Strategic risks

Competitive landscape

We operate in a highly dynamic and competitive industry characterised by convergence of technologies, consolidation of competitors, as well as new and disruptive technologies and innovations. Failure to adapt our organisation to industry trends or otherwise remain competitive could have a material adverse effect on our business and TomTom's financial condition, results of operations and liquidity.

Many of our current competitors are large, well-known organisations with greater financial, technical and human resources than ours. They may have greater ability to fund product research and development and capitalise on potential market opportunities. New competitors interested in the same markets and products may also emerge. Industry consolidation may also result in increased competition.

We have entered into a number of strategic partnerships and joint ventures to bring competitive product and service offerings to market. If any of our strategic partners fail to perform as planned or if we fail to find suitable partners for our business activities, we may be unable to bring our products and services to the market and maintain a competitive market position.

Global economics

The majority of our sales are generated in Europe which makes us vulnerable to the continued concerns about the macro-economic environment across the region. The US is also an important market for us and deterioration in consumer demand in this region would have a negative impact on our financial results.

The majority of our purchases are made in USD. Any devaluation of the euro against the USD would therefore have a negative impact on our profitability. We use foreign exchange contracts to mitigate the risks, although these are short term in nature and do not cover all our open exposures.

The impact of global economic conditions on consumer demand could impair our ability to generate sufficient cash flow to support our operational and investment plans. These or other unforeseen macro-economic conditions may render us unable to implement our strategic agenda as planned and consequently could have a material adverse effect on TomTom's financial condition, results of operations and liquidity.

Geographical sustainability

The largest portion of our revenue is generated in Europe and we view maintaining market share in Europe as vital to our commercial success. The US is also an important market for us in which we aim to maintain market share.

Our aspirations to grow in high growth markets such as the BRICS countries will expose us to additional political, legal, social and economic risks. We cannot be certain that our products and services will meet consumer acceptance in these markets and we may be unable to realise our growth objectives in these emerging markets. If we are unable to realise our growth plans in emerging markets our anticipated revenues and profits could be adversely affected.

Automotive

The automotive market is continuously evolving with respect to navigation. Although the navigation experience for our end users is similar, whether the navigation system is built in the dash or provided on a PND, the dynamics of supplying to the automotive industry are different from those for delivering mass-market consumer electronics. Our easy-to-integrate Navigation Data Standard (NDS)-based Connected Navigation System will aid in addressing the Automotive opportunity.

There could be additional operational and technical challenges in growing our automotive business and maintaining profitability over the longer term in such a rapidly evolving environment. Furthermore, new map and navigation providers may choose to enter the automotive market, which could significantly increase the level of competition we face. If we are unsuccessful in maintaining and growing a profitable automotive business, our financial condition, results of operations and liquidity may be materially adversely affected.

Brand  

All our products and services are brought to market under one brand. This leads to brand concentration risk. Brand value can be severely damaged, even by isolated incidents affecting the reputation of our business or our products and services. Some of these incidents may be beyond our ability to control and can erode consumer confidence in our products or services.

Factors that negatively affect our reputation or brand image, such as adverse consumer publicity, inferior product quality or poor service, could have a material adverse effect on our financial condition and results of operations.

Innovation and engineering capabilities

Our markets are characterised by rapid technological change, which challenges us to deliver highly competitive products and services on an ongoing basis. We will continue to focus on our product management capabilities and producing high quality innovative solutions, but there can be no guarantee that our products and services will compete successfully against current or new market entrants or competing technologies.

Our success depends on our ability to rapidly develop, market and commercialise new and upgraded products and services. The timing of our new product and service releases, our ability to accurately forecast market demand, our product mix relative to that of our competitors and our ability to understand and meet changing consumer preferences are vital to this effort. Should we be unable to meet these challenges it may have a material adverse effect on our financial condition and results of operations.

Digital mapping

The competitive environment requires continuous investment in new technology for creating and updating map databases. Maps need to be continuously updated for changes in the environment and we are continuously adding new geographies and attributes to our map database to enable us to meet the needs of existing customers, bring out new products and expand into new markets.

If we are unable to invest sufficiently to compete with other global map providers in terms of both the quality and coverage and to modernise our map delivery platforms, our business, our financial condition, results of operations and liquidity may be materially adversely affected.

Dependency on GPS satellites

Our navigation products and services depend on GPS satellite transmissions that provide position data to our customers. GPS satellites are funded and maintained by the US government. We have no control over their maintenance, support or repair. The availability and free use of GPS signals to the level of accuracy required for commercial use remains at the sole discretion of the US government.

GPS signals are carried on radio frequency bands. Any reallocation of, or interference with these bands could impair the functionality of our products. Our Navigation products use positioning chips which are compatible with GLONASS (Russian Satellite System). Chinese and European systems are in various stages of development; these systems again remain under the control of sponsoring governments and agencies.