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Driving ahead
Annual Report 2006

Table of contents

  • Page 1
    Driving ahead Annual Report 2006

  • Page 2
    ... year Driving ahead through innovation Driving ahead in partnership Driving ahead with enthusiasm Chief Executive's statement The TomTom way TomTom at a glance Business review Technology review Corporate Social Responsibility Management Board and Supervisory Board Supervisory Board report Corporate...

  • Page 3
    ... 28 + 98% 5,030 2,212 Net income (â,¬ in millions) 06 05 04 03 6 02 1 Number of units sold (in 000s) 06 05 04 687 03 205 02 29 + 55% 392 102 44 + 127% Cash generated from operations (â,¬ in millions) 06 05 04 03 9 02 1 + 284% Financial highlights of the year 1 TomTom Annual Report 2006

  • Page 4
    Smart innovation The TomTom GO 910 is our most highly featured navigator. Its hands-free calling, photo features, built-in MP3 player and interactive iPod® control also make it the smartest.

  • Page 5
    ... and mobility solutions in the market. TomTom HOME (top) TomTom HOME, our proprietary software application that works on both PCs and Macs, allows users to manage the content on their TomTom PND. TomTom WORK (bottom) TomTom WORK combines tracking and tracing with navigation for business users. We...

  • Page 6
    Customer-centred alliances We work in close partnership with retailers around the world to make sure TomTom customers receive excellent service.

  • Page 7
    ...quality service, often introducing first-time buyers to the world of satellite navigation technology. Their knowledge of the local markets and the infrastructure they provide to reach a large number of potential customers is invaluable. A new versatile solution Our new business unit TomTom Mobility...

  • Page 8
    Tested quality Over 50 people form the TomTom Test Team. They ensure our products and services meet the strict quality standards that our customers expect.

  • Page 9
    ...them, and to improve on their previous performance. In addition, we endeavour to set the conditions necessary for our people to put their creativity and ambitions to work towards a better business outcome. Driving ahead with enthusiasm... Driving ahead with enthusiasm... 7 TomTom Annual Report 2006

  • Page 10
    ...products and services. In 2006 we released our new TomTom ONE and TomTom GO ranges and we launched our TomTom HOME application delivering a superior connected environment to our customers. These We are proud about the leading role new solutions helped us bring navigation we have played in developing...

  • Page 11
    ... This WORK, our vehicle ï¬,eet management will be a year in which we continue to service which is now operational put our energy and enthusiasm towards across Europe and the US. This business meeting the personal navigation needs enjoyed healthy sales growth, and is well of tomorrow's customers. New...

  • Page 12
    ... We consistently make the best products available to our customers. Being first to market with innovative products and services is one of our key competitive advantages. Car navigation For more than 15 years TomTom has focused on developing innovative and smart products that exceed consumer needs...

  • Page 13
    ...large market. We are the world's largest car navigation We monitor the quality of our products company with an installed base of over and engage openly with our customers. eight million users. This allows us to offer better customer support and to build long-lasting Product differentiation is key to...

  • Page 14
    ... made TomTom devices so popular, the 2006 TomTom GO range offers: - new cutting-edge design - high-quality, extra wide, 4-inch LCD touch screen - greatly improved GPS performance - hundreds of features and software improvements - the unique free content management portal TomTom HOME TomTom's PNDs...

  • Page 15
    ...held devices: the TomTom NAVIGATOR software for PDAs and TomTom MOBILE navigation software for smartphones. In August 2006 the new version, NAVIGATOR 6, was launched. Add-ons and services TomTom PLUS offers users locationbased content and services that can be downloaded online or wirelessly for easy...

  • Page 16
    ... through TomTom Mobility Solutions. This was also the year when we updated our service offering by launching a number of user-friendly add-ons to the TomTom PLUS service package; and we made these services more easily accessible to users through our new content management portal, TomTom HOME. Last...

  • Page 17
    ... include: TomTom Audiobooks, TomTom Buddies, TomTom Safety Cameras, TomTom Quick GPS Fix™, TomTom Traffic and Road Conditions, and TomTom Weather. More details on these add-ons can be found online on www.tomtom.com/home New business units TomTom Mobility Solutions In January 2006 we acquired and...

  • Page 18
    ... in 2006 to the UK, France, Benelux and Austria. By the end of the year, its customer base had grown to more than 14,000 active subscribers.TomTom WORK combines tracking and tracing technology with smart navigation for companies that require easy, two-way communication between ï¬,eet managers and...

  • Page 19
    ... cost-effectively. TomTom now supports users in 15 different languages across 25 countries. Human resources TomTom's human resources strategy is Customer support based on developing scalable, transparent We believe that TomTom products are the and easy-to-use HR tools and activities best available...

  • Page 20
    ...Building tomorrow's navigation technologies Technological developments will mean navigation products will evolve from static 'find-your-destination' devices into connected and dynamic 'find-the-optimal route-to-your-destination' and 'timedependent travel information' products and services. TomTom...

  • Page 21
    ... mobile phone or via the internet with our in-house developed software application TomTom HOME. TomTom HOME simplifies the process of managing, downloading and storing TomTom PLUS content and services. Users can pre-plan their route from a PC or Mac and download content such as maps to their TomTom...

  • Page 22
    ... in 2006. Works Council members will be elected before summer 2007. TomTom has developed and implemented its own Code of Conduct for its staff which explains how our employees must carry out their work in compliance with ethical and legal standards. Corporate social responsibility 20 TomTom Annual...

  • Page 23
    ... user As we are committed to ensuring that our suppliers adopt acceptable labour, human rights and environmental standards, TomTom developed an Ethical Fewer kilometres are driven, Trading Code of Practice in August 2006. less fuel is consumed The standards in the Code relate to a The research...

  • Page 24
    ... 11 years with Unilever, working in consumer marketing and general management, becoming vice-president for brand development for one of the company's largest Dutch food subsidiaries. Alexander later managed a key European business unit for Mars, Inc. He joined TomTom to lead our marketing activities...

  • Page 25
    ...former member of the Board of Management of Royal KPN NV, with responsibility for KPN's mobile division and he served on the Supervisory Board of E-Plus Mobilfunk Geschäftsführungs GmbH. In June 2006, Guy was appointed as Chief Executive Officer of Kroymans Corporation BV, a company active in the...

  • Page 26
    ... member of the Management Board is a maximum of 10% of base salary. Independence The Supervisory Board confirms that all Supervisory Board members are independent within the meaning of provision III.2.2 of the Dutch Corporate Governance Code. Supervisory Board report 24 TomTom Annual Report 2006

  • Page 27
    ... and the Company Annual Accounts for 2006 and in accordance with Article 2:394 and Article 2:395 of the Dutch Civil Code, the Management Board will file the Consolidated and Company Annual Accounts for 2006 with the Chamber of Commerce. Supervisory Board report 25 TomTom Annual Report 2006

  • Page 28
    ... Board assisted the Company in meeting its responsibilities in respect of the following areas: - the integrity of annual and quarterly financial reporting as presented under IFRS together with related press releases; - the maintenance of an effective system of internal control and risk management...

  • Page 29
    ... service lines. Type of service (â,¬ in thousands) 2006 2005 Statutory audit services Other audit services Tax services Total 317 83 635 1,035 31% 8% 61% 170 50 105 325 52% 15% 32% Supervisory Board Amsterdam The Netherlands 22 February 2007 Supervisory Board report 27 TomTom Annual Report...

  • Page 30
    ..., including the above 2006 are subject to performance criteria. However, for terms and conditions, were entered into prior to share options granted to Management Board members the date of the Initial Public Offering of the Company prior to 31 December 2005 we partly deviate from best in 2005; and...

  • Page 31
    ... of at least two-thirds of the votes cast representing more than 50% of our issued share capital. Members of the Management Board Harold Goddijn Chief Executive Officer Marina Wyatt Chief Financial Officer Alexander Ribbink Chief Operating Officer Corporate Governance 29 TomTom Annual Report 2006

  • Page 32
    ... the Management Board: - the intended sale and transfer of 3,000,000 shares in the capital of the Company by Tradewind Investment N.V., the holding company held for the benefit of Mr. Goddijn and his family, as part of a secondary offering by our founding shareholders and our Chief Operating Officer...

  • Page 33
    ...the financial statements of TomTom NV included in this annual report. Rotation schedule On 13 February 2006, the Supervisory Board adopted the following rotation schedule: Name Date appointed End of first term Date of possible reappointment The Articles of Association grant the Management Board the...

  • Page 34
    ...have the right to require the Foundation to exercise the Call Option if (i) we expect a hostile takeover may be attempted or (ii) in the opinion of the Management Board, a single shareholder (or group of shareholders) holds a 'substantial number' of our ordinary shares. 32 TomTom Annual Report 2006

  • Page 35
    .... to report to the AFM. Our Articles of Association grant the Management Board the irrevocable authority to issue preference shares, or grant rights to subscribe for preference shares, up to a maximum of 50% of the outstanding share capital of ordinary shares, for a period of two years ending on 13...

  • Page 36
    ... would be detected on a monitoring, financial and management reporting; timely basis; and - a Code of Conduct and a Code of Ethics which are available to staff on our intranet; the Code of Conduct is also available on the TomTom website (www.tomtom.com); and - centralised treasury operations to...

  • Page 37
    ...we sold more accessories, maps and upgrades and other content and services to our growing installed customer base.The number of subscribers to TomTom WORK's tracking and tracing solution increased from 1 Europe 90% 8,000 at the end of 2005 to 14,000 at the end of 2006. 2 North America 8% 3 Australia...

  • Page 38
    ... good progress in building our market position in North America. Selling, general and administrative expenses include personnel expenses for our selling and administrative staff, office expenses and other general expenses. SG&A costs increased to â,¬80 million in 2006, an increase of 111% compared...

  • Page 39
    ...Vodafone Netherlands. This development will see our in-house patented technology convert anonymous, raw GSM signalling data - supplied by Vodafone Netherlands' network - into accurate, real-time, information on the speed and direction of cars travelling throughout the road network of the Netherlands...

  • Page 40
    ...benefits for our customers. Sales price risk The sales prices of TomTom's products are primarily affected by the competition the Company faces in its markets, pricing compared to alternative products, its In 2006 TomTom sold its products in Europe, Australia and ability to provide enhanced services...

  • Page 41
    ... future customer base. Consumer demand for personal navigation products generally, or for our Our success is dependent on our ability to develop and products and services specifically, may fail to grow at commercialise new and upgraded products and services, anticipated rates. the timing of releases...

  • Page 42
    ...our contract manufacturers and component suppliers. Product liability claims Product liability claims present the risk of protracted litigation, financial damages, lawyer's fees, and diversion of management's attention from the operation of our business. The use of map data by and provision of route...

  • Page 43
    ... for the year ended 31 December 2006 Financial statements contents 42 Consolidated Income Statement of TomTom NV 43 Consolidated Balance Sheet of TomTom NV 44 Consolidated Statement of Cash Flow of TomTom NV 45 Consolidated Statement of Changes in Shareholders' Equity of TomTom NV 46 Notes...

  • Page 44
    ... Income Statement of TomTom NV for the year ended 31 December Notes (â,¬ in thousands) 2006 2005 Revenue Cost of sales Gross profit Operating expenses Research and development expenses Marketing expenses Selling, general and administrative expenses Stock compensation expense Operating...

  • Page 45
    ...Share capital Share premium Legal reserves Stock compensation reserve Retained earnings Total equity Provisions Non-current liabilities Deferred tax liability Long-term liability Total non-current liabilities Current liabilities Trade payables Taxes and social... TomTom NV 43 TomTom Annual Report 2006

  • Page 46
    ... Flow of TomTom NV for the year ended 31 December Notes (â,¬ in thousands) 2006 2005 Cash flow from operating activities Operating profit Financial (losses) and gains Depreciation of property, plant and equipment Amortisation of intangible assets Change to provisions Change to stock compensation...

  • Page 47
    ... called-up and paid-up capital of the Company, increased by legal and statutory reserves. Legal reserves Legal reserves are non-distributable reserves that have been recorded for the amount of capitalised internal software development costs and cumulative translation adjustments. Stock compensation...

  • Page 48
    ... in Amsterdam, the Netherlands. The activities of the Company include the development and sale of navigation solutions. The primary focus of these activities is on personal navigation. The consolidated financial statements of the Company for the year ended 31 December 2006 comprise the Company and...

  • Page 49
    ... end-users and Original Equipment Manufacturers ("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...

  • Page 50
    Notes to the Financial Statements of TomTom NV Continued Interest income Interest income is accrued on a time basis, based on the principal outstanding and at the effective interest rate. Leasing Leases are classified as finance leases whenever the terms of the lease substantially transfer all the ...

  • Page 51
    ... credited or charged directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting for a business combination. Intangible assets Development costs Internally generated software development costs arising from the creation and update...

  • Page 52
    ...realisable value represents the estimated selling price less an estimate of the costs of completion and direct selling costs. Trade receivables Trade receivables are stated at nominal value. Appropriate allowances for estimated unrecoverable amounts are recognised in the profit and loss account when...

  • Page 53
    ... of TomTom NV Continued 3. Segment reporting During the period the Group operated in one business line; personal navigation solutions. The Group generates sales across different geographical regions. 2006 Revenue (â,¬ in thousands) 2006 Number of employees at year end 2005 Europe North America...

  • Page 54
    ... the Financial Statements of TomTom NV Continued Overview of salaries, performance-related bonuses and other emoluments Salary 2006 (in â,¬) Bonus Other Total emoluments1 remuneration Management Board Harold Goddijn Alexander Ribbink Marina Wyatt Total 194,400 194,400 352,941 741,741 Salary 394...

  • Page 55
    ... million). 2006 (â,¬ in thousands) 2005 Amortisation expenses Depreciation expenses Total 13,800 4,394 18,194 1,579 1,844 3,423 The costs for operating leases in 2006 amounted to â,¬1.7 million (2005: â,¬1.3 million). Notes to the Financial Statements of TomTom NV 53 TomTom Annual Report 2006

  • Page 56
    ...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...

  • Page 57
    ... of TomTom NV Continued 10.Intangible assets Development costs (â,¬ in thousands) Acquired technology Software Total Balance as at 31 December 2004 Investment cost Accumulated amortisation 1,549 -589 960 1,549 -589 960 Movements Investments Acquired intangible assets Amortisation charges 1,254...

  • Page 58
    ...593 million (2005: â,¬356 million). As a result of the write-down of inventories to their net realisable value the Group recognised costs of â,¬5.6 million (2005: â,¬3.3 million). These costs are included in cost of sales. Notes to the Financial Statements of TomTom NV 56 TomTom Annual Report 2006

  • Page 59
    ... is party to foreign currency forward contracts and plain option contracts for the management of its amounts from the sale of goods. exchange rate exposures. At the balance sheet date, the total fair value relating to outstanding forward foreign The carrying amount of trade receivables approximates...

  • Page 60
    ... by Euronext Amsterdam NV). In addition, 138,616 new ordinary shares were issued to Nick Kaufmann Limited as part of his remuneration as financial adviser to the Company during the Global Offer. Opening balance Stock compensation expense Tax benefit Share options exercised Closing balance 11...

  • Page 61
    ... to the IPO, the share price was determined by management using a discounted cash flow model. The Black and Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation...

  • Page 62
    ... the sale and purchase agreements, the former shareholders of Datafactory as well as Drivetech are entitled to an additional purchase price instalment depending on the performance of the acquired companies and related technologies during the period 2006-2008. Based upon management's best estimate...

  • Page 63
    ... Total 1 9,682 34,103 43,785 A deferred tax asset is recognised for the stock compensation expense related to the share option 9,777 plan 2005. 11,204 20,981 The warranty provision is classified as a current liability. Notes to the Financial Statements of TomTom NV 61 TomTom Annual Report 2006

  • Page 64
    ... a company that develops navigation software No discount factor is used in determining the operating for the Taiwanese market. The Group consolidated lease commitments. Drivetech from December 2005 onwards. The transaction has been accounted for by the purchase method of accounting. 23.Related party...

  • Page 65
    ... year ended 31 December (before proposed appropriation of result) Notes (â,¬ in thousands) 2006 2005 Result of subsidiaries after taxation Other income and expense after tax Net profit (2) (3) 224,171 -1,990 222,181 142,994 -37 142,957 Company Financial Statements of TomTom NV 63 TomTom Annual...

  • Page 66
    ...Shareholders' equity Share capital Share premium Legal reserves Stock compensation reserve Retained earnings Result for the year Total equity Provisions Inter-company payable Current...,362 2,740 13,620 101,675 118,035 307,237 (5) (6) Company Balance Sheet of TomTom NV 64 TomTom Annual Report 2006

  • Page 67
    ... on the Company's outstanding cash balances. For the remuneration of the Management Board and Supervisory Board please refer to note 5 to the consolidated financial statements. 4. Shareholders' equity For the statement of changes in consolidated equity for the year ended 31 December 2006, please...

  • Page 68
    ...Supervisory Board Andrew Browne Guy Demuynck Doug Dunn Amsterdam, 22 February 2007 TomTom NV Statutory Seat Amsterdam 6. Stock compensation reserve For details of the stock compensation reserve please refer to note 18 in the consolidated annual accounts. 7. Off balance sheet commitments The Company...

  • Page 69
    ... to the Company financial statements In our opinion, the Company financial statements give a true and fair view of the financial position of TomTom NV as at 31 December 2006, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Report on other...

  • Page 70
    ...NV in the last 5 years 2002 (â,¬ in thousands) 2003 2004 2005 2006 Profit and loss Revenue Cost of sales Gross profit Research and development expenses Marketing expenses Selling, general and administrative expenses Stock compensation expense Total operating expenses Operating profit Financial...

  • Page 71
    ... be addressed to: TomTom NV Investor Relations Rembrandtplein 35 1017 CT Amsterdam The Netherlands Tel: +31 (0)20 753 5194 We are registered with the Trade Register of the Chamber of Commerce of Amsterdam, under number 34224566. Our corporate seat is in Amsterdam. We have our business address at...

  • Page 72
    ... products are based. Company milestones 1994 1996 1999 2001 2002 2003 2004 2005 2006 Launched TomTom WORK and TomTom Mobility Solutions. http://investors.tomtom.com/tomtom/overview/history/ Marina Wyatt joins the Company as CFO and helps TomTom to 'go public' on the Amsterdam Stock...

  • Page 73
    TOM01 Review 2006 Draft06 IP07 TomTom Rembrandtplein 35 1017 CT Amsterdam The Netherlands Tel: +31 (0)20 850 0800 Fax: +31 (0)20 850 1099 www.tomtom.com Title 1 TomTom Annual Report 2006