TomTom N.V.

Bruno Priuli - Investor Relations Officer Harold Goddijn - Chief Executive Officer Taco Titulaer - Chief Financial Officer

Andrew Gardiner - Barclays Capital François-Xavier Bouvignies - UBS Marc Hesselink - ING Martijn den Drijver - NIBC Markets Wim Gille - ABN AMRO Shyam Kumar - Kuvari Partners Marc Zwartsenburg - ING

Thank you, operator. Good afternoon and welcome to our conference call during which time we will discuss our operational highlights and financial results for the third quarter 2018.

With me today are Harold Goddijn, our CEO, and Taco Titulaer, TomTom's CFO. You can also listen to the call 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 today's call with Harold, who will discuss the key operational developments, followed by a more detailed look at the financial results from Taco.

We will then take your questions. And with that, Harold, I would like to hand it over to you.

Thank you very much, Bruno. And good afternoon.

Good morning. We continue to make headway in both enterprise applications – sorry, let me start again.

We generated group revenue this quarter of €220 million, which is in line with the same quarter last year. Automotive operational revenue continues to grow strongly, totaling €72 million in the quarter, which is an increase of 36% compared to last year.

Our gross margin strengthened further, and that resulted in a year-on-year profit growth and strong cash generation. Taco will provide further information on the financial highlights and the financial outlook for 2018 later during his presentation.

I will now discuss our key operational highlights for the quarter. We continued to make headways in both enterprise applications and in automotive.

The automotive environment especially is turbulent, with changing demographics, electrification, new forms of mobility and autonomous driving keeping the industry busy. You've seen a few weeks ago that the Renault-Nissan-Mitsubishi alliance and Google announced technology partnership to embed the Android operating system and Google applications in a limited number of cars.

Today, we disclosed that we have reached an agreement to bring the contract for TomTom to provide location, navigation content and service to Volvo as we communicated on 8 June, 2016 to an end. We have agreed with Volvo – not to go into details – of a termination agreement, but we announced that the order intake for 2016 has been adjusted downwards for more than €300 million to more than €250 million.

It's important to understand that we have continued to collaborate with both the Alliance and with Volvo. For the Alliance, the opportunity to provide location/navigation technology where the volume segment remains wide open and there are further offer opportunities for ADAS and for self-driving services.

We will also continue to work on the Volvo Drive Me program, a research program for autonomous driving and we have collaborated with Zenuity, which is a joint venture between Volvo Cars and Autoliv, with whom we are developing car to cloud to car technology. We don't think that Google's phone-in-the-dashboard approach will satisfy the needs of all automotive customers and that there is a strong case for multi-display, fit-for-purpose approach based on modern software practices that puts a premium on privacy and on safety.

Many OEM customers have indicated they want to stay in control of the dashboard and don't want to hand over the proverbial keys to a third party whose strategy may not be aligned, or even conflicts. We’re pleased with the progress we are making in mapping.

Our goal is to make better maps at lower costs, faster. And every month, we see significant efficiency gains.

More and more data is now open sourced, creating further opportunities for efficiency improvements. Last month, we processed over 1.5 billion changes to our map, which is an all-time high.

And our investments in computer vision and AI have now material impact on our ability to process vast amounts of data with minimum human intervention. Our HD map now covers over 400,000 km of highway and interstates in the Europe, US and in Japan.

Our first commercial product will start shipping early 2019 in a motor management application that is designed to reduce fuel consumption for trucks. TomTom traffic and routing services are now available in 77 countries, powered by 550 million data sources, and is now the market leader in the auto industry.

We've recently announced new contracts with PSA and BMW, highlighting the quality and constant development of our connected navigation products. PSA extended its current agreement to beyond 2020, and that means that our content and services will go into the next generation infotainment systems for all brands in all regions.

With BMW, we signed a multiyear agreement to deliver traffic, routing and EV services to all BMW’s minis and Rolls-Royce vehicles across more than 33 countries in Europe and around the world. Last month, we announced that we are exploring strategic alternatives for our telematic business.

We have both a deep interest and a potential sale of the division and the process is moving according to plan. We will provide further information in the short term.

We’re creating a more focused location technology business with clearer priorities and a simplified operating model. We also think that telematics can accelerate its growth trajectory further as a separate entity.

With a renewed focus on the remaining business, TomTom will continue to do what it does best, shaping the future of mobility. In the next slide, I want to update you on the market for autonomous driving.

Driving automation will develop step-by-step. It will not be a big bang.

And it will develop in line with the five levels of automation outlined by the Society of Automotive Engineers. It will be an evolution from level 1 where the driver is in full control to level V where the driver is fully out of the driving task.

The higher the level of automation, the more vital it is to have an accurate detailed and maintained map. But across all levels of automation, the old systems can be improved or made possible by using a map often in combination with digital sensors like cameras, RADAR and LiDAR.

We are building a portfolio of purpose-made, highly accurate maps to suit all levels of automation, starting with our SD map, with ADAS attributes for level 1 and 2, to HD maps for levels 2 to 5. This concludes my part of the presentation.

And I'm now handing over to Taco.

Thank you, Harold. Let me make a couple of comments on the financials and then we’re going to jump on to Q&A.

In the third quarter of 2018, we’ve reported revenue of €220 million, in line with the same quarter last year. Automotive and telematics showed year-on-year revenue increases of 25% and 6% respectively, while enterprise revenue remained flat compared with the same quarter of last year.

Let me go through the businesses one by one. Automotive revenue was up to €59 million, mainly due to higher take rates and a ramp up of existing contracts.

Our expectations for the full year is a bit north of €230 million, a 20% growth year-on-year. Enterprise revenue was €34 million, flat compared with the same quarter last year.

For the year as a whole, we expect enterprise to decline with a mid-single digit percentage. Telematics revenue was up with 6% to €43 million, mainly due to the recurring subscription revenue.

The subscriber installed base increased 10% year-on-year to 861,000. We expect telematics to grow with a single-digit percentage for full year.

Consumer revenue decreased by 14% in the quarter. For the year as a whole, we expect the decline to reach close to 25%.

Gross margin was, again, solid at 73% during the quarter, bringing the year-to-date number to 71% and we expect to maintain the gross margin to at least 70% for the full year. Total operating expenses for the quarter was €136 million, a decrease of €9 million compared with the same quarter last year.

The year-on-year comparison is influenced by the restructuring charge of €12 million related to the reorganization in consumer sports, booked in Q3 2017, and some one-off items in our operational expenses in Q3 2018, with a net positive effect of €4 million. The underlying OpEx showed a year-on-year increase, explained by higher amortization and higher investments in research and development.

EBITDA increased by 76% year-on-year to €62 million, with an EBITDA margin of 28%. EBIT in the quarter was €24 million, with an operating margin of 11%.

The adjusted earnings per share was €0.11 in the quarter and we now have €0.26 year-to-date, which makes us comfortable with raising the guidance to around €0.35 for the year as a whole. In the quarter, we increased our cash position with €24 million and we now have €179 million of cash and we do not have any debt.

We expect our full-year cash position to be well above €200 million. Our deferred revenue position is now €285 million.

Automotive and consumer maintained their trends, meaning automotive was up €76 million to now €155 million and consumer was down with €24 million to now €97 million. On slide five, the automotive operational revenue, we see that automotive is now our second-largest revenue stream.

It’s behind consumer. Automotive is growing strongly and expected to grow with close to 20% this year.

And as you know, there's a difference between revenue we invoice and the revenue we report. The latter tends to be lower as we follow IFRS 15 accounting standards.

As shown before, the slide highlights the operational revenue of automotive. Operational revenue is reported revenue plus the net change in deferred and unbilled revenue positions.

The automotive operational revenue increased by 36% year-on-year to €72 million. To conclude the outlook 2018, in Q3, we saw solid performance and a year-on-year growth in automotive, telematics and enterprise, plus a beat in consumer.

And in Q4, we expect both our consumer business as well as our auto business to perform better than what we previously expected. As a result, we have raised our full-year revenue guidance to €850 million, with a gross margin of at least 70% and an OpEx number of €560 million.

The adjusted earnings per share is expected to be around €0.35. I would also like to reinforce Harold's message regarding the potential sale of telematics.

There is strong interest. The process is on schedule and we’ll provide additional information in the near term, though not later than next quarter.

And, operator, we would now like to start with the Q&A session.

Good afternoon. Thanks for taking the question.

Harold, I was interested in sort of understanding a bit more about the changes you're seeing in the automotive space. As you said, we’ve now seen two customers make the decision to move over time from your platform to that of Google.

And I know, as you said, you can’t talk – or don't want to talk in specific about the contracts. But I'm just wondering, if you can give us at a higher level some of the motivations you're hearing from the customers for moving in that direction.

Also, in particular, it's interesting to see, on one hand, you’ve got the Renault-Nissan alliance in terms of significant scale making this decision; and Volvo, at quite the other end of the spectrum in terms of size. So, if you could perhaps sort of compare and contrast sort of what the motivations of those different types of customers may be in making that transition, that would be helpful.

Thank you.

Yeah, difficult for me too to comment specifically on behalf of our customers. Some of them are not going to go there.

I want to – there’s a couple of comments I want to make, however. So, in the alliance case, it’s mobile car mobiles.

It's a limited number of car mobiles that will equip with Google services. There remains a great opportunity and a great market for the volume segment of the market to be equipped with our technology, our location technology and routing and traffic information.

And on top of that, there is a wide open opportunity also for ADAS and self-driving maps. So, that remains.

I said earlier, it’s a busy time for carmakers. They have to battle at multiple fronts.

Some of them don't have the stomach to invest in software capabilities to take their destiny in their – don't have the ability nor the will to do that and go for packaged solution. And I think that’s what you’re seeing here.

And at the same time, I think it’s up to the industry to look at our own practices and our software development practices and see what we can do better to bring end-user experiences into dashboards that means a higher level of expectation than what we have seen in the past. So, there’s clearly work to do.

But if there is a silver lining around the developments that we’re seeing now, then there’s an increased awareness and willingness to engage and see what can be done and how we can offer the industry choice between solutions that are equally satisfying, but following a different business model. Now, I think we are in a good position to play a role there and that’s, obviously, what we’re trying to do.

Okay, thank you. I appreciate that additional detail.

Just one sort of finer point in terms of modeling. Taco, I think the prior statement on CapEx budget was around €150 million, is that still the same?

No, I think that's a bit too rich. I would guide towards, let’s say, €131 million, €135 million.

Okay, thank you very much.

Hello, everybody. Thank you for taking the questions.

The first one, it’s a bit a follow-up of the previous one from Andrew, about the high-level perception of the business and the strategy. Harold, you always said that you are looking at the long term when you look at this business and you invest for that.

And my question is very simple. When you look at the acceleration trend of the market of big customers of ours like Renault and Volvo going towards Google, is there any change of your strategy?

Does it make you change the way you see things or how you want to invest in the business?

We’ve long argued for better software practices in the automotive industry. Modern practices deliver better user experience.

Somehow, I think a willingness to discuss those models has improved following those discussion, and that will create an opening for us to come up with better products that we can develop more efficiently and maintain more efficiently.

So, you don't want to – there is no change on your strategy? After Renault and Volvo, you don't think there’s any change needed for your strategy?

No, that’s not what I’m saying. I’m saying it is obviously a wake-up call, and not just for us, but it is a wake-up call for tier 1s and for carmakers alike.

I don't think it will be in anybody's interest, or the car industry's interest, if there will be one dominant monopolist who does software for the dashboard. That’s simply not going to happen.

But it’s also raising the standards and the expectations, and that is where we need to change tack. And that is a move that we've been advocating for some time, but now the urgency to keep pushing for that better software practices and development collaboration in the auto industry are more urgent than ever.

And I think that’s a positive development.

What about TomTom? If it's a wake-up call – it’s obviously important for the industry to collaborate, as you say.

But for TomTom specifically, this wake-up call, what can they do it? What can you do to compete with this such strong player going after your biggest customers?

Well, of course, Google is a big piece, but the threshold for doing something meaningful in the dashboard is not that high. There’s a lot of technology already available and we need to come up with products that people prefer to use over their smartphone.

That is the threshold. And if you then look at the car environment, the car environment is distinctly different from mobile phone applications.

And it remains to be seen whether the mobile phone paradigm works in the dashboard. We think that it takes a different UI and a different way of developing software for that environment that can be very efficient and competitive.

We don't have to replicate a Google business. We just need to develop something together with the industry that people like using.

That's a threshold. And the frustration for the automotive industry is that they’ve spent vast amounts of money on developing software for infotainment system, and customers say, well, I fear I don’t use it as much.

I prefer to use my phone for all sorts of reasons. And that is something we need to fix, and I think we can.

And you say collaboration with your customers to have a product out, if you think about that, Google is getting more and more traction, how do you protect the relationship with your customers to be able to develop the products? Do you need to bring the collaboration to another level or it’s still the same?

So, first of all, we need to develop products that people like to use, that are charming, that are responsive, that provide a great user interface. And then, we need to provide, also to the industry, the business model that suits the car industry.

They'll do in their estimate that we're much more flexible with the business model. We can tend to the requirements of OEs much better than with a standard solution that is the same for everyone.

There is a big thing about privacy, what's going to happen with that data, there are all sorts of questions that will – we don’t have all the answers, but we feel that we can, at the product level, compete, provided that we found a better operating model in the industry, and that on a business level we have a strong case against a more – a big company who has its own strategy for making money. And that’s where we need to differentiate – safety, privacy, business model.

And if we can get the user experience where end users expect it to be, then that would open the market completely.

And this wake-up call for you and the industry, did you experience any collaboration even more intense than in the past since Google is pushing more with your customers and other players?

Yeah. I think that’s a fair comment.

I think a lot of companies and players are scratching their head and say what does this mean for us and where does this leave us and what are our options. So, you see an intensified level of discussion, an openness to and a willingness to engage and decide what the right operating model is going forward.

Okay. And just another one on telematics, against more on the strategic side and more long-term.

The question I had is, why now? Because you said that you have a lot of interest – and correct me if I’m wrong – it has always been an interesting assets.

So, I would be surprised that you have much more interest than in the past. And the second part of the question is, if you do something with it the potential sale, which is a part of the options, I guess, what to do with the money because you will have more than €200 million net cash on your balance sheet at the end of the year, assuming a proceed of this telematics.

I guess it will be a lot of money. So, just what’s the plan?

Yeah. So, we’ve always been aware, of course, that telematics was a valuable asset.

And we have had, as you say, inbound calls for a number of years. We’ve always looked at –carefully, we looked at again beginning of this year.

We had some strategic review. We looked at further opportunities for synergy, and we came to the view that this was probably the right time to have another look.

It’s a larger business now than a couple of years ago, reaching €200 million in revenue at some point. It’s growing.

We completely renewed it. It’s in tip-top shape.

We renewed a whole software suite. It’s ready for further growth.

And I think by separating the business, it becomes – TomTom will be comfortable. So, a clearer story and a more focused business that is easier to operate and perhaps also easier to explain what it is we’re doing.

So, I think it's the right thing to do it now. It’s got now the scale, the market-leading position in all the – most of the European countries where we are operating.

And I think it’s the right moment to make that move. What we will do with the procedures, I don't want to discuss it.

At this stage, we first need to do the transaction, and all sorts of things can happen. But if we have clarity about the deal and deal certainty and the proceeds, we will engage with the shareholders to discuss what’s going to happen with those proceeds.

Do you have a precise idea of or idea of what you would like to do with it or – I guess, do you have a plan?

Yeah. There’s all sorts of ideas, of course, But I don’t want to discuss them at this stage.

But it would be in your core business presumably if you want to, like, mapping and traffic, right?

Again, I don’t want to –

I understand. And just the final one, just to clarify, the fact that you put telematics in the review, given what you say, it has nothing to do with the move of the market of Renault and Volvo, it didn't trigger this action?

No. This is something that has been in the making, obviously, for quite some time.

So, those developments are not related.

Okay. Thank you very much for your answers.

You’re welcome.

Yeah. Thank you for taking the question.

First question is, with all these moving parts with losing the Renault contract and Volvo contract, but also winning the contracts in the line that are not announced and with the extension that you announced on the PSA, what’s your broad view on what you’re doing on market share? Will you lose a lot of market share in the long run because of this move towards Google or is it – you're winning still from here and, therefore, the balance is more mixed?

Just a little bit of a feel on how that auto market is developing?

Marc, so market share, there is no reliable numbers. Yeah, it’s very difficult to see where Google will end.

What I would say is that we’re doing – vis-à-vis traditional competition, we are doing well. We are increasing our market share.

I'm also pleased to see that the overall market is expanding. So, the attachment rates on new vehicles is increasing, but I can't give you detailed numbers on exactly what our market share is and how it is developing unfortunately.

Okay. Maybe I should follow up on that one, which is that the Renault opportunity remains wide open for volume part of the market.

Yeah, that’s right.

So, could it be that that is still the majority of the revenues potentially from Renault or…?

In volume, absolutely. It’s only a small number of cars that will be equipped, as far as we understand, as far as Renault has communicated in their press release.

A limited number of cars. And the volume segment will remain open.

Okay. Then the other one, you said the wake-up call for the industry.

So, what are you hearing back from other OEMs in the market? In general, are they surprised with this move towards Google, are they afraid, what kind of conversations do you have with the market?

Well, there is concern. There is, of course, concern.

And I think it’s – generally speaking, some have slightly seasonal, but I think the majority of the players want to stay in control of their own destiny. Giving away the software and the dashboard one way or another is – it can be problematic over time, and that's not somewhere carmakers – most car makers want to go.

But at the same time, they also see that they are investing significant amounts of money in software systems that fail to meet end user expectations. And that’s where the problem is coming from.

Okay. And then, the final question is on – if you’re looking at the building blocks of TomTom today, i.e.

you have the declining consumer business which actually is doing a bit better than initially thought, you have the telematics which will be up for a strategic review, you have actually the short-term automotive business where the visibility is actually quite high given all the order intake in recent years, and then you have the fourth pillar of autonomous driving. When will that scale?

Or when do you expect that that will be a part that can take over some of the business of the rest of the pillars?

Yeah. That question is a little bit harder to answer.

The RFQs that we are engaged in are envisaging that we can start to see some volume in 2021 and that will then be for – so, 2019, we’ll introduce our first product that is based on HD maps and that is a motor management application for trucks. And the goal is to reduce fuel consumption.

And it can do that if you know exactly the road and the curvature and the elevation. You can make smarter decisions about mapping the engine and shifting the gears, and that can result, especially in hilly terrain, in significant reduction in fuel consumption.

We’re providing data for that. That's a nice one, but niche.

Another nice one that we see coming is a database – ADAS databases with speed limits for – and if you can do that correctly, carmakers end up with a higher NCAP rating and that's a good thing for sales and value. And a map can deliver that.

And then, 2021, you will start seeing adaptive cruise control that is smarter than the cruise control that you and I today have in our vehicles. I don’t know if you have it, sorry.

But if you have cruise control, now that’s cruise control, it doesn't use a map. So, it can’t take into account maximum speed, it can’t reduce speed if you are entering an exit ramp.

And with a map, you can do that. And you’re also creating the total infrastructure for automated overtaking all vehicles if you have that map and you have camera available.

And then, from there on – so, those are the type of applications inside for which we are quoting. I think it's also fair to say that fully automated driving, level 5, where the driver is no longer in control, the vehicle is fully in control, I think that is further out than most carmakers wanted to us to believe a couple of years ago.

I think the problem is harder to crack, but we will see good progress on closed exit roads, highways, interstates and so on and so forth.

Okay. And then, maybe the outlook for the other side of the equation, the cost that you have to – just to make in this pillar.

Yeah. So, that’s not completely clear.

But I’ll say that we know what to do to map the world. We've done that.

So, the major roads in North America, Europe, Japan are all in our database and are used for testing and sample data and what have you by a number of carmakers and sensor makers. And we know how to do that.

It’s a highly automated process. So, you need to scan the roads with vehicles and then you need to analyze data.

But analyzing the data is happening. We can achieve high levels of automation there.

And I mentioned in my introduction that we’re using computer vision and AI. And it’s those technologies that will help us to build those maps cost-effectively with into a higher level of accuracy, and we’re making good progress there.

As always, work to be done, but I'm satisfied that we could produce them commercially and we’ve done that. Fixing the maintenance issues is a different kettle of fish.

In an ideal world, you don't want to re-drive the road network every year, every whatever it is, the frequency you want. You want to have a fully-automated system that uses sensors in the vehicle that send information to the cloud, which is then processed and changes are then sent to the vehicle.

That’s the car to cloud to car cycle. We’re working very hard to fix that from a technical perspective and we are engaged with a number of sensor makers to do that and fix all that.

And that looks very promising. And I think that is a kind of well-defined problem and I think we can fix that.

And the boys and girls are working hard. It’s exciting stuff.

So, there’s a lot of energy and a lot of – lot going on there. But it also needs to be implemented on a commercial scale; and there, we don't have the solution yet.

That needs implementation in the vehicle. There are cost associated to that, like data communication and so on and so forth, and that needs further work.

But it’s our aim, of course, to be able to maintain those maps in a fully-automated cycle. Technically, that's possible.

We think we will get there, but we don't have any deal in place that gives us volume access yet to car data, but we think that will come.

Okay. Thank you.

Yes. Good afternoon, gentlemen.

Thank you for taking my questions. A lot of them have already been asked, but wanted to just go back to the automotive space again.

Can you tell us a little bit about what you know of the pricing of the Google suite of solutions if you are more aware of what that pricing is? Have you already seen reactions from your competitors or maybe even from your own account managers with regards to pricing?

That would be question number one.

Yeah. I don't want to go there, Martijn.

I'm sorry. We have some intelligence.

We have some ideas, but it’s not – I can’t discuss it here.

Okay. Why is that, if I may ask?

Because it is rather a critical element of how the market may move, apart from market shares.

It’s a sensitive topic. And it's also not 100% clear.

We don't have 100% visibility for the license cost and also not for data communication costs. The data communication costs, we expect them to be very high, and that's also the noise we get from the market.

But we don't have exact information around that.

Okay. And then a rather technical question.

Or it can be a technical question. If Renault – or when Renault goes to Google for a significant portion of its models, with Nissan and Mitsubishi, will you still have access to the data that all of the installed base that still has TomTom equipment is generating, although you lose the data feed from that installed base as well?

No, that’s not what we were planning for. No.

Okay. But the wording gives me the sense that that’s still an open question.

No, that’s not the way we see this. No, we completely have access to vehicle data.

And vehicle data is – we are so much. We see nearly one in six cars driving around the globe.

So, that’s not a – depending on the hour and what have you, but we have a lot of data to make accurate services and do map corrections and change detection and so on and so forth.

Okay. So, if you were to lose that data, it will have an effect, but it won’t have a material effect in the quality.

I don't think we’re going to lose that data. I don’t think you’re going to lose that data.

And it will not have a noticeable effect or a measurable fact on what it is we’re doing in terms of traffic information and incident reporting.

Okay. Then on to something completely different – enterprise.

Obviously, if you decide to sell telematics, then the relative importance of enterprise increases. The performance of the division hasn't been brilliant lately.

There's all kinds of new competitors in that particular space, Netox [ph] for one. What are your intentions?

What are you going to do in the near term? Possibly even linking that with the usage of proceeds.

What are you going to do with enterprise, now that it’s becoming more important?

While we continue to develop, it’s important to realize that the technology, the products we are licensing increasingly use APIs, our generic products that are also used for automotive products. So, there’s a big overlap in product development and product design.

One reinforces the other. So, the product design and development side, we don't see much changing.

And I think on the commercial side, we keep getting traction. The contract we signed with Microsoft is an important one and we think we can grow the enterprise business on the back of those type of deals.

There’s more, but that’s another – that’s an important indication that we are developing that enterprise business over and beyond the business of uncompiled map data. The majority of our enterprise business is uncompiled map data.

And the API applications are on top of that.

I know you've mentioned Azure yourself, but can you update us a little bit about how progress is in terms of developers, applications built by those developers, and maybe little bit of a roadmap on what to expect for TomTom and the investors can expect from that particular contract?

It’s a bit early. We see good indications, be it more people testing it, taking it up, but the lead times there are pretty long.

You need to wait until you've been tested and validated, end up in an application, and that application then needs to be successful. So, it’s quite a long trajectory, but we see traction coming through, but it’s from a small base, obviously.

But the indications are positive.

Okay. I’ll leave it at that.

Thank you, gentlemen.

Thank you.

Yes, good afternoon. Wim Gille.

First question will be on kind of the telemetric deal. How would you look at TomTom in terms of P&L, cash flow, profitability, et cetera, after telematics?

Or to be a bit more precise, is it possible that there’s going to be a scenario where you will have a significant amount of money coming in that you will need in order to fend losses in your current automotive enterprise business? So, that will be my first question.

The second question is more on kind of the contracts or the business model, as you refer to yourself, that you're competing against in Android. So, if you lose, why do you lose?

Is it on price? Is it that they have a better product offering?

Is it they have a more interesting business model for the OEMs? What are the reasons that your clients, Renault and Volvo, are giving?

Why they are switching to Android? That will be my second question.

Yes, Wim, I’ll take the first question and I'm going to leave the second question for Harold to answer. Coming on the telematics proceeds topic, if you look at 2018 and the cash that we aim to generate, we think that we can generate as much as €100 million of free cash and probably a little bit more than that.

My estimate is that more than half of that is contributed by the business outside of telematics. So, also for next year, if we would exclude the telematics, the premise is that the business needs to stand on its own feet.

That said, we need look at opportunities. And if it's the right business case and the right opportunity, we want to pursue those, but that’s not really correlated to the telematics transaction.

We would decline these opportunities or we would pursue these opportunities not related to the outcome of the telematics deal.

So, can you confirm that, also for next year, you would expect kind of the cash inflow that you're seeing outside of telematics that that is a sustainable number for next year and possibly beyond?

A bit too early for the year 2019 outlook. I just want to say where we are now and also want to say our principle that we aim to generate cash with whatever we do unless there is a convincing business case for us.

And if there's a case, we will communicate that with the investors, obviously.

All right. Thank you.

Hi, Harold. So, just so that I’m clear, the contract losses ought to do with more standard navigation type maps and functionality, but not related to the ADAS and automated driving potential?

Question one. Question two was, can you comment on the second part in terms of what that competitive landscape might look like vis-à-vis Google, please?

I want to say that Renault-Nissan is not a contract loss. It’s just business that we didn’t win.

But also, in the business that we did not win, there is an opportunity to sell ADAS data into the vehicle. So, what I said earlier, so technology and data for self-driving and safety-related applications are not part of those contracts and they are opened up for RFQs and RFIs.

Is that the HD map?

That’s the HD map or a variant of that, depending on the level of accuracy that the customers are looking for.

Okay. So, this contract loss – well, whatever these things, it’s more on standard definition of navigation type functionality?

Yeah, that’s exactly what it is. It’s a variant of the application that you will also find in the mobile phone.

And how competitive is the HD map and their related data and functions at the moment, please? Is Google coming for that area?

Not that we know they have an initiative for that is different. For robo-taxis, it’s a different technical problem, different business, and that is not the type of data that they're using.

It’s not used for more long-distance, closed-access road automation for vehicles.

Okay. Okay, thank you.

You're welcome.

Yeah, good afternoon. It’s Mark here.

And I have a couple of questions left. First on Volvo, the contract, could you confirm that the contracts had a length of four years?

Is that typically what the contract was about?

We’re not going to go into any specifics of this contract, but the automotive contracts tend to be three years.

Is there a cancellation fee because it’s only two months before, I think, the contract would go live? Is there any – because you also made some costs relating to the contract, I presume, in terms of R&D?

Is there also some clawback of costs in the contract?

It’s not standard that your billing cancellation fees in your contracts. But we made a comment in our press release on page 4 in the operating expenses that, Q3 218, we saw some – posted negative things in our OpEx line with a net effect of €4 million gain.

That is all I can say about it.

Okay. So, there’s not more.

That’s already in there. And when were you informed on the cancellation of the contract?

We can’t comment on that.

Maybe to be more specific, before or after your press release on telematics?

Well, we are not going to comment on that. But apart from that, they are not correlated.

Okay. And then, on telematics, how much of your general costs or headquarters costs or what have you, overhead costs, are allocated to telematics that will stay with TomTom after it’s been – potentially been divested?

We have always operated telematics as a very separate business, independent business with our own finance, HR, IT and even offices. So, it’s only a very limited amount.

Okay. Can you specify limited?

Is it €10 million or is it more than that?

Well, €5 million or more. Just a bit more than €5 million.

It’s more than €5 million?

Yeah, but not €10 million.

And how much CapEx was there in the business of telematics?

Telematics tends to be CapEx lite. So, that’s a low-single-digit number.

Because you lost the contract on Volvo, that will have an impact, obviously, in your near-term revenues there. So, to be free cash flow positive next year, but still is automotive currently sizable enough as a listed company with consumer running down that you can – or are you now forced to go into more an alliance, team up with large OEMs or software companies?

Is there any strategy on that part? Have you taken a decision on that?

So, I don’t really understand. Is that related to telematics, you mean?

Telematics is out. Consumer is running down.

And in automotive, you lost Volvo. So, in the near term, that will put a bit of pressure maybe on the earnings growth, revenue growth of automotive.

And you're becoming small with a huge cash pile on your balance sheet. Is there then any reason maybe to search more active a team up with larger players in the sector, like OEMs or what have you, for you to become more dominant versus Google?

We’re not dismissing or we’re not being naïve on the trends that we’re seeing, but I would say the contrary that automotive is maturing and is getting stronger. What you also see in our segment reporting that it is – the fundamentals are improving.

And on a cash basis, it’s generating cash. So, on operational point of view, not a reported point of view.

So, those were my questions. Thank you very much.

The Sorry, my second question hasn't been answered yet. So, going back to the contracts and the contract you didn't win/you lost, what are you losing against, which business model are they offering and what are the reasons for clients to say we’re going to go for Android rather than TomTom?

So, is that on price? Is it the business model?

Is it the consumer experience? So, can you give us a bit of feeling on what your clients are telling us there?

Well, I don't think it's on price. I think it's on user experience.

That's the key driver for making the switch.

And in terms of business model? You referred to it yourself during the intro.

Do they have a distinctively different business model that they can offer?

Well, we are not privy to those discussions, so we don't know the detail, but we know from what the business models for mobile phones are and there are elements of a kickback for advertising income. But those are typically quite small and we don't think that advertising opportunity in the short term for advertising on the dashboard will allow for big revenue streams.

So, we don't think it’s a cost thing. Our impression is that it’s an end user experience decision that’s made.

Okay. Thank you very much.

That was it.

You're welcome.

Since there are no further questions, I’d like to thank you all for joining us this afternoon. If you have any follow-up questions, please don’t hesitate to give us a call.

Operator, you can close the call.