Reports Fourth Quarter and Full Year Results 2006
Feb 22 2007
Reports Fourth Quarter and Full Year Results 2006
Record Quarterly Revenue and Earnings
Fourth quarter financial highlights
Compared with Q4 2005
- Revenue increased by 65% to €478 million
- 1.9 million portable navigation devices (PNDs) shipped, up 146%
- Reports Fourth Quarter and Full Year Results 2006
- Gross margin increased by 3 percentage points to 46%
- Operating margin increased by 3 percentage points to 26%
- Net profit increased by 67% to €80 million
- Fully diluted EPS increased by 66% to €0.68
- Cash generated from operations of €132 million
Compared with Q3 2006
- Revenue increased by 35%
- PNDs shipped increased by 62%
- Gross margin increased by 2 percentage points
- Fully diluted EPS increased by 10%
Full year highlights
- Revenue increased by 89% to €1,364 million
- 4.7 million PNDs shipped, up 178%
- Net profit increased by 55% to €222 million
- Fully diluted EPS increased by 51% to €1.90- Cash balances increased by €260 million to €438 million
Fourth quarter operational highlights
- Clear leadership of European market, market share of 50% during important quarter; Consolidated number two position in North American market; number of retail outlets increased by 4,000 to 20,000
- New TomTom ONE became world’s best selling PND
- Joint development announced with Vodafone to deliver a unique new advanced travel time
information system in the Netherlands
We expect that the European and North American market for PNDs will together grow to around 18 million units in 2007, up from over 10 million units in 2006. Full year 2007 revenues are expected to be in the range of €1.6 billion to €1.8 billion. We continue to target a gross margin of around 40% of revenue and an operating margin of around 20% of revenue.
TomTom’s Chief Executive Officer, Harold Goddijn said:
“In 2006 TomTom enjoyed its most successful year on record. We are the world’s largest car navigation company. We almost doubled our revenues to €1.4 billion which, coupled with tight cost control, helped us maintain healthy margins and to be strongly cash generative.
Over the last five years TomTom’s revenue grew from €8 million to €1.4 billion and we are the world’s largest car navigation company with an installed base of eight million users. We defined the personal navigation category and created a large market.
TomTom operates in a growth market with relatively low levels of penetration and rapid product innovation and we expect another year of strong growth. We estimate that the European market for portable navigation devices will grow to around 14 million units in 2007, up from around 8 million units in 2006. In North America we estimate that the market will grow to around 4 million units, up from around 2 million units.
The fourth quarter proved to be by far the largest quarter in volume terms. In the European market- based on external and in-house estimates - 3.4 million PNDs were sold to end-users out of a total of 8.2 million units for full year. In North America the seasonality was more pronounced with half of annual sales made in the fourth quarter.
We delivered a strong gross margin of 46% and an operating margin of 26% in the quarter. With market shares of 50% in Europe and 20% in North America, we can see the clear benefits of our scale and reach in the market. We also see a growing revenue stream from our installed base of more than 8 million customers who buy accessories and peripherals and access an increasing range of content and services through our content management portal, TomTom HOME. Our superior product quality and ease of use resulted in more than 150 consumer awards.
We continue to build our distribution in North America and we added 4,000 new outlets to reach 20,000 by the end of the quarter. We also entered the markets in Ireland, South Africa and Taiwan for the first time. TomTom products are now available in 25 countries worldwide.
We announced an agreement with Vodafone in the Netherlands which will enable our customers to plan journey times more accurately across all categories of roads in the Netherlands during the second half of 2007. The travel information service which we will provide will be far superior to the currently available services.
Revenue for the fourth quarter was €478 million, an increase of 35% sequentially (Q3 2006: €353 million) and 65% year on year (Q4 2005: €289 million).
Revenue from PND sales represented 93% of total revenue in the quarter (Q3 2006: 95%; Q4 2005: 91%) and increased 32% compared to the third quarter, mainly driven by strong sales of the ONE, our value-line product.Revenues in Europe represented 90% of total revenue for the quarter (Q3 2006: 88%; Q4 2005: 90%), revenues from North America were 7.3% of total revenue (Q3 2006: 7.9%; Q4 2005: 9.1%) and revenues from the rest of the world were 2.4% of total revenue (Q3 2006: 3.7%; Q4 2005: 1.2%). Revenues from software solutions for PDAs and smartphones were € 11 million for the quarter, up from € 3 million in the third quarter due to the roll out of our NAVIGATOR 6 software application for PDAs and smartphones. Other revenues increased to €25 million for the quarter up from €14 million in the third quarter and up 150% year on year (Q4 2005: €10 million). Map downloads increased following the launch of our latest map upgrade programme. Sales of accessories grew on the back of the introduction of the RDS-TMC receiver which enables users to receive traffic information direct to their device.
Volumes and average selling prices
In the fourth quarter we shipped a record volume of 1.9 million PNDs, a 62% increase sequentially (Q3 2006: 1.2 million) and a 146% increase year on year (Q4 2005: 0.8 million).
Channel inventory owned by retailers at the end of fourth quarter was stable compared to the end of third quarter. Sell through by retailers in the quarter was very strong and increased by over 70% compared to the third quarter.
The gross margin for the quarter was strong at 46%, a sequential increase of 2 percentage points. High volumes of the new version of the ONE and reductions in product costs were the main reason. Movements in the US dollar rate versus the Euro had a negligible impact on the gross margin increase.
Operating expenses for the quarter increased by 74% to €92.6 million sequentially (Q3 2006: €53.2 million) and increased 65% year on year (Q4 2005: €56.1 million).Operating expenses (excluding stock compensation expenses) as a proportion of revenue for the quarter were 18% (Q3 2006: 14%; Q4 2005: 18%). This sequential increase was driven by the expected seasonal increase in marketing expenditure.
Financial income and expenses
Financial income and expenses consisted of a charge of €11.3 million compared to a gain of €3.3 million in the third quarter of 2006 and a gain of €3.8 million in the fourth quarter of 2005.
Included in financial income and expenses is an amount of €2.3 million of net interest income.
Income tax increased by 9% to €34 million compared to the third quarter of 2006 (Q3 2006: €31 million) and increased 49% compared to the fourth quarter of 2005 (Q4 2005: €23 million). The effective tax rate for the quarter was 29.7% (Q3 2006: 30.1%; Q4 2005: 32.0%). In 2007 the effective tax rate is expected to decline to around 27%, due to the reduction in the Dutch corporate tax rate.
Cash generated in the fourth quarter was strong despite tax payments of €73 million. In the fourth quarter €132 million of cash was generated from operations driven by a strong operating profit and effective working capital management.
At the end of the quarter, we had shareholder’s equity of €551 million, up from €463 million at the start of the quarter as a result of the strong net profit. We ended the quarter with inventory of €123 million, up from €109 million in the third quarter. Inventories are clean and as a percentage of annual revenue decreased from 14% at the end of 2005 to 9% at the end of 2006. Cash and cash equivalents at the end of the period amounted to €438 million. Trade receivables at the end of the fourth quarter were €266 million, up from €253 million at the start of the quarter. We increased our warranty and intellectual property related provisions to reflect the growth of the business. Other accruals and liabilities increased reflecting the growth of the business.
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