4. Segment reporting and revenue
The operating segments are identified and reported on the basis of internal reports about components of the group that are regularly reviewed by the Management Board to assess the performance of the segments.
As of 1 January 2014, the internal management reporting, which is used as the basis for segment reporting, was changed. The hardware component of sales to automotive customers is reported in Consumer instead of in Automotive in order to clearly identify automotive revenue which comes from content, software and services. Additionally, due to client portfolio redistribution, a minor amount of revenue was moved from Licensing to Automotive. Accordingly, the reported segment information and its comparative figures have been adjusted to reflect these changes, and are not necessarily consistent with the numbers reported previously.
The group's internal management reporting is structured primarily on the basis of the market segments in which the four operating segments - Consumer, Automotive, Licensing and Telematics - operate. Consumer generates revenue mainly from the sale of PNDs, sport watches, maps and related navigation products and services. The Automotive business unit develops and sells navigation software components, services and content, such as maps, traffic and navigation software, to car manufacturers and Tier 1 suppliers worldwide. Licensing generates revenue by licensing digital maps, traffic, navigation software and other content to a wide range of customers, and Telematics provides fleet management services and related solutions to fleet owners including sale and/or rental of hardware products associated with the services.
Management assesses the performance of segments based on the measures of revenue and earnings before interest and taxes (EBIT), whereby the EBIT measure includes allocations of expenses from supporting functions within the group. Such allocations have been determined based on relevant measures that reflect the level of benefits of these functions to each of the operating segments. As the four operating segments serve only external customers, there is no inter-segment revenue. The effects of non-recurring items such as impairment are excluded from management's measurement basis. Interest income and expenses and tax are not allocated to the segments. There is no measure of segment (non-current) assets and/or liabilities provided to the Management Board.
(€ in thousands)
- The reported 2013 Revenue for Consumer, Automotive and Licensing was respectively € 567.0 million, €192.4 million and €119.4 million.
The EBIT of each segment is as follows:
(€ in thousands)
- The reported 2013 EBIT for Consumer, Automotive, Licensing and Telematics was respectively €25.7 million, -€0.6 million, -€13.3 million and € 24.8 million.
The EBITDA of each segment is as follows:
(€ in thousands)
- The reported 2013 EBITDA for Consumer, Automotive, Licensing and Telematics was respectively €50.6 million, €41.6 million, €34.3 million and € 27.1 million.
A reconciliation of the segment performance measure (EBIT) to the group's result before tax is provided below.
(€ in thousands)
Total Segment EBIT
Other finance result
Result of associates
RESULT BEFORE TAX
A breakdown of the external revenue to types of products and services and to geographical areas is as follows:
(€ in thousands)
External revenue - by products and services
Sale of goods1
Rendering of content and services
- Includes navigation software, map and traffic components sold initially in bundle with the Automotive hardware.
(€ in thousands)
External revenue - by geographical areas
Rest of world
The geographical split of the group's revenue from sale of goods and content and services is based on the location of the customers, while the split for royalty revenue is based on the coverage of the group's geographical map data and other contents.
Total revenue generated in the Netherlands during 2014 amounted to €74 million (2013: €60 million).
The group has no significant concentration of sales from a particular individual external customer.
The non-current assets within the group include a significant portion of the carrying value of the step up resulting from the Tele Atlas acquisition in 2008. As this step up is not geographically allocated to the respective regions for internal management reporting, it is believed that disclosure of geographic allocation would be highly judgemental and would not give a true representation of geographical spread of the group's assets.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for products and/or services delivered in the normal course of business. Revenue is reduced for estimated probable customer returns, rebates and other similar allowances whenever applicable.
The revenue recognition policy for each type of revenue or their combination is presented below:
Sale of goods
Revenue from the sale of goods is only recognised when the risks and rewards of ownership of goods are transferred to the customers, which include distributors, retailers, end users and OEMs. The risks and rewards of ownership are generally transferred at the time the product is shipped and delivered to the customer and, depending on the delivery conditions, title and risk have passed to the customer and acceptance of the product, when contractually required, has been obtained. In cases where contractual acceptance is not required, revenue is recognised when management has established that all aforementioned conditions for revenue recognition have been met.
Royalty revenue is generated through licensing of geographic and/or other traffic-/location-based content to customers. Revenue is recognised on an accrual basis based on the contractual terms and substance of the relevant arrangements with the customers.
Sale of services
Services revenue is generated from the sale of traffic and map update services, content sales, connected navigation and fleet management services to commercial fleets. The revenue relating to the service element is recognised over the agreed or estimated service period on a straight-line basis. In arrangements where devices are rented out to the customer in Telematics, the rental revenue is included in the revenue from subscriptions.
The group's product and services offerings include arrangements that require the group to deliver equipment (e.g. navigation hardware) and/or a number of services (e.g. map update services) under one agreement, or under a series of agreements that are commercially linked (referred to as 'multiple-element arrangements'). In such multiple-element arrangements, the consideration received is allocated to each separately identifiable element, based on the estimated relative fair values of each identifiable element. To the extent that there is a discount on the arrangement, the discount is allocated between the elements of the contract in such a manner as to reflect the fair value of the elements and the substance of the transaction.
The amount of revenue 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 element is recognised over the agreed or estimated service period on a straight-line basis, which varies on average from 3 months to 48 months (for lifetime services).
The estimated sales return deduction is based upon historical data on the return rates and information on the inventory levels in the distribution channel. For sales incentives including channel- and end user rebates, the reduction in revenue is based on the group's historical experience, taking into account future expectations on rebate payments. If there is excess stock at retailers when a price reduction becomes effective, the group will compensate its customers on the price difference for their existing stock, provided certain criteria are met. To reflect the costs related to known price reductions in the income statement, an accrual is created against revenue based on an estimate of the inventory levels in the channel and future price reductions.
In the absence of a stand-alone selling price, the fair value of each element under a multiple-element arrangement is estimated using other methods allowed under IFRS, such as the cost plus reasonable margin or the residual method or a combination thereof. In making such estimates, management make use of judgement and assumptions to arrive at an outcome that best reflects a transaction's substance. Total deferred revenue balance relating to the elements deferred under such multiple-element arrangements as at 31 December 2014 amounted to €85 million (31 December 2013: €63 million).