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ANNUAL REPORT AND ACCOUNTS 2007
Total Navigation
Our route to the future

Table of contents

  • Page 1
    ANNUAL REPORT AND ACCOUNTS 2007 Total Navigation Our route to the future

  • Page 2
    ...services to support and enhance our navigation products. These are accessible through our user-portal, TomTom HOME. TomTom WORK, a separate division of TomTom, offers fleet management solutions that combine smart navigation with leadingedge tracking & tracing technology. Our automotive business unit...

  • Page 3
    KEY FIGURES REVENUE (in â,¬ millions) GROSS PROFIT (in â,¬ millions) Year to 31 December 2007 Year to 31 December 2006 1,737 1,364 Year to 31 December 2007 Year to 31 December 2006 764 579 +27% 2,000 1,600 600 1,200 400 800 200 400 0 2003 2004 2005 2006 0 800 +32% 2007 2003 2004 2005 2006...

  • Page 4
    ...stress and enhance safety. Tests confirm our award-winning portfolio of products to be preferred over others and our brand to be the most trusted in the category. As a result, TomTom is the world's largest personal navigation company, and we make the daily life of millions of people just that little...

  • Page 5
    ...TO DEVELOP NEW SOLUTIONS, BRING VALUE TO OUR CUSTOMERS AND ACCESS NEW MARKETS. THIS ABILITY AND COMMITMENT ARE AT THE HEART OF OUR CONTINUED SUCCESS, ENABLING US TO BUILD VALUE FOR ALL OUR STAKEHOLDERS - SHAREHOLDERS, CUSTOMERS, EMPLOYEES, BUSINESS PARTNERS AND THE WIDER COMMUNITIES IN WHICH WE WORK...

  • Page 6
    ... of technological changes, political and military developments in countries where TomTom operates and the risk of a downturn in the market. Statements regarding market share, including TomTom's competitive position, contained in this document are based on outside sources such as specialised research...

  • Page 7
    ... and Services Profile - Growth and Global Reach Strategy - Our Route to the Future Chief Executive's Statement Report of the Management Board 14 Business Review 16 Financial Review 20 Organisation and Human Resources 23 Products and Technology Management Board and Supervisory Board Supervisory Board...

  • Page 8
    ... units THE EUROPEAN MARKET GREW BY 72% 15 > > > > > > 14.02 - Independent research shows that satellite navigation has a positive effect on driving and traffic safety 09.05 - TomTom sells its 10 millionth satellite navigation device 05.06 - Unique new map improvement technology TomTom Map Share...

  • Page 9
    ... we had been watching this market space closely for some years and realised that what was needed was a company that could talk directly to the end-user. Our problem at the time was that the cost of memory was too expensive to make an attractive product at the right price. However, around the turn of...

  • Page 10
    ... TomTom Map Shareâ„¢ technology and HD Trafficâ„¢ to Safety Cameras and Voices features. TomTom HOME is our user portal, a free software programme giving users access to our products and services. Through it, users can manage and personalise their device, as well as update it with new maps, services...

  • Page 11
    ...6 countries. The automotive team was established as a business unit in 2007 to develop and sell navigation systems and services to car manufacturers and OEMs. In September 2007, we announced the availability of the world's first portable navigation device embedded at the car manufacturer. The latest...

  • Page 12
    ...TomTom HD Trafficâ„¢ and TomTom Map Shareâ„¢ are two examples of breakthrough technologies that we introduced last year that provide TomTom's strong employer brand, supported by a smart recruitment strategy, enabled us to maintain an impressive organic growth rate of some 70 new employees per month...

  • Page 13
    ...PND units sold. TomTom listed on Euronext Amsterdam. â,¬720 million revenue. TomTom WORK and TomTom Mobility Solutions launched. Number of employees 818. TomTom makes offer for Tele Atlas. TomTom HD Traffic and TomTom Map Share launched. 9.6 million PND units sold. 2002 2003 2004 2005 2006 2007

  • Page 14
    ... quality of our products and services. We aim to take navigation to the next level by means of radical advances in three key areas: > Better Maps with instant map corrections and access to the verified corrections of other users, via our unique new TomTom Map Shareâ„¢ technology; > Better Routes...

  • Page 15
    ...' devices into products and services that provide connected, dynamic 'find-the-optimal-route-to-your-destination', with time-accurate travel information. We are well positioned to maintain that leading position over the long-term because of the size of our customer and technology base, our...

  • Page 16
    ... Australia, and in Germany for TomTom WORK. This enables us to give our customers the best support possible. Customer Feedback - customer feedback is an integral part of our product development process, informing how we expand our business and improve our products and services. > > User Community...

  • Page 17
    ... 2007 11 FLEXIBLE BUSINESS MODEL Under TomTom's business model, all our core activities remain in-house, including our software and hardware technology expertise, our relationship with our customers, and our branding activities. All other activities, such as hardware production, manufacturing...

  • Page 18
    ... to 50% of our European customer base by the end of 2008. Traffic services are discussed in greater detail elsewhere in this report, but I would like to say here that this new technology dramatically improves the quality of our solutions. In combination with other technologies, it means that we can...

  • Page 19
    ...selling connected navigation solutions, to subscribers that doubled in number last year. We have invested considerable resources in the supporting software systems and delivery platform to enable the optimal delivery of our services to a broad range of navigation solutions. TELE ATLAS generated map...

  • Page 20
    ... online community of TomTom users underpins and adds considerable value to key elements of our strategy, such as Map Share and our intelligent routing database. SAFETY FIRST We believe TomTom products are the best available on the market, and back this up with the best available after-sales support...

  • Page 21
    ... world's first portable navigation device embedded at the car manufacturer. The latest Toyota Yaris comes with the option to include a TomTom PND as part of its built-in radio system. This new solution offers the motorist the best of both worlds: all the advantages of Tom-Tom's easy-to-use PND user...

  • Page 22
    ... expensive, taking months before a new map version with corrected data is released. The current map maintenance process perpetuates a suboptimal navigation experience for customers. At TomTom, we have developed unique technologies to collect and process map related data from our user base of over 15...

  • Page 23
    ... product ranges in our PND family: the entry-level TomTom One, the midrange One XL and the high-end GO series. Number of units sold (in 000s) 2007 2006 Change In 2007, TomTom generated revenue in EMEA (Europe and South Africa), North America (US and Canada) and Asia Pacific (Australia, New Zealand...

  • Page 24
    ... over an experienced team of close to 90 automotive engineers from Siemens VDO to form the core of our new automotive division which was set up to support our sales to The Company offers a number of share based compensation plans to employees. Charges resulting from these plans are calculated in...

  • Page 25
    TOMTOM ANNUAL REPORT 2007 19 In 2007, we adopted a performance-based share plan which replaced the 2005 share option plan. The charges for the performance-based share plan are determined by an option pricing model that simulates the expected result of performance criteria approved by the ...

  • Page 26
    ... thousands) 2007 2006 Competencies The work of every employee is built around three core competencies: Open Spirit, Passion for Results and Innovative Thinking. These core competencies, combined with role-specific competencies, are at the heart of TomTom's Human Resources strategy. They are used as...

  • Page 27
    ... level of their influence on the delivery of TomTom's strategy. Induction During 2007, TomTom was typically recruiting 70 new employees a month. It is vital for the business that these people enjoy a smooth 'on-boarding' so they can hit the ground running when starting their jobs. At the same time...

  • Page 28
    ... Health Officers have been appointed in every region, processes developed to foster a pro-active healthy environment, and during roll-out of the policy, steps were taken to raise awareness of relevant health issues amongst managers and employees alike. In 2007 a new worldwide company doctor service...

  • Page 29
    ... world's bestselling PND, an entry-level product range for drivers who want a device that is easy-to-use and affordable, but still carries the latest maps and technology. We also unveiled a new version of TomTom RIDER, our award-winning navigation solution for two wheels, with its waterproof casing...

  • Page 30
    ... 'Help Me!' feature. The 'Help Me' button is part of the main menu, and gives direct access to a database of emergency service and roadside assistance locations and phone numbers, as well as a first aid guide. WIRELESS AND INTERNET SERVICES TomTom Map Share In the second half of 2007, we used the...

  • Page 31
    ... 12 months of Map Share updates after purchasing a new device or map. After this, they can continue to make improvements to their own maps, but will no longer receive map improvements from other users. Buying the latest TomTom map is never a problem, as we release new map versions on a daily basis...

  • Page 32
    26 MANAGEMENT BOARD AND SUPERVISORY BOARD The Management Board is responsible for the day-to-day management of our operations under the supervision of the Supervisory Board. The Management Board is required to keep the Supervisory Board informed, to consult with the Supervisory Board on important ...

  • Page 33
    ... 11 years with Unilever, working in consumer marketing and general management, becoming vicepresident for brand development for one of the company's largest Dutch food subsidiaries, and later managed a key European business unit for Mars, Inc. Alexander joined TomTom to lead our marketing activities...

  • Page 34
    ..., the Supervisory Board had regular contact, including conference calls, with the Management Board, and was informed and consulted by the Management Board on the course of the business and the Company's M&A activities, including the offer for all ordinary shares in the capital of Tele Atlas and the...

  • Page 35
    ... shares; a performance share is a right to payment in cash equal to value of the TomTom share at vesting. The plan has been benchmarked against the market and is in line with market best practice. The size of awards for the Management Board are at the median level of the market. Application in 2007...

  • Page 36
    ... of the Dutch Civil Code, the Management Board will file the Annual Accounts for 2007 with the Chamber of Commerce in Amsterdam. AUDIT • • • • • Financial reporting The Supervisory Board reviewed the quarterly financial results and full year financial statements prior to their release...

  • Page 37
    ... the 2007 financial year, the Supervisory Board met three times with the external auditor together with the Management Board. In order to facilitate free and open discussions between the Supervisory Board members and the external auditor, they also met separately, without the Management Board being...

  • Page 38
    ...options to acquire shares are a conditional remuneration component, and become unconditional only when the Management Board members have fulfilled predetermined performance criteria after a period of at least three years from the grant date. Best practice provision II.2.2 provides that, if a company...

  • Page 39
    ... management Our Management Board is supported by our senior management team: Corinne Goddijn-Vigreux - Chief Commercial Officer Peter-Frans Pauwels - Chief Technical Officer Pieter Geelen - Director of Software Development Mark Gretton - Engineering Director Harry van de Kraats - Human Resources...

  • Page 40
    ... option or share plans. For detailed information about the individual remuneration of members of the Supervisory Board see the notes to the financial statements of TomTom NV included in this annual report. Composition and appointment The Articles of Association provide that the number of members of...

  • Page 41
    ... of two years, starting on 13 May 2007 (i.e. expiration date of such authority previously granted) and ending on 13 May 2009. Dutch company law and our Articles of Association in most cases give shareholders pre-emptive rights to subscribe on a pro rata basis for any issue of new shares. Exceptions...

  • Page 42
    ... help us to determine our position in relation to a bidder and its plans, and to seek alternatives. There are currently no preference shares outstanding. Preference shares During our Annual General Meeting of Shareholders held in April 2006, a resolution was passed which grants the Management Board...

  • Page 43
    TOMTOM ANNUAL REPORT 2007 37 A resolution of our Management Board to issue preference shares, or to grant rights to subscribe for preference shares, as a result of which the aggregate nominal value of the issued preference shares will exceed 50% of the outstanding capital of ordinary shares at the...

  • Page 44
    ... manage risks related to international expansion we continuously focus on successful integration of new personnel and systems in order to manage our growth. HUMAN RESOURCES Our products depend on Global Positioning System (GPS) satellite transmissions to provide position data to our customers. GPS...

  • Page 45
    ..., quality and user-friendliness. We expect the prices we charge for our products to decrease over time, as supply increases, market competition intensifies and more personal navigation products become available. We mitigate the risks of sales price erosion primarily by cost engineering our products...

  • Page 46
    ... including security features in the product design. INFORMATION TECHNOLOGY We introduced a significant number of new and upgraded products and services this year. The transition to new products requires careful management of existing stock levels, and the introduction of new products, together with...

  • Page 47
    ... carried out within the guidelines set by the financial risk management policy, which is approved by the Supervisory Board. We are exposed to currency risk on our estimated purchases and sales transactions that are denominated in a currency other than the reporting currency of the Company - the euro...

  • Page 48
    ... high volume products and by expanding our Engineering and Quality Assurance departments; implementation of our General Performance Scheme, a consistent framework for performance management which aligns clear target and objective setting with personal development; and review of the Group Corporate...

  • Page 49
    ... main themes: supply chain management, environmental impact and responsible driving." At TomTom, we recognise that the world in which we live and work presents many environmental and social challenges. Through our corporate social responsibility (CSR) activities, we try to face up to and address...

  • Page 50
    ... has resulted in the development of several unique safety features now included in the software of all TomTom devices. For example, 2007 saw the introduction of a 'Help Me' menu that gives TomTom users direct access to emergency service phone numbers, roadside assistance and similar information...

  • Page 51
    ...TOMTOM NV for the year ended 31 December (â,¬ in thousands) Notes 5 6 2007 2006 45 Revenue Cost of sales Gross profit Operating expenses Research and development expenses Marketing expenses Selling, general and administrative expenses Stock...tax Net profit Earnings per share (in â,¬) Basic Diluted ...

  • Page 52
    ... Shareholders' equity Share capital Share premium Legal reserves Stock compensation reserve Retained earnings Total equity Non-current liabilities Deferred tax liability Long-term liability Provisions Total non-current liabilities Current liabilities Trade payables Taxes and social security Accruals...

  • Page 53
    ... FLOW OF TOMTOM NV for the year ended 31 December (â,¬ in thousands) Notes 2007 2006 47 Cash flow from operating activities Operating profit Realised financial losses Amortisation of intangible assets Depreciation of property, plant and equipment Change to provisions Change to stock compensation...

  • Page 54
    ...-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 reserve...

  • Page 55
    ... its headquarters 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 2007 comprise...

  • Page 56
    ... 3 "Business Combinations" are recognised at their fair values at the acquisition date. The provision for earn-outs relates to acquisitions where part of the purchase consideration is a future earn out for the former shareholders of acquired companies. The Group provides for future costs related to...

  • Page 57
    ... value of each element is determined based on the current market price of each of the elements when sold separately. The amount of revenues 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...

  • Page 58
    ...well as a cash-settled performance share plan. Share option plan The Group issued share options, which qualify as equity-settled share-based payments, to eligible employees, including members of management. Equity-settled share-based payments are measured at fair value at the date of grant. The fair...

  • Page 59
    ... software costs not relating to the Group's core software technology are expensed as research and development costs, as incurred on the basis that on average these costs have a useful economic life of less than one year. Engineering costs relating to the detailed manufacturing design of new products...

  • Page 60
    ... reporting date. Financial assets The group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines...

  • Page 61
    ... stock. Net realisable value represents the estimated selling price less an estimate of the costs of completion and direct selling costs. Trade receivables Trade receivables are initially recognised at fair value, and subsequently measured at amortised costs (if the time value is material), using...

  • Page 62
    ... that TomTom will acquire Tele Atlas. If TomTom does not acquire Tele Atlas the book value of the associate can change significantly. In that case the related expenses will be charged to the income statement. c) Stock compensation plan In order to calculate the charge for share-based compensation...

  • Page 63
    ... Rest of world Total Number of employees at year-end 15,623 565 718 16,906 6,866 230 55 7,151 2007 2006 Europe North America Rest of world Total 1,178 75 84 1,337 715 56 47 818 6. COST OF SALES The Group's cost of sales consists of material costs for goods sold to customers, royalty and...

  • Page 64
    ... designated as key management in 2007. The total remuneration for these senior executives amounted to â,¬3.5 million (2006: â,¬3.0 million). The following tables summarise information about share options and performance shares granted to members of the Management Board. Stock option plan Outstanding...

  • Page 65
    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF TOMTOM NV 7. EMPLOYEE BENEFITS (continued) Performance share plan Outstanding 1 Jan 2007 Granted in 2007 Exercised in 2007 Outstanding 31 Dec 2007 59 Expiry date Harold Goddijn Alexander Ribbink Marina Wyatt Total 0 0 0 0 12,600 6,500 6,500 25,...

  • Page 66
    ... interest expense relates to interest costs on income tax liabilities and financing costs for the acquired Tele Atlas shares. 10. INCOME TAX The activities of the Group are subject to corporate income tax in several countries, depending on presence and activity. The applicable statutory tax rates...

  • Page 67
    ... 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 68
    ...accounting period. 14. INVESTMENTS IN ASSOCIATES In the fourth quarter of 2007, the Company acquired 29.9% of the shares of Tele Atlas, a leading global provider of digital maps for navigation and location-based solutions, for a total consideration of â,¬816 million. The movements in the investment...

  • Page 69
    ... and liabilities of Tele Atlas is provisional and based upon publicly available data up to the date of these financial statements. TomTom's share of the profit of Tele Atlas is based upon our management's best estimate, taking into account historic publicly available data and our knowledge of the...

  • Page 70
    ...with TomTom's customers have not been exceeded, and an analysis of overdue amounts and related provisions for doubtful trade accounts receivable: (â,¬ in thousands) 2007 2006 Total Less provision for doubtful trade accounts receivable Trade receivables (net) Of which: Not overdue Overdue < 3 months...

  • Page 71
    ...,900 22,584 All shares have a par value of â,¬0.20 per share (2006: â,¬0.20 per share). On 7 December, the Company placed 8,156,250 new ordinary shares of 20 cents at a price of â,¬56 per share, raising net proceeds of approximately â,¬450 million. In 2007, 707,370 shares were issued following the...

  • Page 72
    ... at the time of exercise by issuing new shares. The following table summarises information about the stock options outstanding at December 31, 2007: Weighted average exercise price (in â,¬) Year of grant Number outstanding at 31 Dec 2007 Exercise price per share (in â,¬) Weighted Number average...

  • Page 73
    ... three-day average of the stock price, prior to the date of the grant. Prior to the IPO, the share price was determined by management, using a discounted cash flow model. The Black and Scholes and the Monte Carlo option valuation models were developed for use in estimating the fair value of traded...

  • Page 74
    ...Charged to income Balance as at 31 December 2007 1,011 5,361 6,372 8,077 14,449 0 555 555 755 1,310 296 4,838 5,134 3,470 8,604 1,307 10,754 12,061 12,302 24,363 A deferred tax asset is recognised for the stock compensation expense related to the share option plan and the share performance plan...

  • Page 75
    .... Under the sale and purchase agreements, the former shareholders of the acquired Companies are entitled to an additional purchase price installment, depending on the performance of the acquired companies and related technologies during the period 2007 - 2008. Based upon management's best estimate...

  • Page 76
    ... shares in Tele Atlas at â,¬30 per share. In the fourth quarter of 2007 TomTom acquired 29.9% of the Tele Atlas shares. A significant part of the acquired shares will include proportional sharing arrangements with the Selling Shareholders, in the event that TomTom terminates the Offer or the Offer...

  • Page 77
    ...share capital of Applied Generics for a price of â,¬16.5 million. Applied Generics has developed technology that makes it possible to generate real-time road traffic information based on the analysis of mobile network usage and cell-switching. The technology has the potential to deliver high quality...

  • Page 78
    ... OF TOMTOM NV 28. FINANCIAL INSTRUMENTS BY CATEGORY The accounting policies for financial instruments have been applied to the line items below: Assets at fair value through the profit and loss (â,¬ in thousands) Loans and receivables Total 31 December 2007 Assets as per balance sheet date Other...

  • Page 79
    COMPANY FINANCIAL STATEMENTS OF TOMTOM NV COMPANY INCOME STATEMENT OF TOMTOM NV for the year ended 31 December (before proposed appropriation of result) (â,¬ in thousands) Notes 2 3 4 2007 2006 73 Result of subsidiaries after taxation Result of associate Other income and expenses after tax Net ...

  • Page 80
    ...1 150,322 153,070 Total assets Equity and liabilities Shareholders' equity Share capital Share premium Legal reserves Stock compensation reserve Retained earnings Result for the year Total equity Provisions Inter-company payable Current liabilities Total equity and liabilities 5 1,790,079 579,362...

  • Page 81
    ...the activities of TomTom (the "Company") and the Company structure, as included in the notes to the consolidated financial statements, also apply to the Company financial statements. In accordance with section 2:362 Part 8 of the Netherlands Civil Code, the Company has prepared its Company financial...

  • Page 82
    ... made to the Corporate Governance section in this annual report. 12. AUDITOR'S REPORT Reference is made to the auditor's report on page 77. Amsterdam, 21 February 2008 Amsterdam, 21 February 2008 Management Board Harold Goddijn Alexander Ribbink Marina Wyatt Supervisory Board Andrew Browne Doug...

  • Page 83
    ... 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 December 31, 2007, 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 84
    ... of TomTom at the end of 2007 was â,¬6.3 billion. Share options of TomTom are traded on the Euronext Amsterdam Derivative Market. FINANCIAL CALENDAR 23 April 2008 23 April 2008 22 July 2008 - Annual General Meeting of Shareholders - Publication results Q1 2008 - Publication results Q2 2008 28...

  • Page 85
    ... 2007, TomTom issued share options to eligible employees, including members of management. This was replaced by a share-based compensation plan. The vesting schedule of the outstanding options is set out below: 79 SHARE OPTIONS VESTING SCHEDULE Number of options in 2008-2010 (in '000s) 10 Aug 2008...

  • Page 86
    80 CONTACT INFORMATION Together with an interactive version of our annual report, our website contains a vast amount of up to date information: http://investors.tomtom.com/. Investors can contact us via [email protected] Our visiting address is: Oosterdoksstraat 114 1011 DK Amsterdam The Netherlands

  • Page 87
    ... used in this report is manufactured Carbon Neutral and is 100% ECF (Elemental Chlorine Free). It is made within an ISO 14001 certified mill with 100% renewable electric energy, 45% of the mill's production energy is sourced from Hydro Electricity. Designed and produced by MAGEE www.magee.co.uk...

  • Page 88
    Oosterdoksstraat 114 1011 DK Amsterdam The Netherlands Tel: +31 (0)20 757 5000 www.TomTom.com