment in Cyient is €10.4 million (2015: €10.0million).
Associates are all entities over which the group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights, or other evidence of significant influence. Investments in associates are accounted for using the equity method of accounting, and are initially recognised at cost. The group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.
The group's share of its associates' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in 'Other comprehensive income' is recognised in 'Other comprehensive income'. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group's interest in the associates. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred. Accounting policy of associates has been changed where necessary to ensure consistency with the policy adopted by the group.
The notes in this section specify items that form part of group's working capital. Disclosure on cash and cash equivalents is included in this section.
| INVENTORIES | 54,078 | 48,657 |
|---|---|---|
| Components and sub-assemblies | 23,286 | 24,850 |
| Finished goods TABLE_40 INVENTORIES |
30,792 | 23,807 |
| (€ in thousands) | 2016 | 2015 |
The amount of inventories recognised as an expense when the inventories are sold and included in cost of sales amounted to €319 million (2015: €373 million). As a result of the write-down of inventories to their net realisable value, the group recognised a cost of €5.6 million (2015: €4.4 million). These costs are included in cost of sales.
Inventories are stated at the lower of cost and net realisable value. The cost of inventories comprises costs of purchase, assembly and conversion to finished products. The cost of inventories is determined using the first-in, first-out (FIFO) method, net of reserves for obsolescence and any excess stock. Net realisable value represents the estimated selling price less an estimate of the costs of completion and direct selling costs.
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Gross accounts receivables TABLE_41 TRADE RECEIVABLES |
136,899 | 142,829 |
| Allowance for doubtful receivables | -4,475 | -4,236 |
| TRADE RECEIVABLES (NET) | 132,424 | 138,593 |
The group expects to recover all receivables within a year. An allowance has been made for estimated unrecoverable amounts of the trade receivables. The carrying amount of trade receivables approximates their fair value. The group does not hold any collateral over these balances.
The group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. Management actively monitors the credit risk related to these customers and takes pro-active action to reduce credit limits if required.
The following table summarises the movement in the allowance for doubtful trade receivables account:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| BALANCE AS AT 1 JANUARY TABLE_42 MOVEMENT IN PROVISION FOR DOUBTFUL ACCOUNTS |
-4,236 | -3,546 |
| Additional receivables impairment | -2,487 | -2,299 |
| Acquisition | 0 | -641 |
| Receivables written off during the year as uncollectible | 816 | 2,172 |
| Unused amounts reversed | 1,497 | 0 |
| Translation effects | -65 | 78 |
| BALANCE AS AT 31 DECEMBER | -4,475 | -4,236 |
The following table sets out the balance of trade accounts receivable that are not overdue (as the payment terms specified in the terms and conditions established with the group's customers have not been exceeded) and an analysis of the ageing of the overdue amounts and related provisions for doubtful trade accounts receivable:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Of which: TABLE_43 AGE OF TRADE ACCOUNTS RECEIVABLES |
||
| Not overdue | 125,613 | 134,891 |
| Overdue < 3 months | 4,020 | 4,128 |
| 3 to 6 months | 2,441 | 199 |
| Over 6 months | 4,825 | 3,611 |
| less provision | -4,475 | -4,236 |
| TRADE RECEIVABLES (NET) | 132,424 | 138,593 |
The provisions recorded in 2016 and 2015 are mainly related to the overdue amounts.
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| EUR TABLE_44 TRADE ACCOUNTS BREAKDOWN PER MAJOR CURRENCIES |
83,797 | 78,923 |
| GBP | 14,109 | 20,764 |
| USD | 17,340 | 18,898 |
| Other | 17,178 | 20,008 |
| TRADE RECEIVABLES (NET) | 132,424 | 138,593 |
Trade receivables are initially recognised at fair value, and subsequently measured at amortised cost (if the time value is material), using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due, according to the original terms of the receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement within 'Cost of sales'. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against 'Cost of sales' in the income statement.
| TOTAL OTHER RECEIVABLES | 46,115 | 53,533 |
|---|---|---|
| Other receivables | 3,875 | 3,105 |
| Deferred cost of sales1 | 2,530 | 4,603 |
| Unbilled revenue | 12,550 | 14,150 |
| CIT, VAT and other taxes | 6,009 | 9,770 |
| Prepayments TABLE_45 OTHER RECEIVABLES AND PREPAYMENTS |
21,151 | 21,905 |
| (€ in thousands) | 2016 | 2015 |
The carrying amount of the other receivables and prepayments approximates their fair value.
Other financial assets/liabilities include derivative financial instruments carried at fair value through profit or loss.
| (€ in thousands) | 2016 | 2015 | ||
|---|---|---|---|---|
| Assets TABLE_46 OTHER FINANCIAL ASSETS/LIABILITIES |
Liabilities | Assets | Liabilities | |
| Derivatives at fair value through profit or loss | 1,210 | -338 | 967 | -573 |
The notional principle amounts of the outstanding forward foreign exchange and option contracts as at 31 December 2016 were €49 million (2015: €58 million). All the group's outstanding options and forwards have a contractual maturity of less than one year. The group does not apply hedge accounting.
Derivatives are initially and subsequently measured at fair value. Gains or losses arising from changes in fair value of derivatives are recognised in the income statement. Transaction costs are expensed in the income statement.
| TOTAL CASH AND CASH EQUIVALENTS | 142,527 | 147,565 |
|---|---|---|
| Cash and equivalents TABLE_47 CASH & CASH EQUIVALENTS |
142,527 | 147,565 |
| (€ in thousands) | 2016 | 2015 |
Cash and cash equivalents consist of cash held by the group sometimes invested in short-term bank deposits with an original maturity of three months or less. The carrying amount of cash and cash equivalents approximates its fair value. All cash and cash equivalents are available for immediate use by the group.
Cash and cash equivalents are stated at face value and comprise cash on hand, deposits held on call with banks, and other short-term highly liquid investments that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.
All trade payable balances have a contractual maturity of less than six months and the carrying amount approximates their fair value.
Accruals and other liabilities comprise of the following:
| TOTAL | 142,698 | 143,788 |
|---|---|---|
| Operating expenses accruals2 | 75,143 | 78,648 |
| Margin-related accruals1 TABLE_48 ACCRUALS AND OTHER LIABILITIES |
67,555 | 65,140 |
| (€ in thousands) | 2016 | 2015 |
Margin-related accruals include items such as sales return allowance, rebates and stock protection accrual.
Operating expenses accruals include an amount of €0.3 million (2015: €0.6 million) related to other financial liabilities.
This section includes notes related to financing items such as equity and borrowings as well as financial risk management and financial instruments. Related items such as earnings per share calculation as well as financial income and expenses, are included in this section.
| 2016 | 2015 | |||
|---|---|---|---|---|
| No. TABLE_49 SHAREHOLDERS' EQUITY |
(€ in thousands) | No. | (€ in thousands) | |
| AUTHORISED: | ||||
| Ordinary shares | 600,000,000 | 120,000 | 600,000,000 | 120,000 |
| Preferred shares | 300,000,000 | 60,000 | 300,000,000 | 60,000 |
| TOTAL | 900,000,000 | 180,000 | 900,000,000 | 180,000 |
| ISSUED AND FULLY PAID: | ||||
| Ordinary shares | 232,886,736 | 46,577 | 230,495,981 | 46,099 |
In 2016, 2,390,755 shares were issued to cover the exercises of employee stock options (2,340,255) and settlement of the restricted stock units (50,500).
Reserves are freely distributable except for €220.3 million of legal reserves (2015: €210.9 million). Note F. Other reserves in the company financial statements provides an overview of the non-distributable reserves.
All shares have a par value of €0.20 per share (2015: €0.20 per share). Further information on the rights, restrictions and other conditions attached to ordinary and preferred shares is provided in the Corporate Governance section in the Annual Report.
The Corporate Governance section of this Annual Report provides a detailed description regarding the use of Foundation Continuity TomTom as a protective measure. Management is of the opinion that the call option as described in the Corporate Governance section does not represent a significant value as meant in IAS 1, paragraph 31, due to the fact that the likelihood that the call option will be exercised is remote. In the remote event that the call option is exercised, the preferred shares that are issued temporarily are intended to be cancelled within 1 year period. The option is therefore not accounted for, nor further disclosed in the annual accounts.
Ordinary shares are classified as share capital.
The share premium represents the amount by which the fair value of the consideration received exceeds the nominal value of shares issued. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
The calculation of basic and diluted earnings per share is based on the following data:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Earnings TABLE_50 NET RESULT AND ADJUSTED NET RESULT |
||
| Net result attributed to equity holders | 11,987 | 18,122 |
| Number of shares | ||
| Weighted average number of ordinary shares for basic earnings per share | 231,743,011 | 227,771,117 |
| Effect of dilutive potential ordinary shares | ||
| Share options and restricted stock | 3,227,387 | 4,606,654 |
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES FOR DILUTED EARNINGS PER SHARE | 234,970,398 | 232,377,771 |
| EARNINGS PER SHARE (€) | ||
| Basic | 0.05 | 0.08 |
| Diluted | 0.05 | 0.08 |
TomTom also reports an adjusted earnings per share which excludes acquisition-related expenses and gains on a post tax basis in order to give more insight in our operational performance. The reconciliation of the adjusted net result to the reported net result is presented below:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| TABLE_50 NET RESULT AND ADJUSTED NET RESULT | ||
| Net result attributed to equity holders | 11,987 | 18,122 |
| Amortisation of acquired intangibles | 55,309 | 52,056 |
| Tax effect of adjustments | -10,920 | -13,014 |
| Remeasurement of deferred tax liability1 | -2,263 | -7,535 |
| ADJUSTED NET RESULT | 54,113 | 49,629 |
| ADJUSTED EARNINGS PER SHARE (€)2 | ||
| Basic | 0.23 | 0.21 |
| Diluted | 0.23 | 0.21 |
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares arising from stock options and other equity-settled share-based plans.
For the stock options, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares), based on the monetary value of the subscription rights attached to outstanding share options.
The number of shares calculated as above is compared with the number of shares that would have been issued, assuming the exercise of the stock options. When the effect of the options and other equity-settled share-based plans is anti-dilutive, the number is excluded from the calculation of diluted earnings.
Adjusted earnings per share is calculated by dividing the adjusted earnings by the weighted average number of ordinary and diluted shares outstanding during the year.
The following table presents the interest held by third parties in the group's consolidated subsidiaries:
| Subsidiary | Country | % of non controlling interest | |
|---|---|---|---|
| TABLE_52 MINORITY INTERESTS SUBSIDIARIES AND INTEREST % | 31 Dec 2016 | 31 Dec 2015 | |
| TomTom Africa (Pty) Ltd. | South Africa | 24% | 24% |
| TomTom Navigation Taiwan Co., Ltd. | Rep. of China | 30% | 30% |
| TomTom Telematics Solutions Mexico S.A. de C.V.1 | Mexico | 20% | 30% |
The movements in non-controlling interest is presented below:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| BALANCE AS AT 1 JANUARY TABLE_53 MINORITY INTERESTS |
1,723 | 2,073 |
| Non-controlling interests in the net result of subsidiaries | -29 | 171 |
| Dividends paid | -138 | 0 |
| Change in share of non-controlling interests | -1 | -5 |
| Currency translation differences | 351 | -516 |
| BALANCE AS AT 31 DECEMBER | 1,906 | 1,723 |
The main part of the balance of the non-controlling interest relates to TomTom Africa (Pty) Ltd. There are no material cash balances or assets held by any of the abovementioned subsidiaries.
| TOTAL | 9,586 | 48,541 |
|---|---|---|
| Current | 0 | 4,287 |
| Non-current TABLE_54 BORROWINGS |
9,586 | 44,254 |
| (€ in thousands) | 2016 | 2015 |
The non-current borrowings are relating to the credit facility agreement (the 'facility') signed on 22 December 2014. The initial agreement which was effective up to 31 March 2018, has been extended up to 31 March 2020. The facility comprises of a revolving credit facility for an amount of €250 million, of which €10 million was drawn at the end of December 2016 (31 December 2015: €45 million). Netted with the transaction costs of €0.4 million, the carrying amount of the group's outstanding borrowings at 31 December 2016 was €9.6 million (31 December 2015: €44.3 million). The interest is in line with market conditions and is based on Euribor plus a margin that depends on certain leverage covenants. The average interest paid on borrowings in 2016 was 0.7% (2015: 0.7%).
The outstanding borrowings from the credit facility are presented as a non-current liability as management expects to maintain approximately similar level of utilisation in the coming twelve months. As the contractual interest rate on the credit facility is based on market interest rates plus a certain margin, the fair value of the borrowings at the end of 2016 and 2015 is estimated to approximate their carrying value.
The current portion of our borrowings at the end of December 2015 came from an acquisition which has been fully repaid in January 2016.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Subsequently, amounts are stated at amortised cost with the difference being recognised in the income statement over the period of the borrowings using the effective interest rate method.
The group's activities result in exposure to a variety of financial risks including credit, foreign currencies, liquidity and loan covenants, interest rates and capital risk. Management policies have been established to identify, analyse and monitor these risks, and to set appropriate risk limits and controls. Financial risk management is carried out in accordance with our Corporate Treasury Policy. The written principles and policies are reviewed periodically to reflect changes in market conditions, the activities of the business and laws and regulations affecting the group's business.
Credit risk arises primarily from cash and cash equivalents held at financial institutions and, to a certain extent, from trade receivables.
Cash balances are held with counterparties that have a credit risk rating of at least BBB-, as rated by an acknowledged rating agency. Moreover, to avoid significant concentration of exposure to particular financial institutions, we ensure that transactions and businesses are properly spread among different counter-parties.
The group's exposure from its customers is managed through establishing proper credit limits and continuous credit risk assessments for each individual customer.
Procedures include aligning credit and trading terms and conditions with an assessment of the individual characteristics and risk profile of each customer. This assessment is made based on past experiences and independent ratings from external rating agencies whenever available.
As at 31 December 2016, total bad debt provision represented approximately 0.5% of group revenue (2015: 0.4%).
The group operates internationally and conducts business in multiple currencies. Revenue is earned in EUR, GBP, USD and other currencies, and do not necessarily match the cost of sales and other costs which are largely in EUR and USD and to a certain extent in other currencies. Foreign currency exposures on commercial transactions relate mainly to estimated purchases and sales transactions that are denominated in currencies other than reporting currency - EUR (€).
The group manages foreign currency transaction risk through options and forward contracts to cover forecasted net exposures. All such transactions are carried out within the guidelines set by Corporate Treasury Policy, which is reviewed annually by the Audit Committee.
A 2.5% strengthening/weakening of EUR as at 31 December 2016 against the currencies listed below would have increased (decreased) profit or loss by the amount shown below. This analysis assumes that all other variables remain constant. The analysis was performed on the same basis as in 2015.
| (€) | 2016 | 2015 | ||
|---|---|---|---|---|
| Strengthen TABLE_55 FX SENSITIVITY |
Weaken | Strengthen | Weaken | |
| GBP | 1,140,747 | -1,085,104 | 258,353 | -245,823 |
| USD | -214,524 | 204,038 | -1,372,337 | 1,305,573 |
A 2.5% strengthening/weakening of EUR as at 31 December 2016 against GBP and USD would have increased/decreased the equity by €0.3 million (2015: increase/decrease of equity by €6.8 million).
The approach to managing liquidity is to ensure that sufficient funds are available to meet financial obligations when they fall due under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the group's reputation. To ensure there is sufficient cash to meet expected operational expenses, including the servicing of financial obligations, actual and future cash flow requirements are regularly monitored, taking into account the maturity profiles of financial assets and liabilities and the rolling forecast of the group's liquidity reserve, which comprises cash and cash equivalents and an undrawn credit facility of €240
Under the covenants of the facility, the group is required to meet certain performance indicators with regard to its interest cover (4.0) and leverage ratio (3.0), which are tested twice a year. Interest cover is defined as the ratio of the last twelve months (LTM) EBITDA to LTM interest expense for the relevant test period. The leverage ratio is defined as the ratio of total consolidated net debt as at the testing date to the consolidated LTM EBITDA in respect of the relevant period ending on that date. In case of a breach of these covenants, the banks are contractually entitled to request early repayment of the outstanding amount.
As at 31 December 2016, the group complied with the loan covenants and, based on the group's plan for 2017, management expects to be able to comply with the loan covenants during 2017.
The outstanding borrowings of €10 million from the credit facility has a one-month maturity period from the date of draw down but can continuously be rolled-over up to the end date of the facility agreement at management's discretion. Assuming the amount utilised remains the same until the end of the agreement and the level of market interest as well as the required performance indicators remain constant based on the situation as at 31 December 2016, the total expected annual interest payments up to 31 March 2020 would be €0.2 million.
Interest rate risk arises primarily from the existing borrowings. These borrowings have a floating interest coupon based on Euribor plus a spread that depends on leverage levels. Interest rate risk is hedged with appropriate hedging instruments whenever deemed necessary in accordance with the Corporate Treasury Policy.
Based on the expectation of interest rate movements in the coming period and the acceptability of potential exposure, the current policy is not to hedge the interest rate of our borrowings. Accordingly, changes in Euribor may have an impact on the group's results for the coming year.
Our intention is to prioritise capital preservation and when possible we invest our surplus cash using approved investment instruments, such as bank deposits and money market fund investments. All transactions and counterparty risk limits are governed by Corporate Treasury Policy.
The group's financing policy aims to maintain a capital structure that enables the group to achieve its strategic objectives and daily operational needs, and to safeguard the group's ability to continue as a going concern.
In order to maintain or adjust the capital structure, the group may issue new shares, adjust its dividend policy, return capital to shareholders or sell assets to reduce debt, taking into account relevant interest cover and leverage covenants of external borrowings as disclosed above.
As at 31 December 2016, the group had a net cash position of €132.5 million (31 December 2015: €98.3 million). The net cash is the cash and cash equivalents minus the nominal amount of our outstanding borrowings.
For further quantitative disclosures, reference is made to note 21, note 24 and note 27.
The following table presents the group's financial instruments according to the categories as defined in IAS 39:
| (€ in thousands) | Loans and receivables TABLE_57 FINANCIAL INSTRUMENTS |
Assets/liabilities at fair value through profit or loss |
Other financial assets/liabilities at amortised cost |
Total |
|---|---|---|---|---|
| AS AT 31 DECEMBER 2016 | ||||
| ASSETS | ||||
| Other financial assets | 0 | 1,210 | 0 | 1,210 |
| Trade receivables | 132,424 | 0 | 0 | 132,424 |
| Cash and cash equivalents | 142,527 | 0 | 0 | 142,527 |
| TOTAL | 274,951 | 1,210 | 0 | 276,161 |
| LIABILITIES | ||||
| Trade payables | 0 | 0 | 76,630 | 76,630 |
| Other financial liabilities | 0 | 338 | 0 | 338 |
| Borrowings | 0 | 0 | 9,586 | 9,586 |
| TOTAL | 0 | 338 | 86,216 | 86,554 |
| AS AT 31 DECEMBER 2015 | ||||
| ASSETS | ||||
| Other financial assets | 0 | 967 | 0 | 967 |
| Trade receivables | 138,593 | 0 | 0 | 138,593 |
| Cash and cash equivalents | 147,565 | 0 | 0 | 147,565 |
| TOTAL | 286,158 | 967 | 0 | 287,125 |
| LIABILITIES | ||||
| Trade payables | 0 | 0 | 94,951 | 94,951 |
| Other financial liabilities | 0 | 573 | 0 | 573 |
| Borrowings | 0 | 0 | 48,541 | 48,541 |
| TOTAL | 0 | 573 | 143,492 | 144,065 |
The group classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Derivatives are categorised at fair value through profit or loss unless they are designated as hedges. Derivatives are recorded as financial assets when their fair value is a positive number; otherwise the derivative is classified as a financial liability. All derivative financial instruments are classified as current or non-current assets or liabilities based on their maturity dates and are accounted for at trade date. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has substantially transferred all risks and rewards of ownership.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than twelve months after the balance sheet date, which are classified as non-current assets. Loans and receivables are initially recognised at fair value and subsequently measured at amortised cost (if the effect of time value is material) using the effective interest method, less any impairment. The group's financial assets classified in the category 'Loans and receivables' comprise 'Trade receivables' and 'Cash and cash equivalents' in the balance sheet (note 18. Trade receivables and note 21. Cash and cash equivalents).
Financial liabilities and equity instruments issued by the group are classified according to the substance of the contractual arrangements entered into, and the definitions of a financial liability and an equity instrument. Financial liabilities are initially recognised and measured at fair value and subsequently at amortised cost.
An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
FAIR VALUE ESTIMATION
The group classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy divides the inputs into the following levels:
• Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
• Level 2: inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly (for example, derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data.
The fair value of financial assets/liabilities carried at fair value through profit or loss and the derivatives in a hedging relationship is determined using valuation techniques that maximise the use of observable market data where it is available and which rely as little as possible on entity-specific estimates. In accordance with the fair value hierarchy established by IFRS 13, these types of inputs classify as level 2 inputs.
Financial income and expenses include the following items:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Interest income TABLE_58 FINANCIAL INCOME AND EXPENSES |
185 | 462 |
| Interest expense | -1,556 | -1,387 |
| INTEREST RESULT | -1,371 | -925 |
| Other financial result | 670 | 44 |
| Foreign exchange result | -1,680 | -7,387 |
| OTHER FINANCIAL RESULT | -1,010 | -7,343 |
The interest expense relates mainly to interest paid on borrowings and amortised transaction costs (see note 27. Borrowings).
The foreign exchange result includes results related to hedging contracts and balance sheet item revaluations. Hedging contracts are entered into to protect the group from adverse exchange rate fluctuations that may result from USD and GBP exposures.
Interest income and expense are recognised using the effective interest method.
This section includes the notes on provisions, commitments and contingent liabilities, remunerations of Members of the Management Board and the Supervisory Board, related party transactions and Auditor's remuneration.
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| Non-current TABLE_59 PROVISIONS |
54,406 | 35,065 |
| Current | 36,410 | 32,573 |
| TOTAL | 90,816 | 67,638 |
The movements in each category of provisions are as follows:
| (€ in thousands) | Warranty | Claims & litigations | Other | Total |
|---|---|---|---|---|
| BALANCE AS AT 31 DECEMBER 2014 | 32,701 TABLE_60 MOVEMENTS OF PROVISIONS |
31,971 | 17,898 | 82,570 |
| Increases in provisions | 10,667 | 1,989 | 3,420 | 16,076 |
| Utilised | -13,678 | -335 | -4,637 | -18,650 |
| Released | -2,305 | -8,5981 | -1,455 | -12,358 |
| BALANCE AS AT 31 DECEMBER 2015 | 27,385 | 25,027 | 15,226 | 67,638 |
| Increases in provisions | 9,912 | 5,109 | 8,818 | 23,839 |
| Utilised | -10,383 | -20 | -2,596 | -12,999 |
| Released | -641 | -3,238 | -2,040 | -5,919 |
| Reclassification | 0 | 18,2572 | 0 | 18,257 |
| BALANCE AS AT 31 DECEMBER 2016 | 26,273 | 45,135 | 19,408 | 90,816 |
The releases were made to reflect the latest facts and circumstances and changes in estimates.
Claims & litigations provisions in 2016 include tax provisions reclassified to this category from current tax as well as from deferred tax liability (refer to note 11).
Provisions are recognised when:
• The amount can be reliably estimated.
Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
Provisions for warranty costs are recognised at the date of sale of the relevant products, at management's best estimate of the expenditure required to settle the group's obligation. Warranty costs are recorded within cost of sales.
The group generally offers warranties for its products. Management estimates the related provision for future warranty claims based on historical warranty claim information, as well as evaluating recent trends that might suggest that past cost information may differ from future claims. From the total warranty provision of €26.3 million (2015 €27.4 million), it is estimated that an amount of €11.2 million (2015 €16.4 million) will be utilised within 12 months while the remaining will be utilised between 1-3 years.
The group made a provision for potential legal, tax and other risks in various jurisdictions. The legal matters consist mainly of intellectual property infringement issues. In the normal course of business, the group receives claims relating to allegations that it has infringed intellectual property assets. In such cases, the companies making the claims seek payments that may take the form of licenses and/or damages. While these claims will be resisted, some are likely to be settled by negotiation and others are expected to result in litigation.
The cases and claims against the group often raise difficult and complex factual and legal issues which are subject to many uncertainties and complexities, including but not limited to the facts and circumstances of each particular case and claim, the jurisdiction in which each suit is brought, and the differences in applicable law. In the normal course of business, management consults with legal counsel and certain other experts on matters related to such claims and litigation. The group accrues a liability when it is determined that an adverse outcome is more likely than not, and the amount of the loss can be reasonably estimated. If the likelihood of an adverse outcome is reasonably possible or an estimate is not determinable, the matter is disclosed, provided it is material. Management is of the opinion that the provision is adequate to resolve these claims.
The methodology used to determine the amount of the liability requires significant judgements and estimates regarding the costs of settling asserted claims. Due to the fact that there is limited historical data available, the estimated liability cannot be based upon recent settlement experience for similar types of claims.
Based on the best estimate, the portion of the claims and litigation provision expected to be settled in the coming twelve months amounts to approximately €17.5 million (2015 €12.3 million).
Other provisions include an amount of €9.2 million (2015: €8.7 million) related to the defined benefit pension plan in Germany as disclosed in note 6. Personnel expenses, and the remainder relates mainly to provisions for expected earn-out payments. The amount of 'Other provisions' estimated to be settled/utilised within the coming twelve months amounted to €7.7 million (2015: €3.8 million).
The group has a number of long-term financial commitments, which are not shown in the group's balance sheet as at 31 December 2016.
These are operating leases for buildings, cars and office equipment, which consist of:
| TOTAL | 77,386 | 48,999 |
|---|---|---|
| Commitments longer than 5 years | 10,077 | 1,034 |
| Commitments between 1 - 5 years | 48,497 | 30,659 |
| Commitments less than 1 year TABLE_61 OPERATING LEASES |
18,812 | 17,306 |
| (€ in thousands) | 2016 | 2015 |
No discount factor is used in determining the operating lease commitments.
As at 31 December 2016, the group had open purchase commitments with contract manufacturers for certain products and components. Contract manufacturers order the requisite component parts from their suppliers on the basis of forecasts of the number of units required. Manufacturers have commitments on these components. In certain circumstances, the group has a contractual obligation to purchase these components from the manufacturers.
The group has contracts with third-party suppliers or other business partners that include minimum royalty or revenue share payments over the duration of the contracts that range from 1 to 5 years. The total commitments under these contracts are presented below.
| TOTAL1 | 19,664 | 40,378 |
|---|---|---|
| Commitments between 1 - 5 years | 1,534 | 14,679 |
| Commitments less than 1 year TABLE_62 ROYALTY PAYMENTS |
18,130 | 25,699 |
| (€ in thousands) | 2016 | 2015 |
The group has issued bank guarantees for a total amount of €12.4 million (2015: €14.0 million).
The group has also given a guarantee as described in section 479C of the UK Companies Act to TomTom Software Ltd. Accordingly, TomTom Software Ltd. is exempted from the requirements of the Companies Act 2006 relating to audit by virtue of section 479A.
In addition, a German subsidiary, TomTom Germany GmbH & Co. KG., which is included in these consolidated financial statements, applies the exemption as described in section 264b of the German Commercial Code (HGB) with regard to the publication of the annual financial statements and the drawing up of a management report and the notes to the financial statements.
Please refer to note 31. for disclosures on tax and legal contingencies.
In 2014, we won an arbitration award in which the Tribunal ruled that one of our suppliers must repay royalties paid by TomTom in prior periods. In 2015, our supplier initiated legal action to annul the arbitration award which is still before the Courts. While we believe it is more likely than not that the arbitration award will be upheld by the Courts, we cannot be certain of such an outcome, and a final judgement in this matter, including the quantum and timing of any final judicial award, remains uncertain. Consequently, we have not recognised the asset, and given that further disclosure could seriously prejudice our position, we apply the exception under IAS 37.92 and do not disclose further information.
Based on legal advice, there were no other contingencies that management expects to have a material adverse effect on the group's financial position as at 31 December 2016.
The Remuneration Policy for members of the Management Board is drawn up by the Supervisory Board and approved by the General Meeting.
The on-target bonus percentage is set at 80% of the base salary for the CEO and at 64% of the base salary for the other members of the Management Board. The maximum annual incentive achievable is 120% of the annual base salary for the CEO and 96% of the annual base salary for the other members of the Management Board. The actual bonus pay-out depends on certain challenging financial targets (revenue and EBIT). The total remuneration paid/payable to or on behalf of the members of the Management Board for the year ended 31 December 2016, amounted to approximately €1.3 million (2015: €1.6 million) and did not include any bonus (2015: 13%). In 2016, the bonus achievement was 0% of the on-target bonus percentage (2015: 31%).
In accordance with the Code, the remuneration of Supervisory Board members does not depend on the results of the company. The company does not grant either stock options or shares to its Supervisory Board members and the company does not provide loans to them.
The remuneration of the Management Board members comprises of the direct remuneration paid or payable in relation to their employment in the year and other remuneration related expenses that comprise social security contributions and share-based awards. The expenses/(gains) recognised for share-based awards are determined in accordance with IFRS 2 and do not represent the amounts paid or payable to Management Board members. The expenses for the direct remuneration and other remuneration-related expenses are presented below:
| (€) Short-term benefits |
|||||
|---|---|---|---|---|---|
| Salary | TABLE_63 OVERVIEW OF SALARIES, PERFORMANCE RELATED BONUSES AND OTHER EMOLUMENTS | Bonus Other emoluments4 | Post-employment benefits |
Total Direct remuneration |
|
| 2016 | |||||
| Harold Goddijn | 462,150 | 0 | 0 | 0 | 462,150 |
| Taco Titulaer | 330,000 | 0 | 59,326 | 6,674 | 396,000 |
| Alain De Taeye | 385,125 | 0 | 21,000 | 77,025 | 483,150 |
| TOTAL | 1,177,275 | 0 | 80,326 | 83,699 | 1,341,300 |
| 2015 | |||||
| Harold Goddijn | 462,150 | 114,613 | 0 | 0 | 576,763 |
| Taco Titulaer1 | 137,500 | 27,280 | 0 | 11,458 | 176,238 |
| Alain De Taeye | 385,125 | 76,409 | 21,000 | 77,025 | 559,559 |
| Marina Wyatt | 239,633 | 0 | 33,536 | 32,687 | 305,856 |
| TOTAL | 1,224,408 | 218,302 | 54,536 | 121,170 | 1,618,416 |
| (€) TABLE_64 OTHER MB REMUNERATION RELATED EXPENSES |
Share-based expenses3 |
Other short-term expenses |
Total including Other and Direct remuneration |
|---|---|---|---|
| 2016 | |||
| Harold Goddijn | 538,915 | 8,985 | 1,010,050 |
| Taco Titulaer | 105,506 | 8,985 | 510,491 |
| Alain De Taeye | 288,142 | 8,985 | 780,277 |
| TOTAL | 932,563 | 26,955 | 2,300,818 |
| 2015 | |||
| Harold Goddijn | 472,363 | 8,280 | 1,057,406 |
| Taco Titulaer | 37,696 | 3,450 | 217,384 |
| Alain De Taeye | 293,264 | 8,280 | 861,103 |
| Marina Wyatt2 | -370,954 | 360,303 | 295,205 |
| TOTAL | 432,369 | 380,313 | 2,431,098 |
Taco Titulaer was appointed CFO effective 1 August 2015, although he was only appointed as member of the Management Board as of 8 October 2015. His remuneration is shown as of the date he was appointed CFO.
Marina Wyatt stepped down at the end of July 2015.
The gain in the share-based expenses in 2015 for Marina Wyatt results from the forfeiture of the 2013, 2014 and 2015 share options. Following this forfeiture the costs incurred in previous periods have been reversed.
The other emoluments for Taco Titulaer relate to a gross allowance that can be spent on private pension savings as the pension contribution is capped up to a pensionable salary of €100,000.
The share-based awards scheme is set out in the Management Board Stock Option Plan and is most recently amended in the 2014
General Meeting. In May 2016, each of the Management Board members were granted new stock options under this plan. The following tables summarise information about outstanding stock options of each member of the Management Board, as well as the
movements during the year.
| Board member | Year of grant TABLE_65 OUTSTANDING STOCK OPTIONS MB |
Outstanding 1 Jan 2016 |
Granted in 2016 |
Exercised in 2016 |
Outstanding 31 Dec 20161 |
Exercise price (€) |
Expiry date |
|---|---|---|---|---|---|---|---|
| Harold Goddijn | 2009 | 181,500 | -181,500 | - | 5.71 16/6/2016 | ||
| 2010 | 150,000 | 150,000 | 5.32 | 12/5/2017 | |||
| 2012 | 113,750 | 113,750 | 3.51 | 9/5/2019 | |||
| 2013 | 155,000 | 155,000 | 3.53 | 8/5/2020 | |||
| 2014 | 300,000 | 300,000 | 5.28 | 13/5/2021 | |||
| 2015 | 210,000 | 210,000 | 7.83 | 7/5/2022 | |||
| 2016 | 112,500 | 112,500 | 7.58 10/5/2023 | ||||
| Taco Titulaer | 2013 | 50,000 | 50,000 | 3.53 | 8/5/2020 | ||
| 2014 | 34,600 | 34,600 | 5.28 | 13/5/2021 | |||
| 2015 | 39,200 | 39,200 | 7.83 | 7/5/2022 | |||
| 2016 | 48,500 | 48,500 | 7.58 10/5/2023 | ||||
| Alain De Taeye | 2009 | 181,500 | -181,500 | - | 5.71 16/6/2016 | ||
| 2010 | 150,000 | 150,000 | 5.32 | 12/5/2017 | |||
| 2012 | 113,750 | 113,750 | 3.51 | 9/5/2019 | |||
| 2013 | 155,000 | 155,000 | 3.36 | 8/5/2020 | |||
| 2014 | 150,000 | 150,000 | 4.93 | 13/5/2021 | |||
| 2015 | 110,000 | 110,000 | 7.83 | 7/5/2022 | |||
| 2016 | 56,500 | 56,500 | 7.58 10/5/2023 | ||||
| TOTAL | 2,094,300 | 217,500 -363,000 | 1,948,800 |
For a description of the stock option plans, reference is made to note 7. Share-based compensation.
| (€) | 2016 | 2015 |
|---|---|---|
| Peter Wakkie TABLE_66 OVERVIEW OF SUPERVISORY BOARD'S REMUNERATION |
61,000 | 61,000 |
| Doug Dunn | 47,000 | 47,000 |
| Ben van der Veer | 50,000 | 50,000 |
| Jacqueline Tammenoms Bakker | 49,931 | 48,000 |
| Anita Elberse | 47,000 | 47,000 |
| Guy Demuynck1 | 15,692 | 51,000 |
| Toine van Laack2 | 0 | 31,333 |
| TOTAL | 270,623 | 335,333 |
Guy Demuynck served as a member of the Supervisory Board until 22 April 2016.
Toine van Laack served as a member of the Supervisory Board until 1 September 2015.
The expenses relating to remuneration of key management personnel are presented in the following table:
| (€) TABLE_67 RELATED PARTY TRANSACTIONS |
Salary and bonus1 |
Other short-term benefits2 |
Post employment benefits |
Share-based expenses |
Total remuneration |
|---|---|---|---|---|---|
| 2016 | |||||
| Management Board and senior management | 1,527,293 | 198,201 | 83,699 | 1,137,284 | 2,946,477 |
| Supervisory Board | 270,623 | 0 | 0 | 0 | 270,623 |
| TOTAL | 1,797,916 | 198,201 | 83,699 | 1,137,284 | 3,217,100 |
| 2015 | |||||
| Management Board and senior management | 1,890,961 | 538,191 | 121,170 | 684,574 | 3,234,896 |
| Supervisory Board | 335,333 | 0 | 0 | 0 | 335,333 |
| TOTAL | 2,226,294 | 538,191 | 121,170 | 684,574 | 3,570,230 |
In 2016, the total bonus expense amounted to nil versus €0.3 million in 2015.
The other short-term benefits in 2015 include the social security charge in relation to the exercise of share options.
Certain key management personnel also hold ownership interests in TomTom NV, as disclosed in the Corporate Governance section under 'Notification of substantial shareholdings and short positions'.
In the normal course of business, the group receives map development and support services from its associate Cyient Ltd. Such transactions take place at normal market conditions and the total payments made for these services in 2016 amounted to €16.4 million (2015: €16.7 million). As at 31 December 2016, the outstanding payable due to Cyient Ltd. amounted to €1.6 million (31 December 2015: nil). Transactions and balances with other associates are not material and hence are not disclosed.
The total remuneration to Ernst & Young Accountants LLP for the statutory audit of 2016 for the group amounted to €378,000 (2015: €360,000). The total service fees paid/payable to the Ernst & Young network amounted to €663,000 (2015: €591,000).
Included in the total remuneration is an amount of €454,000 (2015: €405,000) invoiced by Ernst & Young Accountants LLP, which includes an amount of €77,000 (2015: €45,000) for other statutory audits. The service fees paid to the EY Network included an amount of €83,000 (2015: €76,000) relating to tax services and €119,000 (2015: €110,000) relating to statutory audits. Details of the audit, audit-related and non-audit fees paid to EY can also be found in the Audit Committee report.
Reference is made to note L in the company financial statements.
TOMTOM NV
for the year ended 31 December
| (€ in thousands) | Notes | 2016 | 2015 |
|---|---|---|---|
| General and administrative expenses TABLE_68 COMPANY STATEMENT OF INCOME TOMTOM NV |
B | 4,843 | 6,355 |
| Other intercompany (income) | C | 0 | -5,786 |
| OPERATING RESULT | -4,843 | -569 | |
| Interest (expenses) | -11,366 | -9,374 | |
| Other financial result | 1,154 | 468 | |
| RESULT BEFORE TAX | -15,055 | -9,475 | |
| Income tax gain | 3,764 | 2,368 | |
| Result of subsidiaries after taxation | D | 23,278 | 25,229 |
| NET RESULT | 11,987 | 18,122 |
The notes on pages 111 to 113 are an integral part of these company financial statements.
as at 31 December (before proposed appropriation of result)
| (€ in thousands) | Notes | 2016 | 2015 |
|---|---|---|---|
| Investments in subsidiaries TABLE_69 COMPANY BALANCE SHEET OF TOMTOM NV |
D | 2,978,665 | 2,972,475 |
| TOTAL NON-CURRENT ASSETS | 2,978,665 | 2,972,475 | |
| Receivables | 31,294 | 74,807 | |
| Cash and cash equivalents | 1,913 | 1,610 | |
| TOTAL CURRENT ASSETS | 33,207 | 76,417 | |
| TOTAL ASSETS | 3,011,872 | 3,048,892 | |
| Share capital | 46,577 | 46,099 | |
| Share premium | 1,051,890 | 1,035,451 | |
| Other reserves | F | 234,502 | 228,216 |
| Accumulated deficit | -350,125 | -359,078 | |
| Result for the year | 11,987 | 18,122 | |
| TOTAL SHAREHOLDERS' EQUITY | E | 994,831 | 968,810 |
| Borrowings | G | 9,586 | 44,254 |
| Intercompany payable | H | 2,006,771 | 2,034,084 |
| Deferred tax liability | I | 104 | 186 |
| TOTAL NON-CURRENT LIABILITIES | 2,016,461 | 2,078,524 | |
| Other liabilities | 580 | 1,558 | |
| TOTAL CURRENT LIABILITIES | 580 | 1,558 | |
| TOTAL EQUITY AND LIABILITIES | 3,011,872 | 3,048,892 |
The notes on pages 111 to 113 are an integral part of these company financial statements.
The description of the activities of TomTom NV (the company) and the company structure, as included in the notes to the consolidated financial statements, also applies to the company financial statements.
The company has prepared its company financial statements in accordance with Part 9 of Book 2 of the Dutch Civil Code and, specifically, in accordance with section 362.8 of the Dutch Civil Code. In doing so, it has applied the principles of recognition and measurement as adopted in the consolidated financial statements (IFRS). Investments in subsidiaries are accounted for using the equity method. For more information on the accounting policy applied, and on the notes, please refer to the notes to the consolidated financial statements.
The employees of the company comprise only the members of the Management Board. The General and Administrative expenses comprised mainly of the remuneration of the Management Board and the Supervisory Board and other general expenses such as the auditor's fees. For the remuneration of the Management Board and Supervisory Board, reference is made to note 33 in the consolidated financial statements. The auditor's fee is further disclosed in note 35 of the consolidated financial statements.
Other intercompany income represents cost that have been recharged to the subsidiaries. Such recharges are no longer applicable in 2016.
The movements in the 'Investments in subsidiaries' were as follows:
| (€ in thousands) | 2016 | 2015 |
|---|---|---|
| BALANCE AS AT 1 JANUARY TABLE_70 INVESTMENTS IN SUBSIDIARIES |
2,972,475 | 2,936,534 |
| Result of subsidiaries | 23,278 | 25,229 |
| Transfer to stock compensation reserve | 2,344 | 2,335 |
| Legal entity restructuring1 | -19,260 | -5,476 |
| Currency translation differences | -90 | 12,087 |
| Other direct equity movements | -82 | 1,766 |
| BALANCE AS AT 31 DECEMBER | 2,978,665 | 2,972,475 |
A list of subsidiaries and affiliated companies prepared in accordance with the relevant legal requirements (the Dutch Civil Code Book 2, Part 9, sections 379 and 414) is deposited at the office of the Chamber of Commerce in Amsterdam, the Netherlands.
For the statement of changes in consolidated equity for the year ended 31 December 2016, please refer to Consolidated statement of changes in equity in the consolidated financial statements. Additional information on the shareholders' equity is disclosed in note 24 of the consolidated financial statements.
| (€ in thousands) | Legal reserve participations |
Cumulative translation TABLE_71 OTHER RESERVES adjustment |
Total Legal reserve | Stock compensation reserve |
Total |
|---|---|---|---|---|---|
| BALANCE AS AT 31 DECEMBER 2014 | 162,213 | 10,671 | 172,884 | 29,405 | 202,289 |
| Currency translation differences | 0 | 12,087 | 12,087 | 0 | 12,087 |
| Transfer from retained earnings | 25,903 | 0 | 25,903 | 0 | 25,903 |
| Stock compensation expenses | 0 | 0 | 0 | 3,788 | 3,788 |
| Transfer to retained earnings and share premium |
0 | 0 | 0 | -15,851 | -15,851 |
| BALANCE AS AT 31 DECEMBER 2015 | 188,116 | 22,758 | 210,874 | 17,342 | 228,216 |
| Currency translation differences | 0 | -90 | -90 | 0 | -90 |
| Transfer from retained earnings | 9,505 | 0 | 9,505 | 0 | 9,505 |
| Stock compensation expenses | 0 | 0 | 0 | 3,275 | 3,275 |
| Transfer to retained earnings and share premium |
0 | 0 | 0 | -6,404 | -6,404 |
| BALANCE AS AT 31 DECEMBER 2016 | 197,621 | 22,668 | 220,289 | 14,213 | 234,502 |
Legal reserves are the non-distributable reserves that are recorded for an amount equal to the restricted reserves of the company's subsidiaries and the cumulative translation adjustment reserve.
The stock compensation reserve represents the cumulative expense of issued stock options that have been granted but not exercised.
Please refer to note 27 in the consolidated financial statements.
'Intercompany payable' comprises of loans provided by subsidiaries. The interest rate on the loan during 2016 is based upon the applicable inter-bank offered rate plus a margin of 0.4% (2015: 0.7%). Although no repayment period has been agreed the loan has a long-term nature.
As at 31 December 2016, the company had a deferred tax liability of €0.1 million (2015: €0.2 million). The deferred tax liability results from a temporary difference between the tax treatment and the accounting treatment of the borrowing cost. The movement of the deferred tax liability has been credited to the income statement.
The company has issued bank guarantees for a total amount of €12.4 million (31 December 2015: €14.0 million).
The company has also issued several declarations of joint and several liability for various group companies, in compliance with section 403 of Part 9 of Book 2 of the Dutch Civil Code. Besides these declarations, TomTom NV has given a guarantee as described in article 479C of the UK Companies Act for UK subsidiary TomTom Software Ltd.
In addition, a German subsidiary, TomTom Germany GmbH & Co. KG., applies the exemption as described in section 264b of the German Commercial Code (HGB) with regard to the publication of the annual financial statements.
The company forms a fiscal unity for corporate income tax and value added tax (VAT) purposes with several of its Dutch subsidiaries. Each company within the fiscal unity is jointly and severally liable for the fiscal liability of the fiscal unity.
According to the company's Articles of Association, the company's result is freely at the disposal of the shareholders, provided that total shareholders' equity exceeds the called-up and paid-up capital of the company, increased by legal and statutory reserves.
On 17 January 2017, the group acquired 100% of the shares of Autonomos GmbH for €26.2 million of which €24.8 million is paid in cash and the remainder in TomTom shares. The company is a Berlin-based Autonomous Driving start-up. We have acquired a vast amount of technical expertise that will be of value in the further development of our location technologies. Specifically, the acquisition will give us a fuller understanding of the Autonomous Driving stack and real-time computer vision technology and allow us to improve quality of our products such as TomTom HD map, RoadDNA localisation technology, navigation, traffic and other cloud services. Given the limited time frame between acquisition date and the finalisation of our financial statements further disclosures are not yet available.
There has been no other subsequent event from 31 December 2016 to the date of issue of these financial statements.
The Management Board proposes to add the net result in full to the Accumulated deficit.
Amsterdam, 8 February 2017
The Management Board Harold Goddijn Taco Titulaer Alain De Taeye
TomTom NV Amsterdam
Amsterdam, 8 February 2017
The Supervisory Board Peter Wakkie Doug Dunn Ben van der Veer Jacqueline Tammenoms Bakker Anita Elberse Jack de Kreij
According to the company's Articles of Association, the company's result is freely at the disposal of the shareholders, provided that total shareholders' equity exceeds the called-up and paid-up capital of the company, increased by legal and statutory reserves.
For a description of the Foundation Continuity TomTom, refer to the Corporate Governance section in this Annual Report.
Reference is made to the Independent Auditor's Report section in this Annual Report.
We have audited the financial statements 2016 of TomTom N.V., based in Amsterdam. The financial statements include the consolidated financial statements and the company financial statements.
In our opinion:
The consolidated financial statements comprise:
The company financial statements comprise:
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the financial statements section of our report.
We are independent of TomTom N.V. in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
| MATERIALITY | ||
|---|---|---|
| MATERIALITY | BENCHMARK USED | ADDITIONAL EXPLANATION |
| € 8.5 million | 1.5% of gross margin (2015: 1.4% of gross margin) |
Based on our professional judgment we have considered earnings-based measures, such as profit before tax and gross margin, as the appropriate benchmark to determine materiality. We believe the gross margin is a suitable basis, as the gross margin is an important and stable measure of the company's performance, whereas profit before tax is near break-even. |
We have also taken into account misstatements and/or possible misstatements that in our opinion are material for the users of the financial statements for qualitative reasons.
We agreed with the Supervisory Board that misstatements in excess of € 425,000, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
TomTom N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of TomTom N.V.
As processes are highly centralised, we have applied a centralised audit approach. We have performed all audit procedures ourselves at group level for the accounts which were of most significance for our audit and are included in the section Key Audit Matters (Revenue, deferred revenue, margin-related accruals, Goodwill and other intangible assets and Other significant accounting estimates).
Our audit coverage for total assets, revenues and gross margin can be summarized as follows:
By performing the procedures mentioned above we have been able to obtain sufficient and appropriate audit evidence about the group's financial information to provide an opinion about the consolidated financial statements.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters discussed.
These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| OUR AUDIT RESPONSE RISK |
||
|---|---|---|
| ----------------------------------- | -- | -- |
In addition to the financial statements and our auditor's report thereon, the annual report contains other information that consists of:
Based on the following procedures performed, we conclude that the other information:
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the Management Board's report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
ENGAGEMENT
We were engaged by the Supervisory Board as auditor of TomTom N.V. on 24 April 2015 as of the audit for year 2015 and have operated as statutory auditor since that date.
Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, management is responsible for assessing the company's ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company's ability to continue as a going concern in the financial statements.
The Supervisory Board is responsible for overseeing the company's financial reporting process.
Our objective is to plan and perform the audit assignment in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. The materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included, e.g.:
Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Concluding on the appropriateness of management's use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause a company to cease to continue as a going concern.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Supervisory Board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Eindhoven, 8 February 2017
Signed by: P.J.A. Gabriëls
INFORMATION
TomTom is committed to providing a high degree of transparency and consistency in its reporting. We engage and maintain open dialogue with investors and analysts and have an extensive communication programme, which includes the General Meeting, roadshows, investor conferences, presentations, webcasts and in-house meetings. Related events are reported and regularly updated on the Investor Relations website.
TomTom strictly adheres to applicable rules and legislation on fair disclosure. Our goal is to inform investors about the company and its management, strategy, goals and expectations in a transparent, timely and consistent manner.
Investors and analysts are invited to contact our Investor Relations team with any information requests they have:
The company's Investor Relations website
corporate.tomtom.com/investor.cfm contains up-to-date financial information about TomTom. Investors and analysts are encouraged to visit the Investor Relations website regularly for a detailed and up-to-date coverage of the share price, shareholder meetings, quarterly and annual results, press releases, presentations, webcasts and Investor Relations-related events.
In addition, we recommend that investors and analysts visit TomTom's dedicated corporate website, which includes a wealth of information in relation to:
| Date | Event |
|---|---|
| 19 April 2017 | Publication Q1 2017 results TABLE_73 FINANCIAL CALENDAR |
| 24 April 2017 | General Meeting |
| 19 July 2017 | Publication Q2 2017 results |
| 20 October 2017 | Publication Q3 2017 results |
During a closed period prior to the publication of the quarterly results, we do not engage in discussions with analysts, investors and financial journalists or make presentations at investor conferences.
An overview of the company's shareholders with a holding (voting rights) of 3% or more of the issued capital can be found in the Corporate Governance section. The following table shows the company's ordinary shareholder structure as at 31 December 2016.
| Free float TOTAL SHARES OUTSTANDING |
128,153,910 232,886,736 |
55.0% 100.0% |
|---|---|---|
| TOTAL FOUNDERS | 104,732,826 | 45.0% |
| Founder - Peter-Frans Pauwels | 26,137,832 | 11.2% |
| Founder - Pieter Geelen | 26,137,831 | 11.2% |
| Founder - Corinne Vigreux | 26,137,831 | 11.2% |
| Founder - Harold Goddijn | 26,319,332 | 11.3% |
| Name TABLE_72 SHAREHOLDER STRUCTURE |
# shares | % of total |
The Foundation Continuity TomTom was established in 2005. The purpose of the Foundation is to safeguard the interests of the company and all of its stakeholders. It does so by ensuring that the company is in a position to resist influences that could affect its independence, continuity and/or corporate identity in any manner that would be in contravention of the interests of the company or its stakeholders.
The company has granted the Foundation a call option entitling it to subscribe for preferred shares up to 100% of the aggregate outstanding share capital (excluding issued and outstanding preferred shares) of the company at the time of issue. An issue of preferred shares in the manner described would cause substantial dilution of the voting power of any shareholder whose objective was to gain control of the company.
Currently, there are no preferred shares outstanding. More information on the Foundation can be found in the Corporate Governance section.
The graph below shows the indexed closing share price development of the company versus the AMX during 2016.
| (€, unless stated otherwise) | 2016 | 2015 |
|---|---|---|
| Share price at the start of the year TABLE_74 KEY SHARE INFORMATION (I) |
11.61 | 5.53 |
| Share price at the end of the year | 8.55 | 11.61 |
| Highest closing share price | 11.88 | 12.29 |
| Lowest closing share price | 6.21 | 5.30 |
| Market capitalisation at year end (€ in millions) | 1,990 | 2,674 |
| Average daily volume traded (# in thousands) | 1,612 | 2,141 |
| EPS - fully diluted | 0.05 | 0.08 |
| Adjusted EPS - fully diluted1 | 0.23 | 0.21 |
| FCF per share - fully diluted2 | 0.10 | -0.15 |
| Weighted average number of shares outstanding (# in millions) |
231.7 | 227.8 |
| Weighted average number of shares fully diluted (# in millions) |
235.0 | 232.4 |
amortisation & gain on a post-tax basis.
TomTom NV had 232,886,736 shares outstanding as at 31 December 2016. The number of options outstanding was 8,125,043. The weighted average number of shares on a fully diluted basis was 234,970,398.
TomTom NV shares are traded on Euronext Amsterdam in the Netherlands, where the company is included in the Amsterdam Mid-Cap Index (AMX);
Share options of TomTom are traded on the Euronext Amsterdam Derivative Market.
TomTom has no current plans to distribute dividends. The company gives priority to increasing technology investments to strengthen its capabilities and competitive position, whilst at the same time improving its balance sheet. The company believes that allocating its cash resources to these priorities, serves shareholders' interests better in the longer term.
| (€ in millions, unless stated otherwise) | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 |
|---|---|---|---|---|---|---|---|---|
| INCOME AND EXPENSES | TABLE_75 KEY FIGURES OVERVIEW 2008 -2015 | |||||||
| Revenue | 987 | 1,007 | 950 | 963 | 1,057 | 1,273 | 1,521 | 1,480 |
| Gross result | 566 | 519 | 523 | 521 | 555 | 640 | 744 | 731 |
| Operating result1 | 9 | 1 | 21 | 26 | 70 | 102 | 190 | 231 |
| Net result2 | 12 | 18 | 23 | 20 | 129 | 74 | 110 | 94 |
| DATA PER SHARE | ||||||||
| Earnings per share (€) - diluted | 0.05 | 0.08 | 0.10 | 0.09 | 0.58 | (1.97) | 0.49 | 0.47 |
| Adjusted earnings per share (€) - diluted3 | 0.23 | 0.21 | 0.27 | 0.26 | 0.40 | 0.55 | 0.70 | 0.78 |
| SHARES OUTSTANDING (#) | ||||||||
| Average # basic shares outstanding (in millions) | 232 | 228 | 223 | 222 | 222 | 222 | 222 | 184 |
| Average # diluted shares outstanding (in millions) | 235 | 232 | 225 | 223 | 222 | 222 | 222 | 185 |
| REGIONAL REVENUE SPLIT | ||||||||
| Europe | 773 | 771 | 719 | 710 | 773 | 937 | 1,070 | 1,007 |
| North America | 167 | 186 | 163 | 178 | 208 | 257 | 380 | 411 |
| Rest of world | 47 | 49 | 68 | 76 | 76 | 79 | 70 | 62 |
| CASH FLOW | ||||||||
| Cash generated from operations | 158 | 123 | 135 | 188 | 187 | 195 | 265 | 430 |
| Cash flows from operating activities | 144 | 119 | 119 | 260 | 167 | 174 | 210 | 340 |
| Cash flows from investing activities | -120 | -154 | -106 | -91 | -51 | -73 | -65 | -90 |
| Cash flows from financing activities | -29 | 29 | -118 | -74 | -146 | -214 | -209 | -206 |
| Net (decrease)/increase in cash and cash equivalents | -5 | -6 | -106 | 95 | -30 | -112 | -64 | 45 |
| BALANCE SHEET | ||||||||
| Goodwill | 400 | 403 | 382 | 382 | 382 | 382 | 855 | 855 |
| Intangible assets | 796 | 811 | 801 | 804 | 821 | 872 | 946 | 986 |
| Inventories | 54 | 49 | 47 | 42 | 44 | 66 | 94 | 67 |
| Trade receivables | 132 | 139 | 133 | 115 | 150 | 185 | 306 | 294 |
| Cash and cash equivalents | 143 | 148 | 153 | 258 | 164 | 194 | 306 | 368 |
| Provisions | 91 | 68 | 83 | 80 | 81 | 101 | 109 | 114 |
| Borrowings | 10 | 49 | 49 | 173 | 247 | 384 | 588 | 790 |
| Trade payables | 77 | 95 | 88 | 82 | 84 | 117 | 218 | 201 |
| Total equity and liabilities | 1,629 | 1,654 | 1,591 | 1,678 | 1,724 | 1,799 | 2,623 | 2,686 |
| Net cash/(Net debt) | 133 | 98 | 103 | 83 | -86 | -194 | -294 | -442 |
| KEY RATIOS4 | ||||||||
| Days sales of Inventory (DSI) | 43 | 31 | 33 | 31 | 30 | 31 | 31 | 21 |
| Days sales outstanding (DSO) | 45 | 44 | 46 | 39 | 47 | 48 | 55 | 51 |
| Creditor days | 61 | 60 | 63 | 60 | 57 | 56 | 72 | 64 |
| NUMBER OF EMPLOYEES (#) | ||||||||
| At end of period (FTE) | 4,716 | 4,605 | 4,116 | 3,630 | 3,441 | 3,677 | 3,487 | 3,138 |
Operating result excludes the acquisition-related impairment charges (2011: €512 million) and restructuring charges (2011: €14.8 million; 2010: €3.3 million; 2009: €10.3 million). 2. Net result excludes the abovementioned impairment and restructuring charges and the related tax effects.
Earnings per share adjusted for acquisition-related amortisation and gain, goodwill impairment and restructuring charges on a post-tax basis, and an €80 million one-off tax gain in 2012. 4. Calculated based on the sales/cost of sales and the number of days in the last three months of the year.
| (€ in thousands, unless stated otherwise; quarterly data unaudited) | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 |
|---|---|---|---|---|---|
| REVENUE TABLE_76 QUARTERLY SUMMARY INCOME STATEMENT 2015 |
217,155 | 265,225 | 239,331 | 265,618 | 987,329 |
| Cost of sales | 93,850 | 119,967 | 94,690 | 112,594 | 421,101 |
| GROSS RESULT | 123,305 | 145,258 | 144,641 | 153,024 | 566,228 |
| Research and development expenses | 44,533 | 45,675 | 50,680 | 49,585 | 190,473 |
| Amortisation of technology and databases | 20,626 | 21,107 | 22,571 | 27,222 | 91,526 |
| Marketing expenses | 15,058 | 21,545 | 19,159 | 24,847 | 80,609 |
| Selling, general and administrative expenses | 47,401 | 44,179 | 51,278 | 51,868 | 194,726 |
| TOTAL OPERATING EXPENSES | 127,618 | 132,506 | 143,688 | 153,522 | 557,334 |
| OPERATING RESULT | -4,313 | 12,752 | 953 | -498 | 8,894 |
| Interest result | -305 | -377 | -404 | -285 | -1,371 |
| Other financial result | 1,711 | -1,233 | 513 | -2,001 | -1,010 |
| Result of associates | 327 | 134 | 97 | 178 | 736 |
| RESULT BEFORE TAX | -2,580 | 11,276 | 1,159 | -2,606 | 7,249 |
| Income tax gain/(charge) | 7,346 | 911 | -594 | -2,954 | 4,709 |
| NET RESULT | 4,766 | 12,187 | 565 | -5,560 | 11,958 |
| Attributable to: | |||||
| - Equity holders of the parent | 4,792 | 12,066 | 595 | -5,466 | 11,987 |
| - Non-controlling interests | -26 | 121 | -30 | -94 | -29 |
| NET RESULT | 4,766 | 12,187 | 565 | -5,560 | 11,958 |
| MARGINS | |||||
| Gross margin (%) | 57% | 55% | 60% | 58% | 57% |
| EBIT margin (%) | -2% | 5% | 0% | 0% | 1% |
| CALCULATION OF ADJUSTED EARNINGS PER SHARE (€ in million) | |||||
| Net result attributed to equity holders | 4.8 | 12.1 | 0.6 | -5.5 | 12.0 |
| Acquisition-related amortisation | 13.7 | 13.7 | 13.7 | 14.2 | 55.3 |
| Tax effect of adjustments | -3.0 | -2.6 | -2.6 | -2.7 | -10.9 |
| Remeasurement of deferred tax liability1 | -7.6 | 0.0 | 0.0 | 5.3 | -2.3 |
| ADJUSTED NET RESULT | 7.9 | 23.2 | 11.7 | 11.3 | 54.1 |
| Basic number of shares (in thousands) | 230,612 | 231,193 | 232,424 | 232,725 | 231,743 |
| Diluted number of shares (in thousands) | 234,964 | 234,522 | 235,265 | 235,430 | 234,970 |
| EARNINGS PER SHARE | |||||
| Basic EPS (€) | 0.02 | 0.05 | 0.00 | -0.02 | 0.05 |
| Fully diluted Adjusted EPS (€) | 0.03 | 0.10 | 0.05 | 0.05 | 0.23 |
| (€ in thousands, quarterly data unaudited) | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 |
|---|---|---|---|---|---|
| Operating result TABLE_77 QUARTERLY SUMMARY STATEMENT OF CASH FLOWS 2015 |
-4,313 | 12,752 | 953 | -498 | 8,894 |
| Financial gains/(losses) | 954 | -553 | -1,960 | 2,794 | 1,235 |
| Depreciation, amortisation and impairment | 29,870 | 30,941 | 32,140 | 39,052 | 132,003 |
| Change in provisions | -3,217 | 4,805 | -2,422 | 10,483 | 9,649 |
| Equity-settled stock compensation expense | 947 | 987 | 816 | 525 | 3,275 |
| Change in working capital: | |||||
| Change in inventories | -8,132 | 6,020 | -10,535 | 6,830 | -5,817 |
| Change in receivables and prepayments | 11,672 | -58,744 | 19,192 | 42,063 | 14,183 |
| Change in current liabilities (excluding provisions)1 | -44,046 | 38,499 | 22,571 | -22,325 | -5,301 |
| CASH GENERATED FROM OPERATIONS | -16,265 | 34,707 | 60,755 | 78,924 | 158,121 |
| Interest received | 42 | 44 | 42 | 57 | 185 |
| Interest paid | -264 | -338 | -364 | -261 | -1,227 |
| Corporate income taxes (paid)/received | -1,870 | -1,151 | -6,695 | -3,046 | -12,762 |
| CASH FLOWS FROM OPERATING ACTIVITIES | -18,357 | 33,262 | 53,738 | 75,674 | 144,317 |
| Investments in intangible assets | -21,304 | -25,678 | -27,489 | -21,973 | -96,444 |
| Investments in property, plant and equipment | -7,735 | -4,558 | -4,409 | -4,439 | -21,141 |
| Acquisition of subsidiaries and other businesses | -2,331 | 0 | 0 | 0 | -2,331 |
| Dividend received | 0 | 80 | 50 | 60 | 190 |
| CASH FLOWS FROM INVESTING ACTIVITIES | -31,370 | -30,156 | -31,848 | -26,352 | -119,726 |
| Repayment of borrowings | -4,287 | 0 | 0 | 0 | -4,287 |
| Change in utilisation of credit facility | 20,000 | 13,000 | -30,000 | -38,000 | -35,000 |
| Change in non-controlling interest | 0 | 0 | -98 | 0 | -98 |
| Dividends paid | 144 | -271 | -11 | 0 | -138 |
| Proceeds on issue of ordinary shares | 1,235 | 6,433 | 1,255 | 1,116 | 10,039 |
| CASH FLOWS FROM FINANCING ACTIVITIES | 17,092 | 19,162 | -28,854 | -36,884 | -29,484 |
| NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS | -32,635 | 22,268 | -6,964 | 12,438 | -4,893 |
| Cash and cash equivalents at the beginning of period | 147,565 | 114,630 | 136,391 | 129,262 | 147,565 |
| Effect of exchange rate changes on cash balances held in foreign currencies | -300 | -507 | -165 | 827 | -145 |
| CASH AND CASH EQUIVALENTS AT THE END OF PERIOD | 114,630 | 136,391 | 129,262 | 142,527 | 142,527 |
| Term | Definition |
|---|---|
| ADAS | Advanced Driver Assistance Systems TABLE_78 DEFINITIONS AND ABBREVIATIONS |
| AFM | the Netherlands Authority for Financial Markets |
| AMX | the Amsterdam Mid-Cap Index |
| Apps | Applications |
| ARPU | Average Revenue Per User |
| ASP | Average Selling Price |
| B2B | Business to Business |
| B2C | Business to Consumer |
| Code | the Dutch Corporate Governance Code |
| Company | TomTom NV |
| CSR | Corporate Social Responsibility |
| EICC | the Electronic Industry Citizenship Coalition |
| ERP | Enterprise Resource Planning |
| ETR | Effective Tax Rate |
| Foundation | Foundation Continuity TomTom |
| GIS | Geographical Information System |
| GPS | Global Positioning System |
| Group | TomTom NV together with its subsidiaries |
| HD | High Definition |
| IFRS | International Financial Reporting Standards |
| ISO | International Standardisation Organisation |
| KPI | Key Performance Indicators |
| LTM | Last Twelve Months |
| NavKit | TomTom navigation technology engine |
| NDS | Navigation Data Standard |
| North America | The United States and Canada |
| NPE | Non Practicing Entities |
| OEM | Original Equipment Manufacturer |
| OS | Operating System |
| PDA | Personal Digital Assistant |
| PND | Portable Navigation Device |
| R&D | Research & Development |
| SG&A | Selling, general and administrative |
| SDK | Software Development Kit |
| WEBFLEET | TomTom Telematics' fleet management platform |
* Android and Google Now are a trademark of Google Inc.
* The Bluetooth® word mark and logos are registered trademarks owned by Bluetooth SIG, Inc. and any use of such marks by TomTom is under license.
Other trademarks and trade names are those of their respective owners.
* Siri is a trademarks of Apple Inc., registered in the U.S. and other countries.
* Wi-Fi® is a registered trademark of Wi-Fi Alliance®
The financial information in this report includes measures, which are not defined by generally accepted accounting principles (GAAP) such as IFRS. We believe this information, along with comparable GAAP measurements, gives insight to investors because it provides a basis for evaluating our operational performance. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP. Wherever appropriate and practical, we provide reconciliations to relevant GAAP measures.
| Term | Definition |
|---|---|
| Gross margin | Gross result divided by revenue TABLE_84 NON-GAAP MEASURES |
| EBIT | Earnings Before Interest and Taxes (Operating result) |
| EBIT margin | EBIT divided by revenue |
| EBITDA | EBIT plus Depreciation and Amortisation charges |
| EBITDA margin | EBITDA divided by revenue |
| Adjusted net result | Net result attributed to equity holders adjusted for acquisition-related expenses and gains on a post-tax basis (refer to note 25) |
| Adjusted EPS | Adjusted net result divided by the weighted average number of diluted shares over the period |
| Net cash | Cash and cash equivalents minus the nominal value of our outstanding borrowings |
DE RUIJTERKADE 154 1011 AC AMSTERDAM THE NETHERLANDS TEL: +31 (0)20 757 5000 WWW.TOMTOM.COM
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