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Automotive Business & Financial review

3.1


STRATEGIC PRIORITIES

• Take advantage of the new mapmaking platform to deliver real-time maps
• Effectively market our modular NDS-based components for Connected Navigation Systems to OEMs and Tier1s
• Pursue new growth opportunities in ADAS and Autonomous Driving

3.2Business Review

Our Automotive business delivers class-leading maps, software components and services to OEMs and Tier 1 head unit vendors.

Although we previously also developed in-dash hardware, which we will continue to deliver to existing OEM customers as part of previous projects, our focus has shifted towards software, maps and services. This shift has broadened our customer base such that we are now a strong, recognised partner to both OEMs and Tier 1 vendors.

OEM expectations for embedded systems are evolving quickly, driven by innovation in consumer electronic devices such as smartphones and tablets and by advances in Autonomous Driving. The challenge for car makers is to offer embedded navigation systems that match the expectations of their customers, while keeping them affordable; navigation products must therefore be scalable, customisable, global and able to cover their vehicle range.

Car makers increasingly demand future-proof solutions that are open, modular and upgradeable. Given the complexity of building state-of-the-art infotainment systems, they are looking for suppliers who can help create competitive, low-risk products that have a fast time-to-market. TomTom automotive connected navigation components can easily be integrated to create location and navigation functions for connected cars. In addition, we are the only automotive quality map provider with a transactional mapmaking platform. We believe this state-of-the-art platform represents a perfect match for car makers’ need for future-proof solutions and enables them to offer Advanced Driver Assistance Systems (ADAS) and Autonomous Driving.

We believe that navigation will remain essential to the future of in-vehicle infotainment systems. This will include knowing where you are and how to get to your destination, but the navigation function will evolve to span the entire journey, from beginning to end, inside and outside the car.

The best end user experience is achieved when the embedded navigation system, with an embedded map, is augmented with connected real-time navigation services. This hybrid navigation approach maximises the use of connected services, while ensuring critical functionality will work even with no connectivity. Our move to the NDS industry standard format in 2015 has been another significant step for TomTom.

We also believe that embedded maps represent an essential component for ADAS and Autonomous Driving, as self-driving cars need up-to-date, high quality maps to properly position themselves on the road. Our transactional mapmaking platform enables TomTom to deliver real-time map updates to customers, also enabling OEMs to offer safe, accurate and competitive ADAS and Autonomous Driving solutions. In line with this vision, in 2015, TomTom released the industry’s first commercial HD map for a complete country. TomTom’s HD Map of Germany, covering the complete Autobahn network, provides a 3D lane map for 24,000 kilometres of roads. By delivering this highly accurate border-to-border model of the road, TomTom’s HD Map enables a vehicle to see beyond its sensors.

Our Automotive strategy has been well received by automotive OEMs and Tier 1 head unit vendors, reflected in a record level of bookings for 2015 of over €300 million. This will continue to support our top-line growth in Automotive business from 2016 onwards.

We made good progress in delivering a complete set of leading connected navigation components to our existing customers as well as securing new deals and partnerships. TomTom provides real-time traffic services, turn-by-turn navigation and maps for the new Jeep Renegade, the new Alfa Romeo Giulia and the entire Fiat 500 family for Europe. Our real-time traffic service is also provided to most Hyundai and Kia models in Europe. TomTom traffic was also chosen by Volkswagen Group for its cars across Europe, beginning with Audi and Volkswagen. In addition, TomTom provides turn-by-turn navigation and maps to SsangYong in Europe, as well as for the Fiat Bravo, Punto and Linea for Latin America. Finally, Daimler chose TomTom’s navigation services for its Mercedes me app.

In 2015, we partnered with Tech Mahindra to showcase their full line-up of Advanced Driver Assistance Systems services, creating an innovative portfolio for the Connected Car market. In addition, we continued to strengthen and build on existing partnerships with Bosch SoftTec and Volkswagen Research. The latter partnership also resulted in TomTom maps powering Audi’s 550-mile automated test drive from the west coast of California to Las Vegas leading up to CES 2015 in January.

3.3Financial review

Revenue for the year was €106 million, compared with €109 million in 2014. The modest year on year decline was mainly the result of the phasing out of certain legacy contracts in combination with a higher share of deferred revenue compared with 2014. Deferred revenue in Automotive relates to map and traffic services from recent contract wins that will be delivered over time.




Table_2 Key Figures Automotive

 
 
(€ in millions, unless stated otherwise) 2015 2014 y.o.y. change1
Revenue 105.9 109.4 -3%
EBITDA2 26.1 20.1 30%
EBITDA margin (%) 25% 18%  
EBIT -33.9 -28.7 18%
EBIT margin (%) -32% -26%  
 
1. Change percentages are based on non-rounded figures.
2. Automotive D&A costs mainly include amortisation related to our map asset (including acquisition-related amortisation) and our navigation software development.

Automotive generated EBITDA of €26 million in 2015, which compares to €20 million in 2014. The EBITDA margin was 25% in 2015 (2014: 18%). The maps cost are shared between the business units based upon certain allocation keys, of which one of them is revenue. As Automotive revenue modestly declined and Licensing revenue strongly grew in 2015, Automotive was allocated relatively less maps cost in 2015 compared with last year. This explains the year on year improvement of Automotive EBITDA and EBITDA margin.

EBIT amounted to -€34 million in 2015 (2014: -€29 million). This year on year decline is mainly as a result of a €11 million impairment charge on a certain customer specific technology partly offset by the above-mentioned relatively lower allocated maps cost and lower navigation software cost.


BUSINESS OUTLOOK

In 2016, we will continue expanding the footprint of our maps, software components and services to more automotive OEM and Tier 1 customers, seizing new ADAS and Autonomous Driving opportunities.

Building on our strategic partnerships with Tech Mahindra, Volkswagen Research and Bosch SoftTec, we will reaffirm our position as a key partner in the automotive industry with the mapping, navigation and traffic expertise necessary for the future of Autonomous Driving.