TomTom N.V.

Taco Titulaer - Head of Investor Relations (Group Controller & Treasurer) Harold Goddijn - Chief Executive Officer

Thank you, Carol. Good afternoon and welcome to our conference call during which we will discuss our financial results for the second quarter of 2013.

With me today are Harold Goddijn, our CEO and Marina Wyatt, TomTom’s CFO. This call is being broadcast live on our website and a recording of the call will be available shortly afterwards.

As usual I would like to point out that Safe Harbor applies. We will start with Harold who will discuss the operational developments followed by a more detailed look at the quarterly financial results from Marina.

We’ll then take your questions. The call will finish at 3‘o clock.

And with that Harold I would like to hand over to you.

Thank you Taco. Welcome ladies and gentlemen.

Thank you for joining us today on the earnings call. I would like to start with a summary of last quarter’s financial results and then move over to an operational review.

The results that we delivered were inline with our expectations. Revenues for the group came in at €250 million and compared to €262 million in the same quarter last year and up 24% sequentially.

Consumer PND revenues stabilized despite a generally weak consumer electronics environment. In the Automotive segment we are facing historically low car sales in Europe.

And as a consequently we have not been to grow our top line. In licensing revenue was flat year-on-year which extended the coverage of our traffic product further and added Russia’s in the coverage.

Business Solutions continues to do well with 29% larger installed base, as a result recurring revenue represented roughly two-third of total income and related hardware revenue was only marginally up compared to last year. The adjusted earnings per share was €0.07 and compares to €0.09 in the same quarter last year.

At 30 of June we had a net cash position of €6 million, a significant reduction from this €86 million at the start of the year is largely explained by the receipt of an €80 million one-off tax refund. Based on these results and our expectations for the remainder of the year we maintained our guidance for the full year of revenue of between 900 and €950 million and adjusted EPS of around €0.22.

I will move over now to discuss some of the operational highlights. Last quarter we started shipping a range of new products, the new PNDs have been well received by consumers and the new PNDs are using a completely new redesigned software spec.

The new PNDs have not contributed materially to the revenue in Q2. New features will be added rapidly and will be made available to existing users via free of charge software updates.

[Inaudible] and latest map guarantee boost usability and target both replacement market and first time buyers. The TomTom sports watches started shipping early July to the U.S.

and the European launch will follow shortly. Response from existing and prospective automotive customers to our new navigation software has been encouraging.

It’s our strategy to provide a complete set of easy to integrate software and service components to car makers and their suppliers for rapid and cost effective development of in-vehicle navigation products. Our traffic and routing products are our widely seen as class leading and in the quarter we connected the first Daimler cars to our servers.

In licensing income was flat year-on-year. We deepened our relationship with Blackberry with a traffic contract.

Despite a challenging market conditions business solutions continued to grow fast. 29% more cars were connected directly in the year-ago which brings to a total of 269,000 connected vehicles.

New services were launched including Tachograph service for automated certified driving time reporting. And we successfully launched the .connect Partner which gives software developers the tools to integrate web feed information to third party software packages.

More than 70 companies support off-the-shelf integration between work fleet and their back office solutions. We are excited to see some of the benefits from the completely redesigned map making platform.

We are steadily moving in a world of real time map making and ultimate content distribution that will dramatically improve efficiency and also will drive new levels of customer satisfaction. The new platform is an enabler for highly automated change detection in controlled community based-map improvements.

Before I hand over to Marina, I would to summarize that we had a quarter in line with our expectations, products based on our technologies and our shipping and use internally. We have foundational and faster product and process innovation for all of our products and all of our markets.

This concludes my part of the presentation. I hand over to Marina.

Thank you, Harold. I shall now begin a more detailed look at the quarterly financials.

On slide four we present our revenue analysis for the quarter. Group revenue was €250 million which is down 4% compared to the last quarter of last year, the same quarter of last year.

Consumer revenue decreased by 4% year-on-year, and PND revenue was flat. The European PND market size developed as expected with a decline of around 14%.

Within this market we delivered market share of 50% which was in line with Q1 and six percentage point higher than Q2 last year. And our market share gains in Europe have been driven by the more widespread inclusion of life time maps in our PNDs together with specific gains in the German market.

North American PND revenue has a favorable comparison as last year ASP was strongly affected by the GPS chip issues through returns and [sorts] of products. Revenue from fitness products although still a relatively small revenue stream for consumer grew strongly.

Consumer contributed 59% of group revenue which is the same level as Q2 last year. Automotive revenue continues to be impacted by low levels of new car sales specifically in Southern Europe.

Automotive revenue was €52 million which shows an increase of €1 million compared to Q1 this year and a decrease of 13% or 8 million compared to the same quarter of last year. Automotive revenue contributed 21% to Group revenue compared to 23% in Q2, 2012.

Licensing revenue was flat and contributed 12% to group revenue. And overall revenue in business solutions in the quarter grew at 13% while the installed base increased by 29%.

This is reflecting a low hardware element in the revenue mix and strong growth in WEBFLEET subscriptions. As a percentage of Group revenue content and services were stable at 38% year-on-year.

If we move to slide five to look at the earnings overview we show a gross margin for the quarter of 51% which is one percentage point lower compared to the same quarter last year. Sequentially the growth margin is five percentage point lower which is because of the higher proportion of PND revenue in the overall mix.

Total operating expenses for the quarter amounted to €120 million, a decrease of €2 million or 2% compared to the same quarter of last year. And the year-on-year decrease was mainly the result of lower marketing expenses which were partly offset by an increase in SG&A expenses.

Compared to the previous quarter, total operating expenses were €8 million higher or 7%. And the sequential increase was mainly the results of higher R&D.

The results of the associates of €3 million includes a one-off gain of €2.5 million from the remeasurement of the 49% interest we already held when we acquired the remaining 51% of MAP IT, a South African based distribution partner. This gain is excluded from the adjusted earnings per share calculation.

The net result was €8 million compared to €9 million last year and a loss of €2 million in the previous quarter. The adjusted earnings per share was €0.07 this quarter and adjusted earnings per share for the first half of the year were €0.10.

On slide six you’d find the cash flow overview. During the quarter, we generated cash from operations of €27 million, compared to €19 million in the second quarter of last year.

The year-on-year increase in cash flow was mainly driven by the reduced working capital utilization in the quarter compared with last year. We received the remaining €10 million of the previous announced settlement with the tax authorities.

Cash flow use in investing activities in the quarter was 24 million, 14 million higher than the same quarter last year. The year-on-year increase is explained by higher capitalization of internal labor related to specific automotive contracts and sequentially the level is higher because of the acquisition of both MapIT and certain technology assets in the fitness space.

If we turn now to the balance sheet the inventory level was €47 million, which was a decrease of €17 million year-on-year and €6 million sequentially. The level of inventory is structurally lower than we used to run with in the past, although at the end of Q2 it is a bit lower than our average will be going forward.

At the end of the quarter accounts receivables plus other receivables and derivatives totalled €175 million, €33 million lower than last year. And we saw this was caused by both lower revenue but also improved collections history.

Cash and cash equivalents at the end of the quarter were €181 million. Our outstanding loan from our bank department is €175 million and as a result you can see we’ve moved into a cash positive balance sheet position as of the end of the quarter at €6 million.

This concludes my part of the presentation and operator we’d now like to start with the Q&A session please.

Okay, Carol we are ready for the first question.

Yeah hi thank you for taking my question. I think we’ve been surprised by how resilient some of the consumer business has been particularly in hardware and I wondered if you could just help us with the shape of that over the rest of the year.

And it strikes me that and you’ve done sort of around 250 of revenue in a seasonally weaker first half in consumer so somewhere in the region of 550 might not be completely out of whack for the rest of the year. Licensing you already said would be flat so it doesn’t strike me that expectations on the rest of the business would have to be too ambitious to get to the top end of your guidance.

I wondered if you could just give us a couple of pointers on that.

Yeah, I can do so. The second half of the year in consumer will be higher than the -- will be bigger than the first half How it tends to work is that Q3 is fairly similar and then Q4 is a bigger quarter.

Automotive tends to have a slow Q3 because of the summer factory shutdowns that we see but typically the first half in automotive is stronger than the second half. And licensing broadly is flat and business solutions continues on the growth path that we have seen.

So that's the pattern overall. And I think if you kind of put all that together we are comfortable that maintaining the guidance is the right thing to do, at the revenue line but hopefully will do better within that level than work within that range.

So that's really the insight I can give you.

And maybe just as a follow-up you called out Gemini as being particularly strong this quarter. Is that something -- do you typically have a richer mix of products in Gemini than some of the European markets and is that something you'd expect to be sustained over the second half?

Yeah, I mean just to be very clear, what I was referring to was our market share and what we've seen, we have seen particularly in Germany which is the largest European market for PNB. So we've had significant market share gains.

It's been very pleasing and what we've been able to do is to pick up some of the market share from Navigon coming out of the market. Together with the Lifetime Maps also which also has enabled us to have a richer product mix if you like.

Okay, thank you.

The market in Germany is the northern European markets are generally doing better than the southern European markets in any case. So that's all added to it.

Okay, thank you.

Thank you very much. I was just hoping a couple of questions whether you could just expand on your strategy on the watch business, just to help us understand when revenues there might be material and whether there's any marketing dollars of significance that we should look out for.

And then secondly just on some broader market trends, I think as we are talking about attacking the auto market, listing a number of car manufacturers, customers or potential customers, just wondering if that was limiting your ability to sign contracts with the car companies at the moment or whether you saw that being an impact in the next 12 months. And then also with the Waze acquisition, obviously a lot of big premium for the social element I guess in Waze I was hoping maybe you could just talk about what you are doing on the social site with [Map Gen] and other things to try and help, just tap into that area.

Thanks.

Yeah, Stuart, thank you. So as you know we started to be active in the fitness market two years ago, or a year and half ago I think in partnership with [Multi] that resulted in a dual branded watch, which has been successful.

We gained significant market share with the product especially in North America. We like this space.

We see it as a growth area, fundamentally growing both in North America and Europe. We want to have a foothold in that market and grow from that foothold.

As a result we have decided to go into that market with our own designed watches which are well received and all these third products from our perspective with good performance, good technical performance, short GPS acquisition time, long battery life, higher ease to use, that is going well. We are going to put some significant marketing money behind that in the fourth quarter of the year, both in North America and Europe.

And when I say significant you need to bear in mind that it's a target group relatively easy to target. So with specific marketing to strengthen that foothold, gain, market share and build from there with watches but also with new products that we are thinking about, over time.

Now how big that is going to be is difficult to assess. We haven't given any specific guidance but the underlying dynamics in the fitness health, well-being market are looking favourable.

So the next question is what's happening with bring your own device in car you're referring specifically to an Apple announcement of a type of variant of mirror linked application I think it’s an interesting development. I think it will take some time before that takes hold, but it is not a bad development for us.

As you know in the Apple case we are providing the content. We see a market developing there but we also think that in the midrange and the higher end of the car market resident and built in maps and mapping applications will remain important because those maps are now increasingly part of a larger system that is driving safety as well.

So we going to welcome the developments in that space and our traffic in navigation software and assets are designed to address those market developments in a cost effective and fast way. I referred in my presentation earlier to the renewal of our mapping platform and tools map making tools.

We see the map as a very important asset. We see location base services going everywhere more and more applications of location component that’s not going to stop us going to increase in importance and in relevance.

We're of course simply working to -- so the underlying idea that we're moving into a real time map making process, that’s a long chain of events that we need to cover from community to presentation, but also distributing that content to a broad range of client applications. We're starting to see real good progress in that space.

We started to see some efficiency benefits as well as what is exciting is that a platform will allow us to manage and handle customer feedback in near real time. In other words if you make a change then we can distribute this change to all customers in near real time.

So that strengthens the case for community feedback, both passive feedback and active feedback automated map making and the opportunity for the type of applications that you were referring to is increasing and the value it can create through that type of applications we can bring that back to our customers in a much shorter period of time because of the real time map making platform.

Thank you.

Yeah, hi, this is [Ben Gillo] from ABN AMRO. I got a couple of questions on the PND segment.

You have been winning market share in Europe quite successfully. You already indicated that Germany had a important contribution there and that you have been gaining market share in particularly in the high end.

Can you give us a bit of a rough split on where we stand with respect to go series, -- series, and the start series? In addition to that you also mentioned that the new PNDs hardly had any impact on revenues in this quarter.

So can you give us a bit of indication where we are with filling up the channels with these new products and what we should be expecting in respect to the second quarter revenues in this particular segment? And finally the market share in the USA obviously it’s not heading in the right direction.

Can you give us an indication on what your current problems are and how you are addressing these?

Yeah, let me kick off on this. I think three different product ranges that you refer to.

What I would say that the real volume ground is and where we felt our market share was not quite where we want that to be was in the midrange, right. It is strong in the high end but it’s a very small part of the market, strong in the low end good in the midrange but we want to do more and actually bringing in Lifetime Map into the offer has really helped to do that.

So we’ve strengthened our position there and as a result of that we’ve seen improvement in our product mix and strong ASPs. Now in Q2 the impact of the new products on the new PND product was minimal in the Q2 result and that will gradually be ramping up as we go through Q3 and more importantly into Q4.

Obviously with the new product ranges I mean you know about this they have Lifetime Maps and they also have Lifetime Traffic in them as well. So while overall consumers will pay a bit more for having those elements included in terms of what we reported in our numbers we are also deferring a portion of that and will be deferring more as a result of having Lifetime Traffic.

So the rich -- the product mix is richer but in terms of the and in terms of our kind of ASPs if you looked at them on a operational rather than IFRS basis, you see them going up as a result of that. But under IFRS we need to defer a portion of that so that impact has muted.

U.S. market share I would say give you one answer to that.

We’ve moved into a position there where we are focusing less on promotional activity and more on really what is the overall performance of this business and how do we get the best bang for our buck in the U.S. and that have had an impact on our market share but that is a conscious decision and policy bias.

Hopefully that answers your question.

Well more or less. And I have a follow up question with respect to the balance sheet.

Obviously you are moving into cash positive territory now. Can you give us a view on what’s your preferred balance sheet looks like in the future?

When will it be appropriate to start discussing -- redistributing some of the strong cash flow that you currently see? And then in relation to that you also referred to potential acquisitions in the future smaller bolt-on ones, which divisions would you like to spend money is it consumer is it business solutions or automotive, kind of keen on where you in terms spent your money?

So in terms of cash we want to we still got a term loan that we still need to pay down and we need to ensure that we continue to have the cash flow to do that and manage our working capital. And the other thing I have said is yeah we want to have enough cash to be in a position where we can make relatively small bolt-on acquisition that help us to go faster with our existing strategies.

So examples of those would be in the business solutions space where we have great technology that we’ve developed organically and we’ve grown strongly. But if we can accelerate that growth by acquiring in particular companies which have a strong customer base but may be technology wise they are ready to move on to something else that would be perfect for us to help us to accelerate the growth.

And other than that it’s really looking at teams of people with particular technology skills that we’re looking for. So relatively small bolt-on acquisitions.

Okay.

Okay

Yes good afternoon. When we were looking at the R&D assessments you broke into P&L and in the cash flow statements, seems R&D investments are trending up is that something that is kind of a structural trend or is it more timing related?

And related to that to what extent are you interested in net data for pedestrian applications et cetera a focus area for you Then a question on operating expenses I think you previously said that OpEx in 2013 will be down a little bit from 2012 is that still what you’re looking for, for this year?

Okay, let me kick off with talking about R&D. The R&D we are in a targeted way increasing the level of R&D investment, particularly in the area of maps and related asset to that.

And then in terms of the increasing capitalization compared with last year what that reflecting is also is work on specific automotive contract where we’re working on particular customer contracts we will capitalize the development costs there and then as we start to ship products we will release that amount of the balance sheet as a kind of per unit amount proportional to every unit sale we’re making. So really the key things going on in the balance sheet is automated contract and there is and you can see there has been quite a lot of new products from us this year.

We’re opening products to market at the moment so typically when we are building specific new products and from our core technologies there will be higher element of capitalization but it's mainly automotive. And in terms of our OpEx overall for the year, I think we’re looking at a similar to down a bit level from last year just as we indicated at the start of the year.

So these will be a bit lower but it’s not a low level.

Okay. So then on coming back on the capitalized R&D, you said it’s mainly related to automotive contracts.

Are these contracts that you have already announced or are these also related to may be some of the -- may be new contracts that you have not communicated on yet?

Some of each.

Okay.

The other thing in the CapEx is obviously the acquisitions as well that we’ve made during the second quarter, they’ve got the sequential pick up.

Okay. Thank you.

Yes, good afternoon. A question on the institution of several new fitness products, could you say something about the retailer coverage or how many retail outlets will sale your own fitness line?

Yeah Hans we are building distribution. We’ve started in North America to do that.

We are broadly available now in mainstream retailer and we are building very quickly in the more specialized fitness running in our door stores. And the team that’s responsible for doing that is very enthusiastic and successful in opening those doors.

So we’re really looking forward to settle in that distribution structure.

Yeah maybe as a follow up given the ramp up from marketing expenses related to this introduction, what should be pencil in for let’s say marketing in second half and will this be mainly in Q4 or will it also start definitely in Q3?

What I want to indicate is marketing has been exceptionally low in the first half of this year spend wise because we are facing, partly we tend to spend more marketing in the second half and we’ve deliberately been holding back because we want to put as much weight as possible behind our new product. So you will see a significant uptick, I would say looking at the backend of Q3 and then into Q4 with that.

So it will go up in Q3 but probably the biggest impact will be in Q4.

Okay. Thanks a lot.

Thank you very much. I actually had two questions little more long-term in nature.

First can you talk a little bit about our business solutions and kind of your view in terms of the long-term opportunities there. That statement right now seems to be contributing substantial portion of the operating income and running a good process at the same time we’re seeing increasing interest in those types of solutions it seems and in a lot of the developed markets.

So just wondering how you are thinking about growing that and how we should think about the margin and growth profile of that segment? And then my second question has to do with automotive it seems though few years ago we had a lot of expectation that TomTom could enter into and win a lot of the in-dash market I think that you have had some successes obviously, but companies like (Time) are tending to use parts and pieces from different suppliers and just wondering how you are thinking about that market going forward if we will continue to see that or if there is an opportunity to consolidate the products and services and win more of the in-dash opportunity in the Automotive segment?

Thank you.

Yeah, okay. If you look at the – let’s first focus on your question about the business solutions, I think the industry dynamics they are favourable.

We see that we can generate very short payback periods for our customers. There is real efficiency gains typically within six months you have -- you are cash positive as you invest in those solutions.

We see that because of extremely low churn rates average contract lasts for seven years. We see that because the market is still very fragmented and we see it because the levels of penetration are low.

So everything around that industry is pointing to a more longer term sustainable growth rates that we should be looking at, and we want to be in a good position specially in Europe, to capitalize on that opportunity and grow faster than the market. We are doing that and we believe that we are growing at about double the speed of the market.

We see opportunities popping up for consolidation especially with customers or with management companies that have a good customer base but cannot because of scale issues invest in the technologies to keep competing in that space. And we see there is opportunities coming up, we look at that but the main driver for us would remain organic growth.

We have managed to develop a simple uniform backend not suffering from consolidation issues, technology issues and that mean that we're running a very efficient operation, where our overhead cost are lot lower than the average player in that market. So everything is on green.

We see the growth coming through and we think we are creating very valuable business there. So look at the automotive business I think there is room for improvement in the automotive business.

I think there is an understanding also in the automotive industry that things need to change. I think these will be better and faster and I think in the whole value chain, which is horribly complex value chain at the moment, I think there is room for optimization, there is some industry standards evolving now that will help the process and referring to a new map standard called MBS which removes the need for tier 1 vendors to compile and test around maps.

So we can start delivering and supplying run time format of that map and with that run time format we can also start delivering upgrade services in the form of incremental updates to installed maps in vehicle, that’s exciting, especially because it will improve the end user experience and the problem of out of date maps for inbuilt navigation systems will overtime go away as a result of that, but it also simplifies the whole development cycle. The other thing I would like to point out is that we have restructured our technology and software assets into more component sizable elements.

Maps is one of them, traffic is another one that that we deliver in an industry format now and routing engines is another example. So even if we don't have the whole stack we can be of great help for tier ones and car makers to do the hard bit of the technology, make it simple, reduce complexity and the business model for us is primarily driven by selling more content and getting market share in the map offering.

So we can do that, we can make it easier for our customers to integrate our products, reduce complexity, shorten the time to market and increase the customer satisfaction. And there's still a lot to be done but I think we are on the right trajectory.

So if there are no further questions I would like to thank all participants for joining this conference call. Thank you very much and I wish you a pleasant day.