TomTom Reports Third Quarter 2010 Results
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TomTom Reports Third Quarter 2010 Results

AMSTERDAM — (BUSINESS WIRE) — October 20, 2010 —

Financial highlights Q3 2010

Operational highlights Q3 2010

Outlook 2010

TomTom’s Chief Executive Officer, Harold Goddijn

“Our Consumer business unit performed well in a soft market through strengthened market share, slowing price declines and an increased contribution from service and subscription sales. We made good progress in securing new automotive contracts and our Business Solutions unit continues to deliver strong increases in subscriber numbers. We are focused on broadening our revenue base and on rolling out high quality content and services to our customers and I am pleased with the progress we are making.”

Key figures2

(in € millions)   Q3'10   Q3'09   y.o.y. change   Q2'10   q.o.q. change
                     
Revenue   375   365   3%   362   4%
                     
Gross result   178   191   -7%   185   -4%
Gross margin   48%   52%       51%    
                     
EBITDA   81   96   -15%   75   7%
EBITDA margin   22%   26%       21%    
                     
Operating result   55   70   -21%   50   11%
Operating margin   15%   19%       14%    
                     
Net result   19   31   -37%   34   -43%
                     
EPS, € diluted   0.09   0.14   -39%   0.15   -43%

Adjusted EPS3, € diluted

  0.14   0.20   -31%   0.21   -34%

1

 

In 2009 full year revenue was €1,480 million and earnings per share were €0.47

2

Operating expenses include restructuring charges of -€0.5 million in Q3 ’10, €1.2 million in Q2 ’10 and €1.4 million in Q1 ’10

3

Earnings per share adjusted for acquisition related amortisation, non-cash goodwill impairment and restructuring charges on a post tax basis

Outlook full year 2010

After the first three quarters of the year our results are on track. We maintain our guidance for the full year of broadly flat revenue and EPS compared to 2009.

Operational review

Revenue split

(€ millions based on non-rounded figures)   Q3 '10   Q3 '09   y.o.y. change   Q2 '10   q.o.q. change
                     
Consumer   293   293   0%   273   7%
Automotive*   41   28   48%   44   -7%
Licensing**   28   35   -18%   33   -13%
Business Solutions   13   9   37%   12   1%
                     
Hardware   284   280   2%   274   4%
Content & Services   90   85   6%   88   2%

* includes automotive content licensing

** third party content licensing

In the quarter, TomTom’s PND market share in Europe grew from 45% to 48% compared to the same period last year. The market size in Europe was 3.4 million units (Q3 2009: 3.8 million; Q2 2010: 3.1 million). In North America our market share grew from 20% last year to 25%. The North American market size was 2.8 million units (Q3 2009: 3.1 million; Q2 2010: 3.4 million).

The connected high-end PND GO LIVE 1000 started shipping towards the end of the quarter and the connected mid-range PND VIA LIVE was announced. We now have more than one million connected TomTom customers. We are enabling more people in more countries to take advantage of our superior HD Traffic and other services as we continue with our pan-European roll-out of LIVE Services.

Our Automotive business unit announced it will supply Mazda Motor Corporation with a connected in-dash multimedia and navigation solution. Mazda will offer the solution as an option on its new Mazda5 in Europe. We extended our partnership with Renault who will be offering our first fully connected in-dash navigation system including HD Traffic to its customers. Together with Sony we announced that we will collaborate to bring Sony's new connected Xplod AV Navigation System to the market.

The latest version of our map database was released in the quarter and covers more than 32 million kilometres (20 million miles) across 102 countries and territories. In this release 350,000 kilometres (217,000 miles) of high-precision gradient data in the U.S. for use in ADAS (Advanced Driver Assistance Systems) applications and solutions were added as were 70,000 kilometres (42,000 miles) of newly validated and precisely realigned motorways across Europe.

Business Solutions (previously WORK) has grown its subscriber base by 40% over the last year from 87,000 in Q3 2009 to 122,000 as of Q3 2010. In the quarter we introduced a new solution, ecoPLUS which enables businesses to measure and reduce their fuel cost and carbon footprint. We also introduced the new PRO series of PNDs, combining TomTom’s latest cross-platform technologies with Business Solutions-specific features.

Financial review

Revenue

Revenue for the group was €375 million for the quarter, an increase of 3% compared to the same quarter last year (Q3 2009: €365 million) and an increase of 4% sequentially (Q2 2010: €362 million). Year on year, growth in revenue for Automotive and Business Solutions (previously WORK) was partially offset by a decrease in Licensing revenue. The main driver for the sequential growth was our Consumer business unit.

The revenue of the Consumer business unit over the past quarter amounted to €293 million and was flat compared to the same quarter of last year (Q3 2009: €293 million). A reduction in hardware sales was fully offset by growth in content and services. Sequentially Consumer revenue increased by 7% (Q2 2010: €273 million) driven by higher PND units and increased content and services sales.

Automotive revenue, which includes map and content sales to automotive companies and their suppliers, grew by €13 million or 48% to €41 million compared to the same quarter last year (Q3 2009: €28 million). Sequentially revenue decreased by 7% (Q2 2010: €44 million) due to the seasonal pattern in production of our automotive partners. Revenue from licensing maps to our automotive partners continued to grow strongly, both year on year and sequentially.

Licensing revenue decreased by €6.3 million or 18% to €28 million compared to the same quarter last year (Q3 2009: €35 million) and decreased 13% sequentially (Q2 2010: €33 million). The decrease results from lower third party PND map revenues.

Business Solutions revenue grew year on year by €3.4 million or 37% to €12.5 million (Q3 2009: €9.1 million) driven by additional hardware sales as well as increased revenue from subscriptions. Sequentially revenue was flat (Q2 2010: €12.5 million) because of the seasonally slower summer period.

Hardware revenue for the quarter was €284 million across the group, an increase of 2% year on year (Q3 2009: €280 million) and an increase compared to the second quarter of the year of 4% (Q2 2010: €274 million). Year on year the growth was driven by Automotive and Business Solutions hardware while Consumer hardware revenue was lower.

Content & Services revenue was €90 million for the quarter compared to €85 million in the third quarter of 2009, an increase of 6%. The main contributor to the increase came from Consumer. Sequentially, Content & Services revenue increased by 2%, from €88 million. Content & Services revenue represented 24% of total revenue (Q3 2009: 23%; Q2 2010: 24%).

Gross margin

The gross margin for the group was 48%. The gross margin declined 4 percentage points compared to the same quarter last year and by 3 percentage points sequentially (Q3 2009: 52%; Q2 2010: 51%). The reduction in the gross margin was caused firstly by the US dollar being, on average, stronger compared to the euro, secondly by the deferral of high margin revenue linked to services on our PNDs and thirdly by changes in product and regional mix.

Operating expenses

In the quarter, total operating expenses amounted to €123 million, which represents an increase of 1% or €1.7 million compared to the third quarter last year (Q3 2009: €122 million). The increase in operating expenses was mainly the result of increased research and development (R&D) expenses. Sequentially operating expenses decreased by €12 million (Q2 2010: €135 million). The sequential decrease results from lower marketing and R&D expenditure. Operating expenses as a percentage of revenue for the quarter were stable compared to the same quarter last year at 33% (Q3 2009: 33%) and decreased compared to the previous quarter (Q2 2010: 37%).

R&D expenses for the quarter were €36 million, a decrease of €3.8 million compared to the previous quarter (Q2 2010: €40 million) and an increase of €5.1 million or 16% compared to the same quarter last year (Q3 2009: €31 million). The year on year increase is the result of increased investments in service and delivery activities in 2010. The quarterly decrease was the result of non-recurring items in the second quarter.

Amortisation of technology and databases for the quarter was €18 million (Q2 2010: €19 million, Q3 2009: €19 million). The year on year decrease is the result of technology acquisitions made in the past that have now been fully amortised partially offset by our investments in new technology.

Marketing expenses for the quarter amounted to €17 million, a sequential decrease of 28% and a year on year decrease of 19% (Q2 2010: €24 million; Q3 2009: €21 million). This sequential decrease results from the seasonal pattern of our business with higher marketing spend in the second and especially the fourth quarters. Total marketing expenses represented 5.9% of Consumer revenue, a decrease of 2.9 percentage points sequentially and 1.4 percentage point decrease year on year (Q2 2010: 8.8%; Q3 2009: 7.3%). Marketing expenses will increase significantly in the fourth quarter.

Selling, general and administrative (SG&A) expenses for the quarter amounted to €47 million, a sequential decrease of 4% compared to the previous quarter and a year on year increase of 1% (Q2 2010: €48 million; Q3 2009: €46 million). SG&A costs in the quarter included a one-off gain of €4 million following the settlement of a legal dispute. SG&A expenses represented 12% of current quarter group revenue, compared to 13% in the previous quarter and 13% in the same quarter last year.

Stock compensation expenses for the quarter were €4.6 million, up from an expense of €3.2 million in the previous quarter and €3.6 million in Q3 2009.

The operating result for the quarter was €55 million, a sequential increase of €5.3 million or 11% (Q2 2010: €50 million) and a year on year decrease of 21% (Q3 2009: €70 million) owing to the lower gross margin. As a percentage of revenue, the operating profit was 15%, a decrease of 4 percentage points compared with the same quarter last year (Q3 2009: 19%) and up by 1 percentage point sequentially (Q2 2010: 14%).

Financial results

In the quarter we incurred a €6.2 million net interest expense on our €808 million term loan, €174 million revolving credit facility and cash balances. The amortisation of the transaction costs related to the term loan and revolving credit facility amounted to €2.4 million. Additionally, as we decided to repay €125 million early, we recorded a one-off non-cash charge of €0.8 million due to the IFRS treatment of our floating to fixed interest rate swap. The total interest expense for the third quarter amounted to €9.5 million (Q3 2009: €27 million, Q2 2010: €9.0 million).

As our PND sales in the second half of the year are skewed to the fourth quarter, we carry a significant level of option and forward contracts securing our dollar denominated purchase commitments in the third quarter. While the relatively strong US dollar (on average) compared to the euro in the quarter negatively impacted our gross margin, the significant weakening of the US dollar against the euro towards the end of the quarter negatively impacted our foreign exchange results. This in combination with our seasonally high level of option and forward contracts resulted in a financial charge of €20 million, of which a significant part was non cash.

Tax

The income tax charge was €5.5 million in the third quarter (Q3 2009: €9.8 million). The effective tax rate in the third quarter was 22.4% (Q2 2010: 22.4%; Q3 2009: 24.0%).

Cash flow

During the quarter, we recorded a cash inflow from operations of €63 million which was mainly driven by the operating profit of €55 million and relatively stable working capital.

The cash flow used in investing activities during the quarter increased to €16 million from €14 million in the same quarter in the previous year and increased by €4 million compared to the previous quarter.

Cash flows used in financing activities amounted to €125 million because of an early repayment of our borrowings.

Debt financing

On 30 September 2010, the carrying value of our borrowings amounted to €673 million (Q2 2010: €795 million). The reduction is the result of the early debt repayment of €125 million we made at the end of the third quarter plus the amortised transaction costs which are added back to the borrowings over the life time of the borrowings. Excluding transaction costs, which are netted against the borrowings, our outstanding borrowings amounted to €683 million (Q2 2010: €808 million).

Net debt as of 30 September 2010 decreased to €416 million from €442 million at the end of the previous quarter. Net debt is the sum of the borrowings (€683 million), less cash and cash equivalents at the end of the period (€268 million) plus our financial lease commitments (€1 million). The net debt to last twelve month EBITDA ratio was 1.2 times.

Balance sheet

As of the end of Q3 2010, accounts receivable together with other receivables had decreased by €9 million to €283 million (Q2 2010: €291 million; Q3 2009: €249 million). The inventory level was €80 million, an increase of €17 million or 27% in comparison to the previous quarter and an increase of €2.2 million or 3% compared to the same quarter last year (Q2 2010: €63 million; Q3 2009: €78 million). Cash and cash equivalents at the end of the quarter were €268 million (Q2 2010: €367 million) as a result of cash generated from operating activities in the quarter of €43 million offset by the early debt repayment of €125 million and investments in intangible assets and property, plant & equipment of €16 million.

Current liabilities decreased by €139 million from €697 million in Q2 2010 to €558 million in Q3 2010. This was mainly caused by the reduction in borrowing. At the end of the quarter we had shareholders’ equity of €1,088 million up from €1,069 million at the beginning of the quarter.

- END -

Consolidated income statements

(in € thousands)   Q3’10   Q3’09   YTD’10   YTD’09
                 
Revenue   374,919   365,151   1,005,249   946,348
Cost of sales   196,585   173,857   497,767   460,056
Gross result   178,334   191,294   507,482   486,292
                 
Research and development expenses 36,477 31,385 117,746 102,910
Amortisation of technology & databases 18,374 19,355 54,921 57,080
Marketing expenses 17,270 21,302 56,501 60,445
Selling, general and administrative expenses 46,709 46,132 146,163 146,870
Stock compensation expense   4,550   3,552   10,555   8,829
Total operating expenses   123,380   121,726   385,886   376,134
                 
Operating result   54,954   69,568   121,596   110,158
                 
Interest result -9,536 -26,945 -26,990 -59,592
Other finance result -20,307 -2,542 -21,090 -35,480
Result associates   -511   672   -1,977   1,870
Result before tax   24,600   40,753   71,539   16,956
                 
Income tax   -5,506   -9,780   -16,049   -3,205
Net result   19,094   30,973   55,490   13,751
                 
Minority interests   -167   431   -573   0
Net result attributed to the group   19,261   30,542   56,063   13,751
                 
Basic number of shares (in millions) 221.7 213.4 221.7 171.3
Diluted number of shares (in millions)   221.7   215.9   221.7   172.0
                 
EPS, € basic 0.09 0.14 0.25 0.08
EPS, € diluted   0.09   0.14   0.25   0.08

Consolidated balance sheet

(in € thousands)  

30 Sep 2010

 

31 Dec 2009

         
Goodwill   854,713   854,713
Other intangible assets 957,767 986,472
Property, plant and equipment 35,678 42,904
Deferred tax assets 24,091 28,205
Investments   7,345   7,683
Total non-current assets   1,879,594   1,919,977
         
Inventories 79,698 66,719
Trade receivables 235,762 294,024
Other receivables and prepayments 46,775 26,035
Other financial assets 8,631 10,602
Cash and cash equivalents   267,615   368,403
Total current assets   638,481   765,783
         
Total assets   2,518,075   2,685,760
         
Share capital 44,344 44,344
Share Premium 973,755 973,755
Other reserves 58,968 34,319
Stock compensation reserve 77,078 66,267
Retained earnings/ (deficit) -71,026 -106,209
Minority interests   5,141   5,094
Total equity   1,088,260   1,017,570
         
Borrowings 594,611 588,141
Provisions 60,039 57,847
Long-term liability 920 1,158
Deferred tax liability   216,238   222,129
Total non-current liabilities   871,808   869,275
         
Trade payables 180,395 201,176
Borrowings 78,377 201,387
Tax and social security 15,381 30,186
Provisions 47,591 56,503
Other liabilities and accruals   236,263   309,663
Total current liabilities   558,007   798,915
         
Total equity and liabilities   2,518,075   2,685,760

Consolidated statements of cash flows

(in € thousands)   Q3’10   Q3’09   YTD’10   YTD’09
                 
Operating result   54,954   69,568   121,596   110,158
Financial (losses) / gains -1,108 8,766 -7,395 -15,851
Depreciation of PPE 3,379 2,418 11,467 14,465
Amortisation of intangible assets 22,641 23,555 67,129 66,115
Change to provisions -4,210 -2,529 -6,678 -12,074
Change to stock compensation reserve 3,810 3,632 10,809 7,043
Changes in working capital:
Change in inventories -16,926 -12,464 -13,022 68,487
Change in receivables and prepayments 7,650 7,073 37,521 57,379
Change in current liabilities   -6,928   13,558   -98,986   -70,678
Cash generated from operations   63,262   113,577   122,441   225,044
                 
Interest received 252 289 699 1,877
Interest paid -8,290 -23,155 -19,464 -57,745
Corporate income taxes paid   -12,155   -12,184   -34,638   -14,985
Net cash flow from operating activities   43,069   78,527   69,038   154,191
                 
Investments in intangible assets -12,211 -7,624 -32,954 -42,429
Investments in property, plant and equipment -3,526 -3,340 -9,711 -12,185
Acquisition of subsidiary   0   -2,604   0   -2,604
Total cash flow used in investing activities   -15,737   -13,568   -42,665   -57,218
                 
Repayment on borrowings   -125,000   -412,048   -125,000   -412,048
Proceeds on issue of ordinary shares   0   348,189   0   415,867
Total cash flow from financing activities   -125,000   -63,859   -125,000   3,819
                 
Net (decrease) increase in cash and cash equivalents -97,668 1,100 -98,627 100,792
Cash and cash equivalents at beginning of period 366,883 422,530 368,403 321,039
Exchange rate effect on cash balances held in foreign currencies   -1,600   -698   -2,161   1,101
Cash and cash equivalents at end of period   267,615   422,932   267,615   422,932

Accounting policies

Basis of accounting

The condensed consolidated financial statements for the three-month and nine-month periods ended 30 September 2010 with related comparative information have been prepared using International Financial Reporting Standards (IFRS). Accounting policies and methods of computation followed in the interim financial statements, for the period ended 30 September 2010, are the same as those followed in the Financial Statements for the year ended 31 December 2009. Further disclosures as required under IFRS for a complete set of consolidated financial statements are not included in the condensed consolidated financial statements.

Audio webcast third quarter 2010 results

The information for our third quarter results audio webcast is as follows:
Date and time: 20 October 2010 at 14:00 CET

Place: http://investors.tomtom.com/events.cfm

TomTom is listed at NYSE Euronext Amsterdam in the Netherlands
ISIN: NL0000387058 / Symbol: TOM2

About TomTom

TomTom N.V. (AEX: TOM2) is the world’s leading provider of location and navigation solutions. Headquartered in The Netherlands it employs over 3,000 employees worldwide. Over 45 million people daily use its solutions, be it in the form of dedicated portable navigation devices (PNDs), in-dash car systems or tracking and tracing solutions for fleet management. In addition, hundreds of millions of people use TomTom’s digital maps on the internet or mobile phone.

In 2009, TomTom reported €1.5 billion in revenues and a €340 million net cash flow from operating activities. More information about TomTom can be found on www.TomTom.com.

This document contains certain forward-looking statements relating to the business, financial performance and results of the Company and the industry in which it operates. These statements are based on the Company’s current plans, estimates and projections, as well as its expectations of external conditions and events. In particular the words “expect”, “anticipate”, “estimate”, “may”, “should”, “believe” and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These include, but are not limited to: the level of consumer acceptance of existing and new and upgraded products and services; the growth of overall market demand for the Company’s products or for personal navigation products generally; the Company’s ability to sustain and effectively manage its recent rapid growth; and the Company’s relationship with third party suppliers, and its ability to accurately forecast the volume and timing of sales. Additional factors could cause future results to differ materially from those in the forward-looking statements.


Contact:

TomTom Investor Relations
Richard Piekaar
Email Contact
+31 20 757 5194