TomTom Q4 2008 Pro Forma Revenue EUR 528 Million, EPS 0.57

RobBrady

TomTom Q4 2008 Pro Forma Revenue EUR 528 Million, EPS 0.57 (Reported EPS -EUR 8.02) (1)
TomTom 2008 pro forma revenue EUR 1,748 million, EPS 1.16 (reported EPS -EUR 7.13)( 1)

Fourth quarter 2008 highlights
-- Revenue of EUR 528 million
-- Gross profit of EUR 238 million, gross profit margin of 45%
-- Ebitda of EUR 98 million(1), Ebitda margin of 19%(1)
-- Net profit of EUR 70 million(1)
-- Cash generated from operations of EUR 251 million
-- Net debt of EUR 1,109 million, reduced by EUR 213 million (Q3 2008 EUR 1,322 million)
-- Non-cash impairment charge of EUR 1,048 million
-- HD Traffic up and running in 5 European countries
-- Historical speed profile database made available to Tele Atlas customers
-- Launch of first Tele Atlas map incorporating Map Share feedback
-- Geographical expansion of PND business into Russia

(1) For comparative reasons we have excluded the one-off non-cash EUR 1,048 million goodwill impairment and EUR 16 million restructuring charges from the pro forma figures that assume consolidation of Tele Atlas from 1 January 2007.
Harold Goddijn, TomTom CEO:

"Despite the tough market conditions TomTom traded profitably and was significantly cash generative in the quarter. We expect trading conditions to continue to be challenging throughout 2009 and we are adjusting our cost base accordingly.
We made good progress on an operational and strategic front in the quarter. With our PND business we continue to maintain strong market share and margins in our core markets and we are targeting growth opportunities in new geographies. In addition, we are focused on further expanding our customer base through our industry leading content and services offerings such as HD Traffic. Through our Renault partnership we will shortly bring our first line fitted navigation solution for the volume car segment to market. We are increasing operational efficiency within Tele Atlas and we are creating opportunities in the mobile, internet and automotive markets. WORK has gained a leading position in European fleet management and doubled its subscriber numbers during the year. All of this gives me confidence that our strategy is right and that we will successfully transition into a more broadly based company."

Market and TomTom outlook 2009
The PND category grew by more than 30% in 2008. Given relatively low penetration levels and increased acceptance of car navigation we expect growth to continue, however in the short term this will be tempered by macro economic conditions. We believe that PNDs will continue to be the platform of choice for the coming years.

It is difficult to give specific guidance at this early point in the year given the limited visibility about how demand will develop given the volatile market conditions. At this stage, based on our latest planning, we expect the PND markets in Europe and North America to be around 15 million and 17 million units in size respectively and for TomTom to sell between 11 and 12 million units with revenue for the full year 2009 of between EUR 1.4 billion and EUR 1.6 billion.

Sales in the first half of the year will be more strongly skewed towards the second quarter and in the second half to the fourth quarter, driven by expected seasonality and by the timing of new product introductions. During the first quarter sell-in is expected to be limited as inventory is cleared by retailers ahead of new products in the second quarter.

We have initiated a cost reduction programme. We expect to save approximately EUR 60 million, or 10%, in operating expenses in 2009 compared to the 2008 pro forma operating expenses.

Operational review
Cost Cutting Programme
Cost reductions will be achieved through a mix of a reduction in headcount, alignment of marketing expenses with the expected revenue development and other measures to minimise discretionary expenditure and to share functions and facilities, where appropriate, between TomTom and Tele Atlas. In relation to the cost cutting programme a restructuring charge was booked in Q4 of EUR 16 million.

The European market declined 7% year on year to 4.9 million units and grew sequentially by 19%. In North America the market increased 12% year on year to 8.0 million units which represents sequential growth of 150%. Channel inventory of TomTom PNDs continued to decrease in absolute terms in the past quarter, especially in Europe. However retailers are cautious, and channel inventory still needs to be reduced which will limit our sell in opportunities in the first quarter.

Market shares were stable sequentially. TomTom continues to have a leading market share in Europe of 46% and a North American market share of 23%.

TomTom expanded geographically into Russia during the quarter. During the quarter we added Portugal to the list of countries where we will roll out our real time traffic information service. After, as planned, having TomTom HD Traffic available to 50% of our European customer base by the end of 2008, Belgium and Portugal will follow in 2009. We will focus on improving the services we have rolled out to make them more and more relevant to car drivers to increase the size of our connected community.
WORK continued to strengthen its leading position in the European telematics industry during the quarter and ended the year with 67,000 subscribers for its services, which is an increase of 97% compared to the end of the previous year.

At the end of the year we announced that we had received the five millionth unique Map Share improvement from our user community, up from half a million at the start of the year.

Tele Atlas continued to expand its global coverage by delivering the first navigable digital maps of Morocco and by announcing agreements to expand its map coverage with Argentina, Chile, Uruguay and South Korea, to be available in 2009.

During the quarter Tele Atlas released the latest version of our MultiNet digital map database, the first global digital map database to use community-provided data to validate changes. It incorporates community input provided by TomTom users significantly strengthening Tele Atlas' map change detection and validation process.

Tele Atlas launched its Urban Maps designed to enrich the mobile users' location-based services experience. It delivers premier out-of-car content such as enhanced views of sidewalks and footpaths, 2D representations of notable structures and building footprints that better orient pedestrians in city centres. Tele Atlas Urban Maps are available for nearly 120 cities globally.

During the quarter Tele Atlas Speed Profiles became available, which provide highly accurate speed data to allow end users of consumer, enterprise and business fleet navigation systems to find the most optimal route to their destination and far more accurately estimate their travel time. With data derived from almost half a trillion speed measurements shared by consumers, Speed Profiles is unique in terms of both size and richness, delivering actual average speeds for every five minutes of the day on any day of the week for frequently travelled roads.

Financial review
Non-cash goodwill impairment
TomTom Group recorded a one-off non-cash goodwill impairment charge of EUR 1,048 million as a result of our annual impairment review. Tele Atlas is core to the strategy of the group however the worsening macro environment means that currently we cannot sustain the full valuation of the acquired business of Tele Atlas as established at the time of the acquisition.

For ease of comparisons the following sections review the pro forma income statements and balance sheet. The goodwill impairment and restructuring charges are also excluded from the comparisons. The pro forma figures assume consolidation of Tele Atlas from 1 January 2007.

Revenue
Revenue for the Group was EUR 528 million for the quarter, an increase of 23% sequentially (Q3 2008: EUR 429 million) and a decrease of 24% compared with last year (Q4 2007: EUR 696 million).

The revenue of the "TomTom only" business (excluding Tele Atlas) over the past quarter amounted to EUR 473 million, an increase of 25% sequentially (Q3 2008: EUR 377 million) and a decline of 25% versus prior year (Q4 2007: EUR 634 million).

Tele Atlas revenue was EUR 86 million for the quarter, an increase of 18% sequentially (Q3 2008: EUR 73 million) and a decrease of 11% compared with last year (Q4 2007: EUR 97 million). Tele Atlas other revenue, which includes mobile, Internet and Enterprise & Governmental services, increased by EUR 1 million compared to the previous quarter of EUR 25 million. PND revenue for Tele Atlas increased sequentially by EUR 12 million compared to the previous quarter to EUR 47 million.

TomTom PND sales amounted to EUR 444 million, representing 84% of Group revenue in the quarter (Q3 2008: EUR 343 million and 80%; Q4 2007: EUR 602 million and 86%). Europe represented 65% of total revenue for the Group for the quarter (Q3 2008: 76%; Q4 2007: 73%), North America represented 30% of total revenue (Q3 2008: 19%; Q4 2007: 21%) and the rest of the world was 5% of total revenue (Q3 2008: 5%; Q4 2007: 6%). In the "TomTom only" business, revenue from North America for the quarter represented 30% of revenue, an increase of 9 percentage points year on year (Q4 2007: 21%) and an increase of 12 percentage points from 18% in Q3 2008.

Volumes and average selling prices

TomTom shipped 4,443 million PND units in the quarter, an increase of 76% sequentially (Q3 2008: 2,526 million) and an increase of 4% year on year (Q4 2007: 4,278 million).

The average selling price for PNDs in the fourth quarter was EUR 100, a decrease of 26% compared to the previous quarter (Q3 2008: EUR 136) and a decline of 29% compared to the last quarter of 2007 (Q4 2007: EUR 141). The sequential decrease in ASP is due to geographical and product mix shifts as well as promotional activities. We expect that the pace of ASP decline will reduce in 2009.

Gross margin
The gross margin for the Group was 45%, which represents a decrease of 11 percentage points sequentially (Q3 2008: 56%) and a decrease of 6 percentage points compared to the pro forma fourth quarter of last year (Q4 2007: 51%). The gross margin for TomTom excluding Tele Atlas decreased by 11.4 percentage points to 35.2% (Q3 2008: 46.6%) and is mainly the result of a decrease in the average selling price of PNDs, additional promotional activities and a negative impact from GBP and USD currency movements. Using the same exchange rates that applied in Q4 2007 TomTom (excluding Tele Atlas) would have recorded a gross margin of c.40% for the quarter.

Operating expenses
Excluding the impairment and restructuring costs operating expenses amounted to EUR 168 million, which represents an increase of 14% or EUR 20 million compared to the third quarter (Q3 2008: EUR 147 million). The increase in operating expenses was caused by the seasonal increase in marketing expenses of EUR 21 million. Year on year pro forma operating expenses decreased by 14% (Q4 2007: EUR 196 million). Operating expenses as a percentage of revenue for the quarter decreased to 31.8% (Q3 2008: 34.4%) and increased by 3.7 percentage points year on year (Q4 2007: 28.1%). TomTom excluding Tele Atlas operating expenses were 23.4% of its revenue for the quarter (Q4 2008: EUR 111 million) which is an increase from the previous quarter (Q3 2008: 22.2%) and up 3.9 percentage points compared to the same quarter of last year (Q4 2007: 19.5%).

Research and development (R&D) expenses for the quarter were EUR 37.9 million, broadly flat with the previous quarter (Q3 2008: EUR 38.4 million) and a decrease of 5.0% compared to the pro forma R&D expenses for the previous year (Q4 2007: EUR 39.8 million).

Amortisation of technology and databases for the quarter was EUR 17.8 million (Q3 2008: EUR 17.3 million). The year on year comparison (pro forma amounts) show an increase in the amortisation of technology and databases of 11% (Q4 2007: EUR 16.1 million). They represented 3.4% of revenue, down from 4.0% in the previous quarter and up from 2.3% in the same quarter last year.

Marketing expenses were, as planned, seasonally higher at EUR 52.0 million (Q3 2008: EUR 31.0 million). The year on year comparison shows a decrease in marketing expenses of 24.5% (Q4 2007: EUR 68.9 million) in line with the lower revenue. TomTom made up EUR 47.6 million of the marketing expenses. Total marketing expenses represented 9.9% of Group revenue, an increase of 2.7 percentage points compared to the previous quarter (Q3 2008: 7.2%), and flat compared to the same quarter last year.
Selling, general and administrative (SG&A) expenses for the quarter, excluding one-off charges, amounted to EUR 57.4 million, which is in line with the previous quarter (Q3 2008: EUR 56.1 million) and a decrease of 3.7% line compared to last year (pro forma Q4 2007: EUR 59.6 million). SG&A costs for the Group represented 10.9% of revenue, down from 13.1% in the previous quarter.

Stock compensation expenses for the quarter were EUR 2.6 million, down from EUR 11.5 million in the same quarter last year. The lower costs can be explained by the accelerated vesting of the Tele Atlas stock option plan prior to the acquisition and the decrease in our share price which results in lower costs for our share plan.

Excluding one-off charges, the operating profit for the quarter decreased by 24.4% quarter on quarter to EUR 70.1 million (Q3 2008: EUR 92.8 million). As a percentage of revenue the operating profit decreased by 8.3 percentage points to 13.3% (Q3 2008: 21.6%). Year on year the operating profit decreased by 55.8% (Q4 2007: EUR 158.5 million).

Financial results
The financial result included a net interest expense of EUR 27.6 million for the quarter, explained by the borrowings TomTom entered into in June last year to finance the acquisition of Tele Atlas.

The other finance result shows a gain of EUR 52.6 million, which arose mainly from foreign exchange contracts that were put in place to cover our committed and anticipated exposure in non-functional currencies. The gain on our foreign exchange hedge instruments is mainly driven by the weakening of the GB pound and a stronger US dollar against the euro during the quarter.

Tax
Income tax was EUR 24.4 million, with the pro forma effective tax rate being 25.7% for the quarter (Q4 2007: 22.5%).

Cash flow
In the fourth quarter EUR 251 million of cash was generated by operations, mainly driven by a partly realised positive forex result of EUR 53 million, and tight working capital management which resulted in a cash inflow of EUR 108 million. The decrease in working capital was due to strong collections of receivables, tight monitoring of our payable balances and a sequential decrease of our inventory balance in the quarter of EUR 55 million. Cash flow used in investing activities was EUR 27.8 million mainly driven by investments in the roll out of HD Traffic technology and capitalisation of R&D. The financing activities show a cash-out of EUR 164 million which is mainly the repayment of 10% of the principal amount of our borrowings. Our total cash balance increased by EUR 58.5 million to EUR 321 million at the end of the quarter.

Debt financing
TomTom incurred an acquisition debt of EUR 1,585 million on 10 June 2008. In the quarter, net debt decreased significantly from EUR 1,322 to EUR 1,109 million due to strong operating cash flow.

The net debt is the sum of the borrowings (EUR 1,585 million), minus the repayment made in December 2008 amounting to EUR 158.5 million, minus the cash and cash equivalents at the end of the period (EUR 321 million) plus our financial lease commitments.

The floating interest coupon of the loan is based on Euribor plus a margin. The margin will reduce as TomTom reduces its level of leverage. The Euribor element of the interest coupon is hedged for the full term of the loan with cap instruments.

We amended the covenant conditions of the loan facility in October 2008, for which an amendment fee of EUR 8 million was paid in Q4 2008. Based upon the Group's plans for 2009, management expects to comply with the loan covenants. However, given the uncertainties in the wider macro economic environment and their knock on effect on consumer spending, scenarios can be envisaged where the loan covenants could be breached. As a result, the company continues to evaluate options aimed at remaining within its loan covenants under a variety of possible scenarios, which could include renegotiating the terms of the facility in isolation or in combination with other actions.

Balance sheet
The Group shows a goodwill balance of EUR 855 million, which is the excess of the purchase price consideration paid over the fair value of assets and liabilities of Tele Atlas, adjusted by an impairment (non-cash) charge of EUR 1,048 million.

Cash and cash equivalents at the end of the period amounted to EUR 321 million (Q3 2008: EUR 263 million). Trade receivables increased to EUR 290 million from EUR 276 million at the start of the quarter. The increase was driven by higher sales compared to the previous quarter. Inventories decreased sequentially by EUR 55 million to EUR 145 million by the end of the quarter (Q3 2008: EUR 200 million, Q4 2007: EUR 131 million).

The balance sheet shows borrowings of EUR 1,388 million, made up of incurred acquisition debt net of related transaction costs. At the end of the fourth quarter, we had shareholder's equity of EUR 513 million, down from EUR 1,485 million at the beginning of the quarter. The quarter on quarter decrease in equity is mainly driven by the impairment charge of EUR 1,048 million partly offset by a positive operating result.

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

About TomTom Group
TomTom NV is the world's leading provider of navigation solutions and digital maps. TomTom NV has over 3500 employees working in four business units - TomTom, Tele Atlas, Automotive and WORK.

TomTom's products are developed with an emphasis on innovation, quality, ease of use, safety and value. TomTom's products include all-in-one navigation devices which enable customers to navigate right out of the box; these are the award-winning TomTom GO family, the TomTom XL and TomTom ONE ranges and the TomTom RIDER. Additionally, independent research proves that TomTom products have a significant positive effect on driving and road safety.

Tele Atlas delivers the digital maps and dynamic content that power some of the world's most essential navigation and location-based services (LBS). Through a combination of its own products and partnerships, Tele Atlas offers digital map coverage of more than 200 countries and territories worldwide. The Automotive business unit develops and sells navigation systems and services to car manufacturers and OEMs. TomTom WORK combines industry leading communication and smart navigation technology with leading edge tracking and tracing expertise.

TomTom NV was founded in 1991 in Amsterdam and has offices in Europe, North America, Middle East, Africa and Asia Pacific. TomTom is listed at Euronext Amsterdam in The Netherlands. For more information, go to 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.

TomTom
Richard Piekaar
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Robert Brady

gatorguy6996 · Posted: Tue Feb 24, 2009 7:52 pm Post subject:

The fact that they even acknowledge the possibility of broaching their loan obligations should give pause. Similar statements made by other organizations (ie, Sirf) have preceded further poor news and/or drastic actions.
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