Group financial review
Key figures overview
(€ in millions, unless stated otherwise)
Gross margin (%)
Total operating expenses
Operating result (EBIT)
EBIT margin (%)
Depreciation & amortisation
of which acquisition-related
Adjusted net result3
EPS - diluted (€)
Adjusted EPS - fully diluted (€)4
Cash flows from operating activities5
Cash flows from investing activities
- Segment revenue and operating expenses reflect TomTom's new reporting structure as announced on 28 March 2014. 2013 comparative figures have been adjusted accordingly.
- Change percentages are based on non-rounded figures.
- Net result adjusted for acquisition-related amortisation & gain on a post-tax basis.
- Earnings per fully diluted share count adjusted for acquisition-related amortisation & gain on a post-tax basis.
- €180 million in 2013 excludes a €80 million one-off tax gain received from the Dutch tax authorities.
In 2014, we delivered top line revenue of €950 million, 1% lower compared to €963 million in 2013. Our Telematics and sports businesses grew strongly to broadly counterbalance the reduction in PND revenue and Automotive hardware revenue. The Automotive and Licensing business unit both showed a modest decline in revenue year on year. Content & Services revenue grew by 1% to €407 million (2013: €405 million), and represented 43% of total revenue (2013: 42%). 76% of our 2014 revenue was generated in Europe (2013: 74%), 17% in North America (2013: 18%) and the remaining 7% in the rest of the world (2013: 8%).
Our gross result for 2014 was €523 million, relatively flat compared to last year (2013: €521 million). We reported a gross margin of 55% in 2014 (2013: 54%). The improved margin mainly came from a shift in product mix towards higher margin products.
Operating expenses for the year were €502 million compared to €496 million last year.
Research and development (R&D) expenses increased by €6 million year on year. Total R&D spending, including the capitalised element of internal development projects, increased year on year by €15 million to €243 million (2013: €228 million). The major areas of R&D investments included our new navigation technology, the new map-making platform and specific customer-related automotive projects. We broadened our product portfolio and invested more in advertising to support this. We increased our marketing spend by €7 million year on year to €70 million. Selling, general and administrative (SG&A) expenses decreased by €13 million year on year to €171 million due to lower variable personnel expenses slightly offset by an increase in sales expenses related to the expansion of our Telematics business unit.
Total depreciation and amortisation costs amounted to €115 million, 2% lower compared to last year (2013: €117 million). Amortisation of technology and databases increased by €7 million compared to 2013 mainly due to accelerated amortisation of certain legacy navigation technologies during the year. Acquisition-related amortisation declined to €50 million compared to €54 million in 2013, as certain map-making tools were fully amortised early in 2014.
Our EBIT for the year amounted to €21 million (2013: €26 million).
Financial results and taxation
The net interest expense for the year was €3.1 million (2013: €2.9 million), higher compared to last year mainly due to the acceleration of loan amortisation charges as we fully repaid our previous loan facility. The other financial result consisted mainly of negative foreign currency results of €3.8 million compared to a loss of €2.3 million in 2013.
Our normalised full year Effective Tax Rate (ETR) for 2014 was 8.5% adjusted for one-off releases of tax provisions following the finalisation of an overseas tax audit in Q1 2014 and finalisation of prior period tax returns. This relatively low ETR reflects benefits from the tax incentives, which are made available for companies with significant research and development activities in the Netherlands. The reported ETR for the year was -54.9% compared to 16.7% in 2013.
The net result for the year was €23 million (2013: €20 million). The net result adjusted for acquisition-related amortisation & gain on a post-tax basis was €60 million compared to €58 million in 2013. The adjusted EPS for the year was €0.27 and includes the one-off tax settlement of €0.04 related to the release of tax provision in Q1 2014.
In 2014, we made significant investments in our new map-making platform, and the connected navigation system components for the automotive industry. In addition, we made two acquisitions in Telematics to expand our customer subscriber base. As a result, total cash used in investing activities in 2014 increased from €91 million in 2013 to €106 million in 2014.
We will continue our investments in product developments and at the same time focus on expanding our product reach enabling more customers to benefit from our cutting-edge technologies and products.
Cash from operations, liquidity and debt financing
Net cash from operating activities for the year was €119 million compared to €180 million in 2013 (excluding the €80 million tax refund from the Dutch tax authorities received in 2013). The year on year decrease was mainly driven by higher working capital utilisation.
Net cash used in financing activities was €118 million (2013: €74 million), which included €7 million cash in from the exercise of 1.4 million options related to our long-term employee incentive programmes.
In December 2014, we replaced our existing term loan and revolving credit facility, which originated from 2011. The new credit facility comprises of a revolving credit facility of €250 million, which will provide us with the flexibility to manage our operating and investment financing needs. The agreement is effective for a three-year period with a renewal option at the end of this period. The interest rate on this new facility is based on Euribor plus a spread which depends on specified leverage covenants. In December 2014, we made a full repayment of our previous term loan and at the same time drew down an amount of €50 million from our new credit facility. At the end of the year our cash position was €153 million versus €258 million at the end of 2013 and the net cash position was €103 million (2013: €83 million).
Outlook for 2015
In 2015, we plan for revenue growth and expect revenue of around €1 billion. Adjusted EPS is expected of around €0.20, which is lower than 2014 because of adverse currency movements and the one-off tax settlement of €0.04 that was reported in the first quarter of last year.
In 2015, we will maintain the level of investment (both capital expenditures and operating expenses) in our core technologies. In particular, we are investing in advanced content and software for the automotive industry (e.g. to enable Highly Automated Driving) and in our new map-making platform. We expect these investments to lead in the medium term to higher Automotive revenue. The 2014 bookings of more than €220 million provides support that we are on the right track.
The number of employees in 2015 is expected to be broadly comparable to 2014.