TomTom reports second quarter 2012 results

Financial summary

• Group revenue decreased by 17% to €262 million
• Consumer revenue decreased by 26% to €155 million
• Automotive revenue was flat at €60 million
• Licensing revenue decreased by 7% to €29 million
• Business Solutions revenue increased by 26% to €18 million
• Gross margin of 52% (Q2 2011: 51%)
• Adjusted EPS1 of €0.09 (Q2 2011: €0.10)
• Net cash flow from operating activities of €10 million (Q2 2011: -€32 million)

Operational summary

• Global agreement with Apple for maps and related information
• New range of Nike+ SportWatch launched
• WEBFLEET subscriber base grew 37% to 209,000 (Q2 2011: 152,000)
• 6" PND launched

2012 outlook

• Guidance maintained to deliver revenue of around €1.1 billion and adjusted EPS1 of around €0.35.

Key figures

EBITDA2

Change percentages are based on non-rounded figures

1 Earnings per share adjusted for impairment, acquisition-related amortisation and restructuring charges on a post-tax basis.

2 Q2 2011 operating expenses include restructuring expenses of €0.2 million and an impairment charge of €512 million.

TomTom´s Chief Executive Officer, Harold Goddijn:

"Since we communicated that we would be taking a more modular approach to our products, selling map content, navigation software and HD Traffic as standalone solutions, we have signed a number of deals, especially in the automotive sector. Although the revenue impact of these deals will not become visible immediately they are forming the foundation for the future growth of the business. In addition they provide us with a clear indication that this strategy for unlocking more of the value of our core assets is resonating with customers.

"At the same time the state of the economy remains a challenging factor. We reduced our cost base in line with previously announced plans and we are focused on execution and fully realisinge benefits of our new product unit structure. We maintain our guidance for 2012 to deliver revenue of around €1.1 billion and adjusted earnings per share of around €0.35."

Business review

We launched two new PNDs in the quarter, the TomTom Start 60 with a 6" screen, tapping into the demand for larger screen PNDs, and the TomTom Via 130, featuring a new Speak & Go function, which recognises over 1,000 commands and their synonyms.

Together with Nike we introduced a new range of the Nike+ SportWatch. The range includes several editions and colour combinations, and introduces a starter product for those new to running.

We announced that TomTom will be the global supplier to PSA of location and navigation content, software and services. Lexus introduced its new Lexus CT200h Hybrid, which has an integrated and connected TomTom navigation solution as a dealer option in Belgium, France, the Netherlands and Poland. Renault announced the new Clio, which will be made available with the R-Link system including TomTom navigation. The relationship with Fiat was extended to the Fiat 500L, which will carry our navigation solutions as an option.

We signed a licensing agreement with Apple, who will start to use our global map content and related information in iOS6. Research In Motion started using TomTom HD Traffic for its BlackBerry applications. In the quarter we also launched a geocoding web service, enabling businesses to process high volumes of addresses into geographic coordinates to allow location analysis.

We launched our local search app for iPhone and Android smartphones, TomTom Places, in Sweden, Austria, Norway, Spain and Ireland. It is now available in 10 countries across Europe. By the end of the year TomTom Places will be available in 25 countries.

Business Solutions grew its WEBFLEET installed base by 37% compared to the second quarter of 2011 to 209 thousand. In the quarter a new feature was introduced to WEBFLEET allowing dispatches to be based on shortest travel time rather than the shortest distance, which helps to improve the response time of service companies.

Financial review

Revenue split

Change percentages are based on non-rounded figures

Revenue

The group generated €262 million of revenue for the quarter, a decrease of 17% compared to the same quarter last year (Q2 2011: €314 million) and a 12% increase sequentially (Q1 2012: €233 million). Year on year, revenue for Consumer and Licensing declined, which was partially offset by an increase in revenue of Business Solutions.

The revenue of the Consumer business unit over the past quarter amounted to €155 million, which is a €54 million decrease year on year (Q2 2011: €209 million) and an increase of €29 million sequentially (Q1 2012: €126 million). The year on year decrease was driven by lower PND sales as the PND market sizes in our core geographies declined in an overall weak consumer electronics market together with the impact of the GPS chip related product issue.

The market size in Europe for PNDs was 2.4 million units compared to 2.8 million units in the same quarter last year. The North American market size was 1.7 million units compared to 2.1 million units last year. Our market share in Europe was flat compared to last year at 45%. Our North American market share was impacted by the GPS chip related product issue and declined from 23% to 19%. We currently see our North American market share slowly recovering towards more normal levels.

Despite the difficult market conditions for our partners, Automotive revenue remained stable year on year at €60 million (Q2 2011: €60 million). Sequentially revenue increased by 2.2% (Q1 2012: €58 million).

Licensing revenue decreased year on year by €2.3 million or 7.2% to €29 million and decreased by €3.4 million sequentially (Q2 2011: €32 million, Q1 2012: €33 million). The year on year reduction is due to a decline in the PND segment and the timing of revenue from new contract wins.

Business Solutions revenue increased by €3.6 million or 26% year on year to €18 million (Q2 2011: €14 million) driven by organic growth of the subscriber base. Sequentially revenue increased by €1.6 million or 10% (Q1 2012: €16 million).

Hardware revenue for the quarter was €163 million for the group, a decrease of 26% year on year (Q2 2011: €218 million) and an increase compared to the first quarter of 20% (Q1 2012: €135 million).

Content & Services revenue was €99 million for the quarter compared to €96 million in Q2 2011, an increase of 3.3%. Sequentially, Content & Services revenue increased by 1.2% (Q1 2012: €98 million). Content & Services revenue represented 38% of total revenue (Q2 2011: 31%; Q1 2012: 42%).

Gross margin

The gross margin for the group was 52%. The gross margin increased by 1 percentage point compared to the same quarter last year. Based on constant currencies the gross margin would have been 54%. Sequentially the gross margin increased by 3 percentage points. The first quarter 2012 gross margin included a one-off charge of €13 million.

Operating expenses3

Total operating expenses for the quarter amounted to €122 million, a decrease of €20 million or 14% compared to the same quarter last year (Q2 2011: €142 million). Compared to the first quarter, operating expenses increased by €7.8 million or 6.9% (Q1 2012: €114 million). We are well on track to achieve the previously announced cost savings.

The year on year decrease in operating expenses was mainly the result of lower marketing and SG&A expenses. Marketing expenses decreased by €15 million year on year to €16 million (Q2 2011: €30 million). The decrease was driven by an overall reduction in marketing spend and the timing of the 2012 summer marketing campaign, which started later in the quarter and will partly run in Q3 2012. SG&A expenses decreased by €8.8 million year on year to €41 million (Q2 2011: €50 million) reflecting the result of our overall cost savings programme.

The sequential increase was mainly the result of higher R&D and marketing expenses. R&D expenses increased by €4.3 million sequentially to €43 million (Q1 2012: €38 million) mainly as a result of more projects in the quarter. Marketing expenses saw a seasonal sequential increase of €3.0 million (Q1 2012: €13 million).

As a percentage of revenue, operating expenses for the quarter were 47% compared to 45% in Q2 2011 and 49% in Q1 2012.

3 Comparative operating expenses for Q2 2011 exclude an impairment charge of €512 million.

Financial results

The total interest charge for the quarter was €3.0 million (Q2 2011: €6.1 million, Q1 2012: €3.5 million). The interest expense on the loan facilities for the quarter amounted to €2.0 million. The amortisation of transaction costs related to the facility amounted to €1.1 million and the interest income generated on cash balances amounted to €0.1 million.

The other financial result for the quarter of -€0.5 million comprised primarily of a foreign exchange loss as a result of the balance sheet revaluations not fully offset by the FX hedging result.

Debt financing

On 30 June 2012, the carrying value of our borrowings amounted to €338 million, a decrease of €19 million compared to the previous quarter as the result of an early repayment of our borrowings of €20 million (Q1 2012: €357 million). Excluding transaction costs, which are netted against the borrowings, our outstanding borrowings amounted to €340 million (Q1 2012: €360 million).

Net debt as of 30 June 2012 was €191 million compared to €192 million at the end of the previous quarter. Net debt is the sum of the borrowings (€340 million) minus cash and cash equivalents at the end of the period (€149 million).

The net debt to the last twelve months EBITDA ratio was 0.96 times compared to 0.94 at the end of the previous quarter.

Balance sheet

As of the end of Q2 2012, accounts receivable plus other receivables amounted to €207 million. Our accounts receivable balance is driven by our revenues, which explains the decrease of €34 million year on year and the increase of €54 million sequentially. The inventory level was €64 million, a decrease of €37 million year on year and an increase of €8.7 million compared to the previous quarter. Cash and cash equivalents at the end of the quarter were €149 million.

Current liabilities were €741 million compared to €627 million at the end of the same quarter last year and €733 million in the previous quarter. The year on year increase is mainly caused by the presentation of the remaining outstanding bank loan as short term. A forward start facility, which will replace the existing borrowings as from 31 December 2012, is in place.

Cash flow

During the quarter, we recorded cash flow from operations of €19 million (Q2 2011: -€23 million). The increase in cash flow was mainly driven by the reduced working capital utilisation in the quarter compared to the prior year quarter.

The cash flow used in investing activities during the quarter decreased to €10 million from €25 million in same quarter last year. Sequentially the decrease was €2.8 million.

TOMTOM NV

INTERIM FINANCIAL REPORT
(unaudited)

30 JUNE 2012

Contents:

Semi-annual financial report

Introduction

TomTom NV (the Company) and its subsidiaries (the group) is the world´s leading supplier of in-car location and navigation products and services focused on providing all customers with the world´s best navigation experience. TomTom has 3,500 employees working in its offices across all continents. The commercial activities of the group are carried out through four customer facing business units "´ Consumer, Automotive, Business Solutions and Licensing. The first three of these business units sell their navigation products and services to one specific customer group, whilst Licensing sells its content and services to multiple customer groups.

It is our mission to provide all drivers with the world´s best navigation experience. We tailor our activities towards multiple audiences and aim to play a leading role across all platforms where our products and services can be of use.

Market and TomTom outlook 2012

The weak economy continues to impact demand for our products, most notably through declining consumer demand for consumer electronics products and new cars.

In Automotive we will continue to roll out solutions with our partners into new models. In addition, we have won and expect to win further new contracts that will drive revenue growth in future years. In Licensing we aim to compensate for declining revenue from one of our biggest customers through new customer wins and by bringing new products to the market. Business Solutions is expected to continue to grow strongly, by both increasing its WEBFLEET subscriber base and also growing in areas beyond fleet management services. Consumer revenue is expected to continue to be impacted by the declining PND market sizes although revenues will also be generated from new product areas such as fitness.

We expect to deliver full year revenue of around €1.1 billion and adjusted earnings per share of around €0.35.

Financial review for the six month period ended 30 June 2012

Revenues

Total revenues were €495 million in H1 2012 down from €579 million in H1 2011. The decrease is primarily driven by the decrease in Consumer revenue. Year on year, Consumer revenue decreased by 23% to €280 million in H1 2012 compared to €366 million in H1 2011. Automotive revenue decreased by €1.6 million from €120 million in H1 2011 to €118 million in H1 2012. Licensing revenue decreased by €3.5 million to €62 million (H1 2011: €66 million) and Business Solutions reported a revenue increase of €5.6 million to €34 million in H1 2012 (H1 2011: €28 million).

Gross result

Gross profit decreased to €250 million in H1 2012 from €301 million in H1 2011. The gross margin decreased to 51% compared with 52% in H1 2011. The H1 2012 gross profit was negatively impacted by a €13 million charge relating to the rectification of a GPS chip product issue.

Operating expenses

Operating expenses in H1 2012 were €236 million, a decrease of €540 million compared to the same period last year (H1 2011: €777 million). This decrease is mainly caused by the impairment charge of €512 million in 2011. Excluding the effect of the impairment charge our operating expenses decreased by €28 million. This decrease is mainly the result of an overall lower cost base following our reorganisation and cost reduction programme as announced in 2011.

Operating result

The operating result for H1 2012 was €14 million compared to a loss of €476 million in H1 2011.

Financial result

The group recorded €6.5 million of interest expenses in H1 2012, a decrease of €5.6 million compared to the previous year (H1 2011: €12 million). The year on year decrease was the result of the reduction in borrowings following the repayments in the second half of 2011 and the first half of 2012 and the year on year decrease in Euribor. The other finance result in H1 2012 was a gain of €2.1 million (H1 2011: €3.9 million) mainly as a result of our foreign exchange derivatives portfolio and the revaluation of our non-euro denominated monetary balances, such as accounts payable, accounts receivable and cash balances.

Income taxes (excluding effects of impairment charge)

The net income tax charge in all the jurisdictions in which we operate was €2.2 million in H1 2012, a decrease compared to last year (H1 2011: €6.2 million). The effective tax rate in H1 2012 was 22.8% compared to 22.4% in H1 2011.

Cash flow

Cash flow generated from operations was €35 million versus a cash outflow of €18 million in the same period last year. The cash flow was driven by the operating result adjusted for non-cash items and by changes in working capital. Net interest paid decreased year on year to €4.2 million in H1 2012 compared to €9.1 million in H1 2011. Corporate income tax paid increased to €5.3 million from €3.1 million in the previous year.

Cash flow used in investing activities was €24 million, a decrease of €18 million from €42 million in the same period last year.

Related party transactions

For related party transactions please refer to note 10 of our interim financial statements.

Principal risks and uncertainties H1 2012

A detailed discussion of the group´s principal risks and uncertainties can be found in the 2011 Annual Report.

In the 2011 Annual Report, we described the key business risks which we are aware of, which could have a material adverse effect on our financial position and results.

Those risk categories and risk factors are deemed incorporated and repeated in this report by reference.

Other risks not known to us, or currently regarded not to be material, could later turn out to have a negative material impact on our business, objectives, revenues, income, assets, liquidity or capital resources.

Responsibility statement

The Board of Management hereby declares that, to the best of their knowledge:

• the interim financial statements prepared in accordance with IAS 34, "Interim Financial Reporting", give a true and fair view of the assets, liabilities, financial position, profit and loss of the company and the undertakings included in the consolidation taken as a whole; and
• the interim management board report gives a fair review of the information required pursuant to section 5:25d(8)/(9) of the Dutch Financial Markets Supervision Act (Wet op het financieel toezicht).

Consolidated condensed statement of income

EPS, € diluted1

1 In 2011 no additional shares from assumed conversion are taken into account as the effect would be anti-dilutive.

Consolidated condensed statement of comprehensive income

The items in the statement above are presented net of tax.

Consolidated condensed balance sheet