- Management Board Report
Management Board Report
Year of first appointment 2001
Term of office 2013 - 2017
Other positions None
Former positions and Education Harold began his career with a venture capital firm. In 1989, Harold founded and led Psion Netherlands BV, a joint venture with Psion PLC. He also served on the board of Psion PLC. In 1991, he co-founded TomTom together with Corinne Vigreux, Peter-Frans Pauwels and Pieter Geelen. Harold holds a Master's degree in Economics from the University of Amsterdam.
Year of first appointment 2015
Term of office 2015 - 2019
Other positions None
Former positions and Education Taco joined TomTom in 2005 and held various senior management positions in Group Control, Treasury and Investor Relations before his appointment as CFO in 2015. Before joining TomTom, Taco spent eight years with KPN. During this period he held various management roles in Finance and Investor Relations. Taco holds a Master's degree in Business Economics from the University of Groningen.
Year of first appointment 2008
Term of office 2016 - 2020
Other positions Non-Executive Director of Cyient Ltd
Former positions and Education Alain founded Informatics & Management Consultants (I&M) where, next to IT Consultancy, he continued his research work on digital map databases and routing. In 1989, I&M was integrated into the Dutch Tele Atlas Group. As of 1990, Alain headed Tele Atlas, which was acquired by TomTom in 2008. Alain graduated as an engineer-architect from the Ghent University.
[PLAATJE=9] strategic priorities
• Grow through technology leadership in maps, traffic and navigation
• Invest in automation, modularity and industry standard interfaces
• Target new growth opportunities in ADAS and Autonomous Driving
Our Automotive business delivers leading maps, navigation software components and connected services to OEMs and Tier1 head unit vendors.
Car makers increasingly demand future-proof solutions that are open, modular and upgradeable. Given the complexity of building state-of-the-art infotainment systems, they are looking for suppliers who can help create competitive, low-risk products that have a fast time-to-market. TomTom's Automotive connected navigation components can be easily integrated to meet these demands to create location and navigation functions for connected cars.
With regards to components for Autonomous Driving, TomTom has continued to extend its HD map coverage, which now covers over 200,000 kilometres of roads across Europe and North America. TomTom's HD map has also won the prestigious CLEPA Innovation Award for Connectivity, an award that recognises the most innovative products and services launched in the European automotive industry.
Our Automotive strategy and products continue to be well received by automotive OEMs and Tier1 suppliers, resulting in order intake for 2016 of over €300 million. This will continue to support our top-line growth in Automotive business going forward.
We made good progress in delivering a complete set of connected navigation components to our existing customers as well as securing new deals and partnerships. In 2016, TomTom announced the launch of the connected navigation system in FCA's new Uconnect 7-inch HD Nav and Uconnect 7-inch HD Nav LIVE systems available on the all-new Fiat Tipo and Fiat 500S.
TomTom also announced the launch of PSA Groupe's global infotainment platform, built on the full suite of TomTom products, including maps, navigation software and connected services. The flexibility and modularity of these components is highlighted in the new Peugeot i-Cockpit – which was launched at the Paris Motor Show - where TomTom components work smoothly and seamlessly across an 8-inch touchscreen and a 12-inch cockpit display screen.
Our full suite of products has also been selected by Volvo Cars for their 2019 global platform, representing a first time collaboration between TomTom and Volvo Cars. Among the key features and services are automotive-grade digital NDS maps, incremental near real-time map updates, world-class navigation software NavKit, TomTom Traffic and travel-related services.
TomTom technology was also selected by Subaru for their next generation global infotainment platform, which will launch first in North America with the all-new 2017 Subaru Impreza featuring TomTom Maps and navigation software. TomTom also won a deal with Volvo Trucks to provide a customised version of the navigation software particularly aimed at the trucks segment, as well as maps and connected services, marking the first collaboration between TomTom and Volvo Trucks.
In addition, ŠKODA has chosen TomTom as traffic service provider for Europe. Within the Volkswagen Group, TomTom Traffic is already available to Audi, Volkswagen, Porsche and Bentley, and it will be rolled out to all ŠKODA car models across Europe in the course of 2017. We also entered a number of new contracts with Tier1 and Tier2 suppliers, including Digen, through which TomTom components appeared in models from Mitsubishi.
In 2016, we partnered with NVIDIA to develop artificial intelligence to create a cloud-to-car mapping system for self-driving cars. The partnership will leverage TomTom's extensive HD map coverage with the NVIDIA DRIVE PX2 computing platform to accelerate support for real-time in-vehicle localisation and mapping for Autonomous Driving.
Our Licensing business sells maps, traffic and navigation software products on a global scale to businesses across a multitude of industries. It also offers intelligent location-based services for developers to easily integrate our location content in their location aware applications.
With rapid advancements across the Internet of Things, connected devices, mobility, and smart cities, location intelligence has quickly become an essential component across a broad range of revolutionary products and services. In 2016, we focused on three key objectives: forming strategic partnerships that would allow us to reach a much broader developer community, expanding our existing customer relationship and partnerships to further enhance the location capabilities within their applications and collaborating with cities to develop innovative traffic solutions.
As map usage continues to evolve, we have continued to innovate and advance our location technologies and capabilities. This has provided us with the opportunity to supply location services and data to many globally recognised technology companies. This includes Microsoft, who we have partnered with to integrate location-based services into Microsoft Azure to make it easier and more flexible for developers to build and manage enterprise, mobile, web and Internet of Things applications that are location-aware.
TomTom's strong mapping background has lead companies such as MapQuest, SAP, and Pitney Bowes to choose TomTom as their location partner. In 2016, these three companies have not only extended their partnerships with us, but also expanded them.
The deal with MapQuest, a subsidiary of AOL, Inc., now includes TomTom's traffic solutions in addition to our mapping services. This will provide a better user experience to millions of MapQuest customers who are seeking location information. With Pitney Bowes, we have increased their access to our localisation data. We believe this closer collaboration will redefine GIS products and intelligence services worldwide. Lastly, we are providing geocoding and address validation capabilities across SAP's product portfolio on a global level. This enriched geocoding and address validation with in the cloud and on premise will power SAP HANA's localisation information.
To address the opportunities in smart cities and live up to our commitment to fight against traffic congestion, we launched the TomTom City portal. The portal is a free to access web portal that uses our extensive range of traffic information to connect road users, connected vehicles and traffic authorities. This makes it easier than ever for traffic management experts to get access to our rich data to monitor, identify, analyse and influence traffic. The TomTom City portal currently contains live and historical traffic information for over 100 cities. Many cities, including Amsterdam and Moscow, have already selected TomTom to collaborate on developing traffic solutions to improve traffic flow, air quality, and overall mobility.
The Automotive & Licensing financial review is combined as both segments make use of the same shared technology assets. EBIT and EBITDA for both the Automotive and Licensing segment is given in note 4 to the consolidated financial statements.
Automotive & Licensing generated a combined revenue of €269 million this year, which represents an 8% increase year on year.
Automotive revenue increased by 25% from €106 million in 2015 to €133 million this year. This growth reflects increasing revenue from new contracts that started to kick in during 2016 as well as higher revenue on existing contracts. The deferred revenue position of Automotive increased to €59 million at the end of 2016 from €23 million at the end of 2015.
Licensing revenue for the year was €136 million, compared with €142 million in 2015. The year on year decrease mainly reflects the impact of discontinuation of a business relationship with a customer, which was partially offset by revenue growth from other customers.
The EBITDA of Automotive & Licensing was €82 million compared with €68 million in 2015 while the EBIT improved from -€34 million in 2015 to -€25 million this year. The year on year improved profitability is the result of the revenue growth in Automotive at a stronger gross margin, partially offset by the increase in amortisation expenses of several technology platforms.
Table_3 Key Figures Automotive and Licensing
|(€ in millions, unless stated otherwise)||2016||2015||y.o.y. change1|
|EBITDA margin (%)||31%||28%|
|Operating result (EBIT)3||-25.5||-33.9|
|EBIT margin (%)||-9%||-14%|
|1. Change percentages and totals calculated before rounding.|
|2. D&A costs mainly relate to our map asset (including acquisition-related amortisation).|
|3. The EBIT and EBITDA measure and the reconciliation to our income statement is further explained in note 4 of the consolidated financial statements. This note also provides a split between Automotive and Licensing.|
[PLAATJE=10] Business outlook
In 2017, we want to extend our Automotive market share. Building on our strategic partnerships with NVIDIA, Bosch SoftTec and other automotive suppliers, we aim to strengthen our position in the automotive industry with the mapping, software and services expertise that enables TomTom to seize ADAS and Autonomous Driving opportunities.
The explosion of connected devices coupled with advances in location awareness will continue to pave the way for growing number of new opportunities in Licensing. As an independent location content and service provider, TomTom is in a unique position to innovate and capitalise on this market. Our transactional mapmaking platform enables us to create fresh and more detailed maps with high quality that takes full advantage of the growing sensor data offered through the connected devices. These maps, combined with our leading traffic products and online services, give us a very competitive and complete product portfolio.
[PLAATJE=9] strategic priorities
• Capitalise on the growing scale of our fleet management business
• Diversify into other Connected Car services opportunities
• Grow our partner ecosystem
Our Telematics business has continued to grow throughout 2016, reaching more than 696,000 subscribers by the end of the year. This growth has been realised organically, and represents a 15% increase compared with the end of last year.
TomTom Telematics now serves more than 46,000 businesses worldwide, making us one of the leading telematics solution providers based on customers and subscribers.
A globally recognised leader
For the second year in a row, Telematics has been named as Europe's largest and fastest growing provider of fleet management solutions by market research firm Berg Insight.
The award recognises Telematics' strategy of growing through partnerships and integrations using WEBFLEET's open API, which introduces the business to new customer segments and strengthens our ambitions to support the fleet industry in its digital transformation.
Telematics was also named European Telematics Company of the year by Frost & Sullivan. The panel commended us for our successful implementation of industry best practices to innovate and meet changing customer needs and enable partners in different verticals to create applications suited to their individual sectors.
growth of Connected car
In 2016, Telematics increased its sales in the Connected Car space, with key contracts being kicked off and rolled out in 2017.
One of the biggest developments for 2016 has been the agreement signed with PSA Groupe to make WEBFLEET available for all connected Peugeot, Citroën, and DS fleet vehicles. This kind of alliance with a car manufacturer – using the data sent by manufacturer-fitted telematics units – is a first for TomTom Telematics and has been rolled out in France, Spain, Belgium and the Netherlands.
TomTom PRO 2020
In 2016, we launched our first driver terminal without navigation, the TomTom PRO 2020. This is a basic driver terminal that allows drivers to report on both the start and end time of work, as well as to select between business and private trips. The TomTom PRO 2020 is an easy and accessible way for fleet managers to work closer and more effectively with their drivers, and helps to remove some of the barriers for companies looking to enter the telematics market.
We also extended our partner network, most notably through the announcement of an integration with the VDO's Tachograph (one of the leading companies in the world of tachographs) and software, making the TomTom LINK 510 a key hardware component to download tachograph information, while the trucks remain on the road.
Telematics revenue in 2016 was €155 million, a 15% increase year on year (2015: €135 million). The recurring subscription revenue for the year was €118 million compared with €98 million in 2015, an increase of 21%.
Hardware and other services revenue was relatively flat compared with 2015. This was mainly due to a higher proportion of hardware rental in our new subscriber sales mix and lower uptake of the Driver Terminals as a category in line with general market developments.
Telematics EBITDA increased by 21% year on year to €59 million in 2016 (2015: €49 million), which led to an EBITDA margin of 38% in 2016 compared with 36% last year. EBIT amounted to €45 million in 2016, a 12% increase compared with last year (2015: €40 million). In 2016, Telematics operating expenses were impacted by the integration and amortisation expenses related to its recent acquisitions.
Table_4 Key Figures Telematics
|(€ in millions,unless stated otherwise)||2016||20151||y.o.y. change2|
|Hardware and other services revenue3||36.8||37.2||-1%|
|EBITDA margin (%)||38%||36%|
|Operating result (EBIT)4||44.5||39.7||12%|
|EBIT margin (%)||29%||29%|
|Monthly subscription ARPU (€)||14.9||15.9||-6%|
|Subscriber installed base (# in thousands)||696||605||15%|
|1. 2015 financial metrics exclude Finder S.A. as the acquisition is effective as of the end of December 2015.|
|2. Change percentages and totals calculated before rounding.|
|3. Other services revenue comprises installation services and separately purchased traffic service and/or map content.|
|4. The EBIT and EBITDA measure and reconciliation to our income statement is further explained in note 4 of the consolidated financial statements.|
[PLAATJE=10] Business outlook
We are committed to innovation, sustained investment in R&D and capacity to increase scale and capitalise on growth.
New technologies such as Connected Car services provide more opportunities to develop our business beyond the traditional Fleet Management Services.
We are also committed to continue to innovate and develop within our strategic partnerships. This sets us apart from competition, ensuring our technology enables industry partners to enhance their products and services, also allowing customers to continue saving money and improving operational processes.
Together with our partners we want to create new apps, solutions and integrations that will offer innovative benefits to customers in any industry, operating any type of vehicle fleet. These new technologies will help to revolutionise business processes through greater levels of automation and insight, and ultimately bring the technology closer to the driver.
[PLAATJE=9] strategic priorities
• Grow our Sports wearable brand in Europe
• Exploit niche opportunities in Drive taking advantage of our device platforms and capabilities
In 2016, a significant amount of new products were launched that establish TomTom as a credible multi-product sports and fitness consumer electronics brand.
In 2016, we completely refreshed our Sports product ranges and introduced a new portfolio of fitness and sports products. We also reached over one million users on the MySports platform.
In the first quarter, we launched TomTom Golfer 2, our second generation GPS sports watch designed to help golfers improve their game by using automatic shot detection and give detailed post-round analysis. A golfer can see golf course data such as distance to hazards and green, and keep track of the score, distance and time of their round.
In the second half of 2016, we refreshed our Running and Fitness product range with the next generation sports watches that now include route exploration. They came with new, slimmer, sleeker straps in a range of colours to wear every day. Our fitness product offering is extended with the TomTom Touch, our first fitness tracker that combines body composition analysis with steps, sleep and all day heart-rate tracking right from the wrist. With the push of a button, it measures the percentage of body fat and muscle mass in your body. We also introduced the new GPS Outdoor Watch, the Adventurer, designed for outdoor activities with dedicated sports modes for hiking, trail running, skiing and snowboarding and is equipped with a built-in heart-rate monitor, barometer, compass and automatic lift detection for snow sports.
We also introduced our new sub-brand, TomTom Sports, and our first brand campaign 'Get Going' was launched in the fourth quarter across all media with the objective to drive top-of-mind awareness across key markets.
In the first quarter, we launched the TomTom RIDER 410, our new generation PNDs for motorcyclists. The RIDER 410 'Great Rides Edition' came with a range of new features, including Lifetime World Maps, Lifetime TomTom Traffic, route planning with TomTom MyDrive, hands-free calling and round trip planning. We also introduced the GO Mobile app with on-board maps, TomTom Traffic, routing and speed camera warnings in countries where available. We introduced this through a freemium model allowing the customer to use the app for a certain monthly distance and sign up for a full subscription via an in-app purchase.
In the second quarter, we launched three new TomTom PNDs within the TomTom START range, and also two new TomTom PNDs in the VIA range, with Bluetooth® hands-free calling options and the option for smart phone connected traffic service. We introduced TomTom Traffic Checker on the MyDrive App, targeting 'commuters'. Additionally, we introduced TomTom Jam Ahead Warnings on the Speed Cameras App, alerting drivers to rapidly slowing, or stationary, traffic on the highway ahead. We also announced the availability of truck trip planning, enabling professional drivers to save on driving time by conveniently planning a route anytime, and anywhere, with TomTom MyDrive.
In September, we launched the new TomTom VIO, the world's first smartphone connected navigation device designed for scooters. We also launched a new GO PND range with Siri voice recognition software and Google Voice Search™ service integration, Bluetooth hands-free calling and smart phone notifications as well as built-in Wi-Fi to enable on-device content management that does not need wires nor desktop computers. We also started shipping the TomTom TRUCKER 600 in North America designed for professional truckers that want a companion device to help reduce worry from the job. Truck drivers can get vehicle-relevant navigation that takes into account truck weight, type, size and cargo to find the perfect route. Finally we introduced the Curfer product which is a performance tracker for cars and consists of an OBD (on-board diagnostics) adapter and a smartphone app connected seamlessly to give instant feedback on both driving technique and the car's performance.
Consumer revenue for the year was €563 million compared with €624 million in 2015. The decrease was driven by lower PND revenue, partially offset by a strong growth in Sports revenue.
As we continued to build a multi-product Sports business and expand our product and service offerings in this category, Sports revenue increased by 53% from €69 million last year to €106 million this year. We shipped over one million sports devices in 2016 (2015: 600,000). This growth was the result of the launch of our new range GPS sports watches and the TomTom Touch activity tracker.
Consumer PND markets were weak during 2016. The European PND market experienced a faster rate of unit decline compared with the first half of the year. This market in units was down by 19% for the year as a whole. We managed to keep our leading market position in Europe.
The Automotive hardware revenue declined by 16% year on year to €61 million due to discontinuation of a legacy platform, that went end of life in the second half of 2016.
Consumer segment EBITDA for the year was €5.9 million (2015: €14 million) and the EBIT was -€3.9 million (2015: €2.6 million). This decline in profitability reflects the overall decline in PND revenue, partially offset by the growth in Sports. At the end of 2016, we rationalised the Consumer organisation to align our cost base with the revenue development.
Table_1 Key Figures Consumer
|(€ in millions, unless stated otherwise)||2016||2015||y.o.y. change1|
|EBITDA margin (%)||1%||2%|
|Operating result (EBIT)2||-3.9||2.6|
|EBIT margin (%)||-1%||0%|
|KEY PND MARKET DATA|
|Market size Europe (# units sold in millions)3||5.0||6.8||-19%|
|TomTom market share (%)||53%||52%|
|1. Change percentages and totals calculated before rounding.|
|2. The EBIT and EBITDA measure and reconciliation to our income statement is further explained in note 4 of the consolidated financial statements.|
|3. Europe refers to the following 12 countries: AT, BE, CH, CZ, DE, ES, FR, GB, IT, NL, PL and SE.|
[PLAATJE=10] Business outlook
In 2017, we will focus on expanding and enhancing our range of products, apps and services in the Sports category and establish ourselves as a credible sports and fitness consumer electronics brand. We will bring new features to the MySports app, GPS watches and activity trackers to improve overall user experience that contributes to a healthier life.
We aim to grow Drive specialist product sales in the niche markets whilst extracting the value from the PND category, which we believe will remain a meaningful category on its own for the foreseeable future.
Key figures overview
Table_5 Key Figures Group
|(€ in millions, unless stated otherwise)||2016||2015||y.o.y. change1|
|Automotive & Licensing||269.0||248.0||8%|
|Gross margin (%)||57%||52%|
|Operating result (EBIT)2, 3||8.9||0.6|
|EBIT margin (%)||1%||0%|
|Adjusted net result4||54.1||49.6|
|EPS - fully diluted (€)||0.05||0.08|
|Adjusted EPS - fully diluted (€)4||0.23||0.21|
|Depreciation & amortisation2||132.0||123.1||7%|
|of which acquisition-related||55.3||52.1||6%|
|EBITDA margin %||14%||12%|
|Cash flows from operating activities||144.3||118.8||22%|
|Cash flows from investing activities||-119.7||-154.2||22%|
|1. Change percentages and totals calculated before rounding.|
|2. 2015 includes a €11 million impairment charge on customer specific technology.|
|3. The EBIT and EBITDA measure and reconciliation to our income statement is further explained in note 4 of the consolidated financial statements.|
|4. A reconciliation of adjusted net result and adjusted EPS to our income statement is provided in note 25 of the consolidated financial statements.|
In 2016, we generated revenue of €987 million, a 2% decline compared with €1,007 million in 2015. From a regional perspective, 78% of our 2016 revenue was generated in Europe (2015: 77%), 17% in North America (2015: 18%) and the remaining 5% in the rest of the world (2015: 5%).
Our gross result for 2016 was €566 million, 9% higher compared with last year (2015: €519 million). The year on year increase was mainly due to a change in our product mix, with relatively higher portion of recurring high gross margin data, software & services revenue. We reported a gross margin of 57% compared with 52% in 2015. At constant currency rates for US dollar (USD) and British Pound (GBP), our gross margin would have been one percentage point higher.
Operating expenses for the year were €557 million compared with €518 million in 2015. This increase is mainly caused by higher depreciation and amortisation costs as well as an increase in Selling, general and administrative (SG&A). Both 2016 and 2015 operating expenses included a one-off gain of around €9 million, which resulted from respectively a resolved customs case (2016) and a settlement of a legal case (2015).
Research & Development (R&D) expenses amounted to €190 million in 2016 compared with €185 million last year. The year on year increase is mainly the result of increased usage of server and storage related to our content production platform. Total R&D cash spending during the year, including capital expenditures, amounted to €283 million compared with €268 million last year. The increase is mainly explained by higher investments in our mapmaking platform.
Our marketing expenses were relatively flat year on year, although the focus of our marketing campaigns has shifted more towards Sports products to support our growth in this category.
SG&A expenses increased from €172 million in 2015 to €195 million in 2016. The increase is mainly in our Telematics unit, reflecting an increase in our sales force and higher acquisition-related amortisation and integration expenses.
Total amortisation and depreciation expenses were €132 million compared with €123 million in 2015. Amortisation of technology and database increased by €15 million year on year due to the amortisation of certain technology platforms that went operational in 2016.
Operating result (EBIT) for the year amounted €8.9 million (2015: €0.6 million) reflecting the higher gross result partially offset by the above-mentioned increase in operating expenses.
Financial results and Taxation
Total financial expenses for the year were €2.4 million versus €8.3 million in 2015. The year on year decrease was mainly the result of a lower foreign currency loss compared with 2015.
The income tax for the year was a gain of €4.7 million, mainly reflecting a change in estimated prior years' taxable income following the finalisation of the tax returns and the remeasurement of deferred tax assets and liabilities to a lower tax rate due to the application of the innovation box facility in the Netherlands.
The net result for the year was €12 million (2015: €18 million). The net result adjusted for acquisition-related expenses and gains on a post-tax basis was €54 million compared with €50 million in 2015. The adjusted EPS for the year was €0.23 (2015: €0.21).
Total cash used in investing activities in 2016 was €120 million, a decrease of €34 million compared with €154 million in 2015. In 2015, we made two acquisitions for an aggregate consideration of €42 million. Excluding 2015 acquisitions, our cash used in investing activities increased by €8 million year on year due to higher investments in our map database.
Cash, Liquidity and debt financing
The net cash from operating activities increased from €119 million to €144 million this year reflecting higher EBITDA. Net cash used in financing activities for the year was a net cash outflow of €29 million as we were able to reduce the utilisation of our credit facility and have fully repaid the external borrowings from an acquired subsidiary early 2016. Net cash used in financing activity includes a cash inflow of €10 million from the exercise of 2.3 million options related to our long-term employee incentive programmes.
At the end of 2016, our net cash position was €133 million (2015: €98 million) which includes an outstanding borrowing of €10 million (2015: €45 million) that we utilised from our €250 million revolving credit facility.
[PLAATJE=10] Business outlook
In 2017, we expect full year revenue of between €925 million and €950 million. Adjusted EPS is expected of around €0.25.
We expect the combined revenue of the Automotive, Licensing and Telematics businesses to grow above 10% year on year in 2017, in line with our previous expectations of their combined revenue CAGR of 15% between 2016 and 2020.
In Consumer, we expect the PND revenue to continue to decline; this will be only partially offset by a growing Sports business. We expect the level of investments (both CAPEX and OPEX) to show a modest increase compared with 2016, excluding acquisitions. In particular, we are investing in advanced content and software for the automotive industry and in our mapmaking activities.
The number of employees in 2017 is expected to modestly increase compared with 2016.
While 2015 laid the foundation to reshape Human Resources to deliver on company and organisational objectives, 2016 proved to be the year in which our HR strategy and objectives around People & Culture, World Class Leadership, and the Employer Brand, started to pay off. Our ambition continues to be the employer of choice in technology and the strong efforts we made in 2016 are getting us closer and closer to this goal.
The key to our future success as a company is reliant on the strength of our people and culture. We want to attract the best people, invest in their development and give them the opportunity to grow and achieve more every day. Entrepreneurialism is valued in our company and we believe that organisational flexibility will allow for people to make their own choices and thrive. TomTom attracts agile and adaptable people, capable of effectively dealing with and responding rapidly to changing circumstances. Having the best people enables us to deliver the greatest and most innovative products and services to our customers.
In 2016, we sought out ways to give employees a platform and support activities across the business. At the start of the year, we launched a new intranet platform that included Yammer, an employee social sharing network, as well as a daily news feed to share employee stories. The intention of the new platform was to build bridges between global offices and share stories, ideas and projects. Within the first week of launch 100% of our workforce joined the platform. It is the primary content hub for all things happening within TomTom.
Besides improving all internal platforms and communication channels, we focused on supporting employee activities, boosting awareness across all TomTom global sites, and bringing a higher level of communication efforts to everything we do internally. These activities include:
Live internal broadcasts of Hackathons, Innovation Days and other internal events;
- Awareness campaigns to support internal departments and activities;
- The launch of a narrowcast system, SCALA, to showcase all business content and employee generated content on designated media screens in offices around the globe.
We continue to find new and creative ways to celebrate people and culture within TomTom. 2016 saw a big shift in boosting and improving the level of our employee communication and activities.
TomTom is committed to the advancement and career development of our employees. This is exemplified by our policy to first recruit from within the company, which supports our 'Achieve More' proposition. In support of this policy, we are strongly promoting internal hires for leadership and management roles before recruiting externally. We continue to develop and improve our career track programmes in Finance, Customer Care, Map Operations and Software Development. The World Class Software Development Programme has continued to deliver value to the company in its fourth year of existence. These results have included further refining the way TomTom scales its Agile development, sharing best practices across product units, organising events such as Agile Summits and external speaker series. Our World Class Product Management Programme continued to make progress with strategies and roadmaps continually improving. Through our external engagements TomTom is increasingly visible as a leader in Agile organisations and this visibility has contributed to our recruitment and talent development. Finally, our product units have further refined and documented the different software development frameworks in place and made further improvements in the use of software development key performance indicators.
In 2016, TomTom's graduate programme continued to attract top talent. We attracted over 1,600 graduates from around the world (up by 150% from 2015). Graduates came from top tier universities: MIT, ESSEC, HEC, LSE, and Imperial College London. Due to the very rigorous selection process we have in place for graduates, we only hired six in 2016. It is an elite programme, and we only make offers to the very highest calibre of candidates. For 2016, we hired Product Managers and Marketing Managers, Mobile Developers and Test Engineers. The graduate programme continues to recruit the strongest performing employees who deliver significant results for the business. Our ambition is to continuously raise the level of this programme and to create a competitive engineering track that is a highly sought after placement for those who qualify.
Promoting a Learning Culture
Enabling our people's development and growth is key to delivering our 'Achieve More' promise to employees. Our learning and development platform provides employees with the opportunity to enhance their skills through various online and offline events, such as webinars, classroom courses and external presentations. The platform is tailored with programmes customised for individual employees, job segments, and for leaders. In 2016, we launched Lynda, the online platform for learning. Lynda proved to be a success with over 1,624 course hours completed and 100% participation of registered users.
We started to implement Workday in 2016 and the program will go live in 2017. This platform will improve all levels of employee and manager human resource management, and will give us a competitive advantage around candidate experience and talent management.
Our remuneration strategy is key for attracting and retaining talent. We aim to provide fair, competitive and responsible compensation for each of our employees. However, we recognise that the workforce is changing and markets are becoming highly competitive with respect to benefits, compensation and perks. A one-size-fits-all policy does not make sense for the workforce of the future. Given the changes in the market, especially in the technology sector, we continue to focus on the individual needs of our employees so that we can create customised, personalised programmes for different segments of our employee population. This will lead to a unique attraction and retention approach and will enable us to compete effectively against other benefit and perk-driven employers. In terms of employee benefits, TomTom is committed to offering all employees market competitive benefits such as pension and health care according to each country's unique context. Next to these important benefits, we also offer a product discount programme to encourage ownership of TomTom products. Long-term incentives for senior management and key individuals are part of our remuneration policy. These incentives are intended to attract and retain talent to the company. Our long-term incentive programme includes phantom stock and stock options which are offered to key talents. All of our long-term incentive programmes are conditional to continued employment of the employee only and have a vesting period of three years. Our performance-related bonus plan is in line with TomTom's vision, which is that success for our business should also mean success for the individual employee. The bonuses paid as a percentage of base salary vary according to the job grade and reflect the level of influence that each role has in the execution of TomTom's strategy.
World class leadership
We want to safeguard what makes us a strong company and therefore need leaders who will cascade that energy and ambition down to the employees to drive our 'Achieve More' proposition and deliver on our company vision for the future.
Dare to Lead
At TomTom we employ the best people. And the best people need the best leaders. These leaders play a key role in attracting, developing and retaining the right people. In 2016, we created TomTom's leadership model. The model is made up of pre-requisites which are intrinsic to a person, and pillars which can be developed and learned. This was based on internal surveys and interviews, as well as external research, and embodies our core value proposition around leadership.
Prerequisites for leadership at TomTom:
Drive: a continuous hunger for success through tenacity and the ability to endure even the most difficult situations.
- Adaptability: ability to change something or oneself to fit to occurring changes.
- Smart & curious: a persistent appetite to learn and improve yourself and the people around you. A desire to invest time and energy into getting to know more about the people, processes, products, concepts around you. Open to other points of view.
- Integrity: adherence to moral and ethical principles, soundness of moral character, honesty.
5 leadership pillars at the core of the TomTom Leadership model:
Drive high performance: by setting high expectations and guiding towards them.
- Dare to lead: align teams around vision, strategy and purpose.
- Create an autonomous environment: that drives innovation, ownership, and accountability.
- Unleash talent: through a passion to help people achieve more.
- Connect: to drive collaboration throughout the organisation.
Working in partnership with Right Management, experts in the field of leadership assessment and development, we then designed our World Class Leadership assessment programme. The purpose of the programme is to measure the potential that our existing leaders currently have against our leadership model, and to ultimately gain a full overview on where leadership potential is within the organisation. The assessment consists of three online psychometric surveys, an interview with a qualified assessor from Right Management, and a feedback session. All employees with people management responsibilities will go through the assessment during 2017, and will be identified as having high, medium, low or no potential against the model. There is an expectation that leadership teams will follow up on an individual basis with suitable measures, including development programmes for high potential leaders, and removal out of a leadership role for those showing low or no potential. HR will support in those measures.
2016 saw an increase in Employer Brand awareness, including a shorter time to hire, in key markets, as well as increased employee engagement scores in the markets where we focused our efforts. We continue to bring our employees to the forefront of the business and celebrate who we are, our talent, and what we have accomplished at TomTom. We work closely with our talent team on targeted recruitment and retention tactics that will contribute to our goal to be the employer of choice in technology.
To be the employer of choice in technology, TomTom wants the best talent. As the talent market continues to change and accelerate, we are transforming how we attract, develop and retain the right talent for our business – now and for the future. We build relationships. We source actively for all roles. We organise hackathons, use social media, work with our Fellows for thought leadership, and engage with and involve our leadership. At TomTom everyone recruits. 2016 saw a stronger partnership with Employer Brand. As a result, sourcing efforts, increased candidate participation in events, quality of hire and candidate conversion significantly improved.
Market-Leading Employer Brand
2016 saw external recognition as a thought leader in Employer Brand and the Future of Work. This is validated by numerous speaking invitations, roundtable discussions and influencer panels around our HR strategies, our views on the Future of Work in Technology and our positioning of the TomTom Employer Brand. Keynotes include: HR Tech, Workday Rising and the Universum Advisory Board roundtable discussions where we presented to 50 leading European companies in technology, finance, FMCG, education and others.
We continue to make ourselves present on the global stage and lead conversations around the Future of Work. We strive to create awareness around how we work, our unique company culture and the value we contribute to the talent market as a leading technology company.
Employer Brand Effectiveness
In 2016, we developed our first market campaign for one of our key technology hubs. In support of this campaign, we invested in several candidate activities of which the candidate response rate was more than expected. Time to hire significantly decreased and quality of candidates improved as a result. Furthermore, the campaign influenced employee engagement rates in this market.
While 2015 was the year to build foundations, 2016 was the year to create 'effective content' - observing what resonates with our core target audience and adjusting where necessary to deliver results. Our content engagement rates and interactions in 2016 were significantly above market and competition. From 2015 to 2016, we grew on our social channels by 120%, achieving higher than average per week rates in engagement and impressions without paid content. We continue to encourage employee generated content as well as produce employee digital stories such as Behind the Launch, revealing a behind-the-scenes look at our people and culture. In 2016, we produced over 100 communication campaigns to support our markets and to encourage employee engagement internally. In 2017, we plan to increase our digital presence with the addition of new social and technical community platforms and invest more in digital campaigns to drive traffic to our career site and relevant TomTom events.
[PLAATJE=10] Business outlook
In 2017, we will focus on our World Class Leadership programme, attracting and retaining top talent and celebrating our people and culture.
We will continue to make improvements in HR technology.
With the launch of Workday in 2017, we will launch a brand new career site. With this new applicant tracking system we hope to significantly improve the candidate experience as well as have better transparency on candidate analytics allowing us to create effective communication campaigns in 2017.
TomTom recognises that long-term value creation goes hand in hand with maintaining a sustainable business. We understand the importance of strong environmental business practices, doing business with likeminded partners and engage employees who live up to our goals. Achieving a balance between all stakeholders is essential to meet the needs of the present without compromising the ability of future generations.
Strong contribution to society
TomTom recognises that climate change is one of the biggest challenges facing the world today. Smarter and more efficient solutions are required to deal with traffic planning and control in order to organise safer, greener and more comfortable mobility in cities. TomTom believes that governments, automotive companies, service providers and drivers can reduce congestion dramatically by cooperating more closely, and we are actively working towards solutions that will enable this goal to be achieved.
For example, our fleet management products provide a complete approach to help drivers adapt a responsible driving style and reduce fuel consumption and CO2 emissions. It supports drivers in their commitment of being environmentally responsible. Another example is the launch of TomTom City in 2016, which provides a platform to connect traffic authorities, businesses and citizens to jointly manage sustainable and efficient mobility.
In 2016, we furthered our ambition to improve our sustainability footprint by designing and implementing a social environmental management system (SEMS) which is in compliance with ISO14001 standard and the Electronic Industry Citizenship Coalition (EICC) requirements.
Our SEMS sets out how we approach our social and environmental responsibility as a global organisation, by trying to minimise our environmental impact and maximising our positive contribution to the community we work and live in. It gives guidance to our employees, suppliers, customers and other relevant stakeholders on how we uphold our social and environmental standards in everything we do. The SEMS consists of policies, procedures, process descriptions, business guidelines, and templates and is accessible for our global work force.
TomTom's contribution to society includes the payment of taxes. The taxes we pay are a significant source of funding of public services provided by governmental institutions in the countries where we operate. Annual internal trainings on tax dilemmas were organised to keep internal stakeholders aware of relevant tax legislation and to ensure compliance herewith.
As a global business we are committed to continuously improving our supply chain management practices. TomTom uses its full membership of the EICC to achieve these objectives.
We have adopted and implemented the EICC Code of Conduct in our business processes and operations. This code sets out the electronics supply chain standards and practices for business conduct that we expect from our employees and our suppliers. We use our SEMS to ensure the proper management of the EICC standards within our business. This framework also enables us to identify and mitigate operational risks and facilitates continual improvement in our supply chain management practices.
We expect our suppliers to comply with all relevant requirements and to share our commitment to corporate social responsibility and continuous improvement in social and environmental performance. Not only in the development and manufacturing of products but also in the way they conduct their businesses. The EICC Code of Conduct is embedded in our vendor selection process and is signed by all our major Tier1 suppliers.
We continue to believe that a risk management approach enables us to spend our resources efficiently by identifying areas of high risk. The risk profile, self-assessments and audits are all based on EICC developed tools and practices which we believe are the most appropriate and relevant to our business and our supply chain. Using EICC tools is not only efficient for TomTom but it also sends a consistent message to our suppliers, and minimises the duplication of their effort between different customer requirements.
In 2016, we completed facility risk assessments for 100% of our Tier1 major suppliers using EICC developed tools. This includes electronics assembly suppliers for the PND, in-dash navigation systems and sports products. These suppliers accounted for 88% of TomTom's total supply chain spend. It also included 50% of our logistics suppliers, accounting for a 6.5% of total supply chain spend. We found that the majority of the supplier facility risk assessments had a low-risk profile and there were no high-risk findings. As a result, we did not conduct any independent supplier audits in 2016.
In 2016, we continued our pledge and commitment to help kids BeActive and support efforts in our local communities in which we work and live. We launched our BeActive programme in Pune, India. This programme is a collaboration between TomTom and eight municipal corporation schools in Pune and aims to allow the children to increase physical activity, channel their energy toward sports and to cultivate team spirit. Over 320 children were chosen to participate and TomTom employees will give back 16,000 volunteer hours plus host a full day cricket tournament.
In the Netherlands, for the second year in a row, we extended our partnership with the 'Richard Krajicek Foundation'. This organisation was founded by Dutch Wimbledon Champion Richard Krajicek and gives underprivileged youth the opportunity to participate in sports. The programme supports these kids by building playgrounds, organising sport activities and even providing academic scholarships to those who continue to mentor other kids in the programme. Our employees have hosted a number of fundraisers throughout the year to directly support these efforts.
In addition, in the Netherlands we also sponsored local initiatives in Amsterdam such as Girls Day, EU Code Week, the Dam tot Dam Loop, World Solar Challenge and JINC, Future Boss of Tomorrow. JINC is an organisation that helps children aged 8 - 16 to get a good start in the labour market.
Globally, TomTom employees donated 5,635 hours to Dementia research by playing Sea Hero Quest. This is the world's first mobile game where anyone can help scientists fight dementia. This game has been played by almost 2.5 million people generating over 63 years of gameplay, making Sea Hero Quest the largest dementia study in history.
TomTom employees from four countries, Belgium, Germany the Netherlands and Poland, participated in a 24-hour, 250 kilometre relay run to raise money for Juvenile Diabetes and our employees' To the Heart Foundation. Employees raised over €27,000 to support these causes. In 14 years, our employee To the Heart Foundation has raised over €207,000 to support children's charities.
In 2016, we also extended our partnership with 'Kids Run Free' a UK charity that creates opportunities for children to run relay races in and out of school. TomTom supported them with funding for 10 races and provided our GPS watches and coaching for the young runners.
In the United States, we sponsored various employee initiatives including the St Jude Walk to end Cancer, the American Heart Association and by raising funds for our own employees running the Boston Marathon for charity.
[PLAATJE=10] Business outlook
Our ambition is to maintain a sustainable company.
Our aim for 2017 is to strengthen our community giving strategy and launch our new global CSR programme 'TomTom Gives'.
We will also further deploy our SEMS within our organisation.
TomTom has implemented comprehensive and structured risk management and internal control systems helping us to achieve our business objectives. Our approach to risk management, the main risks per category and actions to manage, control and mitigate the risks are, among others, described in this section.
Senior management together agrees on the risk management priorities for the group. The group risk profile is discussed and agreed with the Management Board. A single owner is assigned responsibility for each risk, which helps to ensure clear accountability for the mitigating actions. The Business Assurance department facilitates the annual assessment of business risks to achieve an appropriate level of objectivity in our assessment of risks. We update our group risk profile every year in order to manage our most important risks. Over the year, we monitor the mitigating actions in relation to each risk and the trend for each risk. The business risk profile is taken into account when establishing our strategy, annual business plans and budgets.
In 2016, we further strengthened our control environment with the Internal Control department driving risk and control ownership by business process owners (BPOs) as well as upgrading the tools used to monitor our IT general controls. Additionally, BPOs gained better insight into their processes and associated control environment through enhanced dashboards. We also continued to align risk management and control related efforts within the organisation. This allowed Internal Audit to make a more informed decision on what areas to audit and gain more value from our internal audits. The result has been value adding audits with recommendations that where welcomed by the business and strengthened our overall control environment.
TomTom follows a top-down approach whereby management identifies the major risks that could affect the company's business objectives - and assesses the effectiveness of the processes and internal controls in place to manage and mitigate those risks. These internal controls are contained and maintained in the Internal Control Framework. Assurance on the effectiveness of controls is obtained through management reviews, monitoring dashboards, self-assessments, internal audits and testing of certain aspects of our internal financial control systems by the Internal Control team. This, however, does not imply that certainty as to the realisation of our business and financial objectives can be provided, nor can the approach of the company to control its financial reporting be expected to prevent or detect all misstatements, errors, fraud or violation of law or regulations.
The key features of the systems of our Internal Control are as follows:
Defined lines of accountability and delegation of authority are in place, together with reporting and analysis against budgets;
- Minimised operating risk by ensuring that the appropriate infrastructure, controls, policies, systems and people are in place throughout the business;
- Maintain organisational design that supports business objectives and a culture that encourages open and transparent communication;
- Maintain a financial shared service centre with a centralised Enterprise Resource Planning (ERP) environment which allows us to monitor our business throughout all regions and apply a consistent level of control;
- Centralised Treasury operations manage cash balances and exposure to credit default and currency risks through treasury policies, risk limits and monitoring procedures; and
- Ensure the Code of Conduct is accessible to all staff via the intranet, which includes whistleblowing facilities.
Our willingness to assume risks and uncertainties (the risk appetite) differ for each category. The level of the company's risk appetite gives guidance as to whether TomTom would take measures to control such uncertainties. The overview table shows the appetite and the expected impact on the group's achievement of its strategic, operational and financial objectives if one or more of the main risks and uncertainties were to materialise. The likelihood of the risk taking place is also disclosed. The risks are shown net. This means that the risks are described after taking the risk response into consideration.
Below is an overview of the risks that we believe are most relevant to the achievement of our strategy. The sequence of risks below does not reflect an order of importance, vulnerability or materiality. This overview is not exhaustive and should be considered in connection with forward-looking statements. There may be risks not yet known to us or which are currently not deemed to be material.
Although the PND market shows a declining trend, a significant part of our revenue is still derived from PNDs and we expect this to remain a meaningful category in its own right for the upcoming years. If we are unable to successfully launch new Consumer products and fail to adapt our organisation to remain competitive this 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 aim to continuously develop new innovative products in the Sports category and establish ourselves as a credible sports and fitness consumer electronics brand. Next, we aim to grow Drive specialist product sales in the niche markets whilst extracting value from the PND category.
We might be unable to pursue new automotive opportunities and lose market share versus competition. Also, new map and navigation providers may choose to enter the automotive market, which could increase the level of competition we face. 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. 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.
We believe TomTom is well positioned to address the future needs of our customers and to successfully pursue Automotive opportunities. With our technological innovation we continuously develop new product and service offerings in the area of navigation, traffic and maps. We believe these innovations will allow us to remain competitive in the automotive market.
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 customer confidence in our products or services.
Factors that negatively affect our reputation or brand image, such as adverse consumer publicity, inferior product quality, late delivery of customer commitments or poor service, could have a material adverse effect on our financial condition and results of operation.
TomTom employs a rigorous continuous quality management process for its products and services before they are entered into the market. Additionally, TomTom's Customer Care department aims to provide quality, fast response customer service and proactively monitors various digital platforms for customer feedback and issues. Furthermore, internal policies, governance teams and our Code of Conduct are designed to further mitigate the risk of incidents that could result in reputation or brand damage.
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 and new 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.
Over the last few years, we have invested significantly in developing a new Content Production Platform. This transactional mapmaking platform will strengthen TomTom’s competitive positioning by moving away from traditional batch processing towards a continuously updated real-time map. Additionally, we have made some changes to the structure of our mapmaking organisation to maximise the productivity and drive a much higher level of automation. Also, we have developed several strategic partnerships to develop technologies to support Autonomous Driving.
Our markets are characterised by rapid technological change, which challenges us to deliver highly competitive products and services on an ongoing basis. In order to be a market leader in our industry, we need to have the most talented people working effectively together.
We aim to employ highly talented people in our organisation. Having the best people enables us to create and deliver highly innovative products and services to our customers. If we are unable to attract, develop and retain the right people, our ability to operate our business successfully could be significantly impaired.
In our ambition to be the employer of choice in technology, our rigorous recruitment process aims to attract the best talents. We monitor the organisational health of the company and have programmes in place to retain and keep (key) employees engaged. Ongoing significant investments are made in understanding what our employees need and want so we can offer customised experiences. We invest in our increasingly agile and talented workforce and in ensuring that we have the right employer brand strategy in place to attract and retain the talent we need. For example, we continuously invest in and develop our software engineering and product management capabilities through initiatives such as our World Class Software Development Programme as described in the section Human Resources.
We provide a variety of customer-facing online services on a 24/7 basis. These include fleet management services, live traffic information, location-based services and sales via our website. To provide these services to our customers we rely on our own, as well as outsourced, information technology, tele- communications and other infrastructure systems. A significant disruption to the availability of these systems could cause interruptions in our service to customers that may cause reputational damage for TomTom and could trigger contractual penalties, which could have a material adverse effect on our financial condition and results of operations.
We have established a process in relation to business continuity for internal infrastructure including full redundancy for key services such as fleet management, location-based services and some traffic delivery platforms. We also agreed minimum service levels with relevant outsourced service providers. Continuous monitoring of system availability is in place.
Unforeseen business disruptions could affect our service to customers and cause loss of, or delays in TomTom's critical business systems, our research and development work and/or product shipments. Any permanent or temporary loss of these systems could result in reputational damage, loss of revenue and liabilities to our clients. In the case of a catastrophic disaster, our company's success rests on our ability to restore our critical data and rebuild our IT business systems.
We have business continuity and disaster recovery planning in place for business critical systems and various eventualities. However, we are unable to plan for every possible disaster or incident. A major failure of a business critical system from which we are not able to quickly recover, could have a material adverse effect on our financial condition, results of operations and liquidity.
We rely on a combination of trademarks, trade names, patents, confidentiality and non-disclosure agreements, copyrights and design rights, to defend and protect our trade secrets and the intellectual property in our expanding range of products. We may be faced with claims that we have infringed the intellectual property rights or patents of others, which if asserted against us may result in us being ordered to pay substantial damages or forced to stop or delay the development, manufacturing or sale of infringing products. Any such outcome could have a material adverse effect on our financial condition, results of operations and liquidity. Furthermore, even if we were to prevail, any litigation could be costly and time-consuming.
We have a dedicated Intellectual Property team responsible for the protection of TomTom's products and services against unauthorised use by third parties. By obtaining and enforcing intellectual property rights, such as patents and trademarks, TomTom can prevent the competition from reproducing our unique products. TomTom has built a substantial prior art portfolio and has a reputation for strongly defending its position in all intellectual property litigation, including against non- practicing entities (NPE).
We provide location-based and fitness products and services to individual customers and as there is growing public awareness and increased scrutiny by regulatory authorities, this means that compliance with privacy regulations and customer expectations is increasingly important in maintaining our competitive position. Next to this, various governments across the globe are implementing legislation allowing law enforcement and intelligence services bodies direct access to data held by businesses. Depending on country and cultural background, this could raise additional concerns regarding the use of our products and services. Our reputation and brand may suffer and regulatory sanctions may be imposed if we fail to comply with privacy laws and regulations or otherwise fail to meet our customers' expectations in relation to privacy matters.
Inherent in the design and operations of our products and services we apply 'privacy-by-design' to ensure that TomTom's own Privacy Principles as well as obligations from applicable privacy laws and regulations are structurally adhered to in the design of our products and services and throughout our operations.
Our business operations and reputation are substantially dependent on our ability to maintain confidentiality, integrity and availability of information regarding customers, employees, suppliers, proprietary technologies, intellectual property and business processes. Additionally, the volume and sophistication of information security ('cybersecurity') threats continue to grow. The inadvertent disclosure of confidential information, unauthorised access to our systems and networks, defective products and sanctions potentially imposed by regulators could adversely affect our business, our reputation and could have a material adverse effect on our financial conditions, results of operations and liquidity.
We structurally deploy and maintain information security governance, controls, processes and tools in our engineering, operations and products using a risk-based approach, based on ISO information security standards.
The group operates internationally and conducts business in multiple currencies. Revenue is earned in euro (EUR), GBP, USD and other currencies, and do not necessarily match cost of sales and other costs which are largely in EUR and the USD and to a lesser extent in other currencies. Foreign currency exposures on commercial transactions relate mainly to estimated purchases and sales transactions that are denominated in currencies other than reporting currency - EUR (€). Unfavourable foreign currency movements such as a strengthening of the USD will have a negative impact on our profitability.
We manage foreign currency transaction risk through options and forward contracts to cover forecasted net exposures. All such transactions are carried out within the guidelines set by our Corporate Treasury Policy. Furthermore, we try to temper any negative foreign currency effect by conscious and calculated pricing of TomTom products and services to combat the negative impact of the exchange rate movement. For additional information, see note 28 to the consolidated financial statements.
The Management Board is responsible for TomTom's risk management and internal control systems. The Management Board believes that the company maintains an adequate and effective system of risk management and Internal Control that complies with the requirements of the Dutch Corporate Governance Code (the Code).
The internal control systems are designed to manage, rather than eliminate, the risk that we fail to achieve our business objectives and can provide reasonable, but not absolute, assurance against financial loss or material misstatements in the financial statements. The Management Board reviews the effectiveness of TomTom's systems of internal control relative to strategic, financial, operational and compliance risks and discusses risk management and internal controls with the Audit Committee on at least a quarterly basis.
The Management Board believes, based on the activities performed in 2016 and in accordance with best practice provision II.1.5 of the Code, that the risk management and control systems with regard to the financial reporting risks have functioned effectively in 2016, and that the risk management and control systems provide a reasonable assurance that the 2016 financial statements do not contain any errors of material importance. With reference to section 5.25c paragraph 2c of the Financial Markets Supervision Act, the Management Board states that, to the best of its knowledge:
- The annual financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and that
- The Management Board Report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the company faces.
Amsterdam, 8 February 2017
The Management Board
Harold Goddijn/Chief Executive Officer
Taco Titulaer/Chief Financial Officer
Alain De Taeye/Member of the Management Board
TomTom is committed to conducting business in a transparent, ethical and accountable manner. Our corporate governance structure supports and contributes to fulfilling this commitment to all our stakeholders.
TomTom NV is a public limited liability company incorporated under Dutch law and listed on Euronext Amsterdam in the Netherlands. We have a two-tier board structure, consisting of a Management Board and an independent Supervisory Board, accountable to the General Meeting for the performance of their duties.
Our corporate governance structure is based on the company's Articles of Association, the requirements of the Dutch Civil Code, the Dutch Corporate Governance Code (the Code), applicable securities laws, and the rules and regulations of Euronext Amsterdam.
We continuously monitor and assess our corporate governance structure and compliance with the Code, applicable laws and regulations and relevant developments. In order to drive governance, consistency and functional excellence throughout the company, the Management Board has established a Code of Conduct, and a set of business policies and procedures which have been rolled out to all employees globally.
In this paragraph, we address our overall corporate governance and provide information on our compliance with the best practice provisions of the Code. Occasional deviations from the Code are explained and information on the reasons for any such deviations are provided at the end of this paragraph.
In case of any substantial changes to the corporate governance structure of TomTom and its compliance with the Code, the shareholders shall be informed hereof at a General Meeting.
The Management Board is responsible for the day-to-day management of the operations of the company. Its responsibilities involve setting and achieving the company's strategic objectives, managing the company's strategic risks, legal compliance and corporate social responsibility matters insofar as relevant to the company's business. The Management Board is accountable for this to the Supervisory Board and to the General Meeting.
In fulfilling its duties, the Management Board is guided by the interests of the company, taking into consideration the interests of the company's stakeholders as a whole. The Management Board provides the Supervisory Board in a timely manner with all information necessary for the Supervisory Board to fulfil its duties. Furthermore, the Management Board consults with the Supervisory Board on important matters and submits important decisions to the Supervisory Board for its prior approval.
Composition and appointment
The company's Articles of Association provide that the Management Board must consist of at least two members. Each member of the Management Board is appointed for a maximum period of four years with the possibility of re-appointment for consecutive four year terms in accordance with the Code. The General Meeting appoints the members of the Management Board, subject to the right of the Supervisory Board to make a binding nomination.
The General Meeting may at all times, by a resolution passed with a majority of at least two-thirds of the votes cast, and representing more than 50% of the issued share capital, resolve that the nomination submitted by the Supervisory Board is not binding. In such a case, the appointment of a member of the Management Board in contravention of the Supervisory Board's nomination requires a resolution of the General Meeting adopted with a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital. If the Supervisory Board fails to use its right to submit a binding nomination, the General Meeting may appoint members of the Management Board with a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital.
A resolution of the General Meeting to suspend or dismiss members of the Management Board requires a majority of at least two-thirds of the votes cast, representing more than 50% of the company's issued share capital.
The Management Board currently consists of three members: Harold Goddijn, Taco Titulaer and Alain De Taeye. The members of the Management Board are jointly authorised to represent the company. Biographies of the members of the Management Board, as well as other details relating to their careers can be found in this Management Board Report section under TomTom Management Board.
TomTom does recognise the benefits of diversity throughout the company. When selecting a candidate for appointment to the Management Board, the Supervisory Board will consider, among others, specific experience, knowledge, skills and gender diversity within the Management Board. When nominating a candidate for appointment the qualifications of the candidate will prevail.
The remuneration of each member of the Management Board is determined by the Supervisory Board, upon a proposal by the Remuneration Committee, and based on the company's Remuneration Policy for the Management Board as established by the General Meeting in 2014.
For further information about the Remuneration Policy and how it is applied in 2016, reference is made to the Remuneration Report in the Supervisory Board Report section, and note 33 Remunerations of members of the Management Board and the Supervisory Board in the consolidated financial statements.
CONFLICTS OF INTEREST
Members of the Management Board must report any (potential) conflict of interest to the Chairman of the Supervisory Board. The Supervisory Board shall decide whether a conflict of interest exists.
The member of the Management Board who has a (potential) conflict of interest shall not participate in discussions and decision-making on a subject or transaction in relation to which the member has a conflict of interest with the company. Decisions to enter into transactions under which members of the Management Board have conflicts of interest that are of material significance to the company and/or to the relevant member(s) of the Management Board, require the approval of the Supervisory Board.
During 2016, no such conflicts of interest were reported.
The Supervisory Board supervises the management of the Management Board and the general course of affairs of the company and supports the Management Board by providing advice. In performing its duties, the Supervisory Board acts in the interest of the company as well as that of its stakeholders.
The company's Articles of Association require that certain decisions of the Management Board be subject to the approval of the Supervisory Board, such as resolutions of the Management Board to issue shares, to grant rights to acquire shares, to restrict or exclude pre-emptive rights, to amend the Articles of Association, to conclude a legal merger or a legal demerger, and to reduce the issued share capital.
COMPOSITION AND APPOINTMENT
The company's Articles of Association provide that the Supervisory Board shall consist of a minimum of three members. Members of the Supervisory Board may be appointed for a maximum period of twelve years in accordance with the Code.
The Supervisory Board appoints a Chairman and a Deputy Chairman from amongst its members. The members of the Supervisory Board retire periodically in accordance with a rotation plan, which can be downloaded from TomTom’s corporate website: corporate.tomtom.com/responsibilities-structure.cfm.
The General Meeting appoints the members of the Supervisory Board, subject to the right of the Supervisory Board to make a binding nomination. The full procedure of appointment and dismissal of members of the Supervisory Board is explained in article 17 of the company’s Articles of Association.
The General Meeting may at all times, by a resolution passed with a majority of at least two-thirds of the votes cast, and representing more than 50% of the issued share capital, resolve that the nomination submitted by the Supervisory Board is not binding. In such a case, the appointment of a member of the Supervisory Board in contravention of the Supervisory Board's nomination requires a resolution of the General Meeting adopted with a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital.
A resolution of the General Meeting to suspend or dismiss members of the Supervisory Board requires a majority of at least two-thirds of the votes cast, representing more than 50% of the issued share capital.
With the resignation of Guy Demuynck as of the 2016 annual General Meeting, the Supervisory Board consisted of five members. At the 2016 annual General Meeting, Jack de Kreij was appointed as a member of the Supervisory Board with effect of 1 January 2017. As a result, as per 1 January 2017, the Supervisory Board consists of six members. Biographies of the members of the Supervisory Board as at 31 December 2016, as well as other details relating to their careers, can be found in the Supervisory Board Report section.
The Supervisory Board has determined a profile regarding its size and composition, taking into account the nature of TomTom's business, its activities and the desired expertise. The Supervisory Board aims for a diverse composition and will strive for a fair balance between nationality, experience, expertise, gender, age, and background. When nominating a candidate for (re-) appointment, however, the qualifications of the candidate and the specific requirements of the positions to be filled will prevail. The Supervisory Board profile and Supervisory Board Rules covering, among others, its decision-making process are posted on TomTom's corporate website: corporate.tomtom.com/responsibilities-structure.cfm.
The Supervisory Board confirms that its current composition has the necessary experience, expertise, and independence to ensure that its members are able to properly execute their duties. All current members of the Supervisory Board were appointed in accordance with the Supervisory Board profile. As at 31 December 2016, two out of five members of the Supervisory Board were female. No member of the Supervisory Board holds more than five supervisory positions at Dutch 'large companies'.
In line with the Code, the Supervisory Board has established an Audit Committee, a Remuneration Committee and a Selection and Appointment Committee. Each of these committees is staffed by members of the Supervisory Board and at least one of the members of the Audit Committee is a financial expert. For an overview of all activities performed by the committees, reference is made to the Supervisory Board Report section. The terms of reference of each committee can be found on TomTom's corporate website: corporate.tomtom.com/responsibilities-structure.cfm.
The remuneration of the members of the Supervisory Board and the additional remuneration of the Chairman and the members of its committees is determined by the General Meeting, last amended in 2009. Members of the Supervisory Board are not authorised to receive any payments under the company's pension or bonus schemes or under the option or share plans. No shares or rights to shares were granted to a Supervisory Board member by way of remuneration. At present, none of the Supervisory Board members own any shares in the company.
The annual remuneration of the Supervisory Board and committees' membership remained unchanged during 2016. Respective amounts are shown in the below table.
Table_79 Annual remuneration SvB
|Selection and Appointment Committee||€7,000||€4,000|
For more detailed information about the remuneration of individual members of the Supervisory Board see note 33 Remunerations of members of the Management Board and the Supervisory Board in the consolidated financial statements.
CONFLICTS OF INTEREST
Members of the Supervisory Board (excluding the Chairman) must report any (potential) conflict of interest to the Chairman of the Supervisory Board. If the (potential) conflict of interest involves the Chairman of the Supervisory Board, it must be reported to the Deputy Chairman of the Supervisory Board. The Supervisory Board shall decide whether a conflict of interest exists.
The member of the Supervisory Board who has a (potential) conflict of interest shall not participate in discussions and decision-making on a subject or transaction in relation to which the member has a conflict of interest with the company. Decisions to enter into transactions under which members of the Supervisory Board have conflicts of interest that are of material significance to the company and/or to the relevant member(s) of the Supervisory Board, require the approval of the Supervisory Board.
During 2016, no such conflicts of interest were reported.
In accordance with provision III.6.4 of the Code, TomTom reports that no transactions occurred in 2016 between the company and legal or natural persons who hold at least 10% of the shares in the company.
FUNCTIONING OF THE GENERAL MEETING
The General Meeting is held at least once a year and generally takes place in Amsterdam, the Netherlands. The General Meeting is convened by public notice via the company's corporate website: corporate.tomtom.com/agm.cfm.
The compilation of the Annual Report is a recurring agenda item, as well as the adoption of the annual accounts, the release from liability of the members of the Management Board and Supervisory Board and the execution of the Remuneration Policy during the previous year. When deemed necessary in the interests of the company, an Extraordinary General Meeting may be convened by resolution of the Management Board or the Supervisory Board.
Each shareholder is entitled, either personally or by proxy authorised in writing, to attend the General Meeting, to address the meeting and to exercise his or her voting rights. The minutes and the resolutions of the General Meeting are recorded in writing. The minutes will be made available to the shareholders on TomTom's corporate website no later than three months after the meeting.
Each of our ordinary shares and preferred shares is entitled to one vote. The voting rights attached to any shares held by the company are suspended as long as they are held in treasury.
Resolutions of the General Meeting are adopted by an absolute majority of the votes cast, except where Dutch law or the company's Articles of Association provide for a special majority.
According to the company's Articles of Association, the following decisions of the General Meeting require a majority of at least two-thirds of the votes cast, representing more than 50% of our issued share capital:
Resolution to cancel a binding nomination for the appointment of a member of the Management Board or the Supervisory Board;
- Resolution to appoint a member of the Management Board or the Supervisory Board in contravention of the binding nomination by the Supervisory Board; and
- Resolution to dismiss or suspend a member of the Management Board or the Supervisory Board.
In addition, in accordance with Dutch law, the company's Articles of Association provide that, if less than 50% of our issued share capital is represented at the meeting, certain decisions of the General Meeting require a majority of at least two-thirds of the issued capital represented. This includes decisions of the General Meeting regarding:
- The restriction and exclusion of pre-emptive rights, or the designation of the Management Board as the authorised body to exclude or restrict such rights;
- The reduction of the issued share capital; and
- A legal merger or legal demerger of the company.
AMENDMENT OF THE ARTICLES OF ASSOCIATION
The General Meeting may resolve to amend the Articles of Association of the company if it acts on a proposal by the Management Board that has also been approved by the Supervisory Board.
A resolution of the General Meeting to amend the Articles of Association requires an absolute majority of the votes cast, irrespective of the share capital represented at the General Meeting.
THE CAPITAL STRUCTURE
The company's authorised share capital amounts to €180,000,000 and is divided into 600,000,000 ordinary shares with a nominal value of €0.20 each and 300,000,000 preferred shares, with a nominal value of €0.20 each. As at 31 December 2016, a total of 232,886,736 ordinary shares were issued and outstanding.
ISSUE OF SHARES
The Management Board may issue shares or grant rights to subscribe for shares if so designated by the General Meeting or the company's Articles of Association. This Management Board resolution is subject to the prior approval of the Supervisory Board. No resolution of the General Meeting or the Management Board is required for the issuance of shares pursuant to the exercise of a previously granted right to issue shares or to subscribe for shares.
The Management Board continues to believe it is in the company's best interests that it should be in a position to react promptly when business opportunities arise that require the issuance of ordinary shares. When such occasions arise, the Management Board therefore wishes to be authorised to issue ordinary shares and to grant rights to subscribe for such shares without the need to obtain prior approval from the shareholders at an Extraordinary General Meeting. Such meetings take time to convene and could generate disruptive market speculation.
On 22 April 2016, the General Meeting passed a resolution extending the Management Board's authorisation to resolve the issuance of ordinary shares or grant rights to subscribe for such shares until 22 October 2017. This authority is limited to 10% of the number of issued ordinary shares for general purposes, and an additional 10% in connection with or on the occasion of a merger or acquisition, and authorises the restriction or exclusion of the pre-emption rights for existing shareholders for such issue or grant of rights.
Separately, the Management Board has been authorised to grant, subject to the prior approval of the Supervisory Board, rights to subscribe for ordinary shares and to restrict or exclude the pre- emption rights for existing shareholders for those rights, up to 1,300,000 ordinary shares for the purpose of executing the TomTom Employee Stock Option Plan and the Management Board Stock Option Plan. It was granted for a period starting from the 2016 General Meeting and ending with the General Meeting to be held in 2017.
REPURCHASE BY THE COMPANY OF ITS OWN SHARES
The 2016 General Meeting has resolved to authorise the Management Board to acquire shares in the capital of the company up to 10% of the issued share capital, subject to certain conditions. The authorisation was granted for a period of 18 months and will be in effect until 22 October 2017.
Foundation Continuity TomTom (Stichting Continuïteit TomTom) is a foundation established in 2005, with a board independent of TomTom (the Foundation). The purpose of the Foundation is to safeguard the interests of the company and its stakeholders. It does so by ensuring that the company is in a position to resist influences that could affect its independence, continuity and/or corporate identity in any manner that would be in contravention of the interests of the company or its stakeholders. The granting of rights to subscribe for preferred shares to the Foundation may help to prevent, discourage or otherwise delay unsolicited attempts to obtain (de facto) control of the company.
The General Meeting adopted the proposal of the Management Board to grant the Foundation a call option entitling it to subscribe for preferred shares up to 100% of the aggregate nominal value of the outstanding ordinary shares at the time of issue, up to a maximum of the number of preferred shares included in the authorised capital at the time of issue.
The Foundation shall subscribe for the preferred shares at par. Immediately after subscribing for preferred shares, the Foundation shall proceed to pay one-fourth of the nominal value of the preferred shares at the time of issue. Three-fourths of the nominal amount shall only need to be paid upon call by the company, without prejudice to the provisions of section 2:84 of the Dutch Civil Code. The Foundation is entitled to exercise the option right in one or more tranches. The possible issuance of preferred shares to the Foundation will be temporary and subject to the company's Articles of Association and the legislation on takeovers. Currently, there are no preferred shares outstanding.
Unless the preferred shares have been issued pursuant to a resolution of the General Meeting, the company's Articles of Association require that a General Meeting be held within one year after the issue of preferred shares to consider their purchase or withdrawal. If no resolution on the purchase or withdrawal of the preferred shares is adopted at such a General Meeting, a General Meeting will be held every year thereafter for as long as preferred shares remain outstanding.
SUBSTANTIAL SHAREHOLDINGS AND SHORT POSITIONS
Shareholders owning 3% or more of the issued capital of a listed company (a substantial shareholding or short position) must report this to the Netherlands Authority for Financial Markets (AFM) as soon as this threshold is reached or exceeded.
Subsequently, notification to the AFM must be done as soon as a substantial shareholding or short position reaches, exceeds or falls below set thresholds. The thresholds for substantial shareholding notifications are: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95% of the company's issued share capital.
At 31 December 2016, the following shareholders owning 3% or more of the company's voting rights were registered with the AFM:
Table_6 Substantial shareholdings
|Name||% voting rights1|
|Founder - Harold Goddijn||11.30%|
|Founder - Corinne Vigreux||11.22%|
|Founder - Pieter Geelen/Stichting Beheer Moerbei||11.22%|
|Founder - Peter-Frans Pauwels/Stichting Beheer Pillar Arc||11.22%|
|J.H.H. de Mol||5.01%|
|Flevo Deelnemingen IV BV||4.99%|
|1. These percentages, which include both direct and indirect capital interests/voting rights, do not necessarily reflect the actual shareholding in the company due to the notification requirements with the AFM.|
As a Dutch listed company, TomTom is subject to the Code. The Management Board and Supervisory Board recognise the importance of good corporate governance and are committed to complying with the best practice provisions of the Code and continuously monitors developments in this area.
TomTom complies with all of the relevant provisions of the Code, with the exception of the following provisions: II.2.4 and IV.1.1. The nature of and reasons for these deviations are explained below.
Best practice provision II.2.4 provides that if options are granted, they shall, in any event, not be exercised in the first three years after the date of granting. The number of options to be granted shall be dependent on the achievement of challenging targets specified beforehand.
At the 2014 General Meeting, the proposal to amend the Remuneration Policy with regard to the long-term incentive component laid down in the TomTom NV Management Board Stock Option Plan (the Plan) was adopted. As a result of this decision, the performance conditions for the vesting of the options were removed. All options granted under the Plan shall be granted conditional to continued employment of the members of the Management Board only. TomTom deviates from best practice provision II.2.4 to the extent that it does not specify targets beforehand. A vesting period of three years is applicable.
The reason for amending the Remuneration Policy was to align it better with international high-tech sector practice. Under the new Plan, the Management Board remains continuously focused on creating more value for the company’s shareholders.
TomTom's comparable and competitor companies are international companies in the high-tech sector. These companies continue to favor stock option plans and operate in environments not subject to the Code. The current Plan is reflective of competitive practices and enables TomTom to be competitive for international senior leadership talent.
Furthermore, the inclusion of vesting conditions in addition to the increase of TomTom's share price results in multiple hurdles for the Management Board to potentially obtain value. Stock options carry an innate de facto performance condition that focuses on achieving stock price growth before value can be derived from stock option grants. The value of the stock option remains wholly dependent on the development of TomTom's share price.
Best practice provision IV.1.1 provides that the General Meeting may pass a resolution to cancel the binding nature of a nomination for the appointment of a member of the Management Board or the Supervisory Board and/or a resolution to dismiss a member of the Management Board or of the Supervisory Board by an absolute majority of the votes cast. It may be provided that this majority should represent a given proportion of the issued capital, which proportion may not exceed one-third.
The company's Articles of Association provide that a binding nomination for the appointment of members of the Management Board or of the Supervisory Board may only be set aside by a resolution of the General Meeting passed with a two-thirds majority representing more than 50% of its issued share capital. The same provision applies to any resolution to dismiss a member of the Management Board or of the Supervisory Board.
The company deviates from the best practice provision outlined in the preceding paragraph, because it believes that maintaining continuity in its Management Board and Supervisory Board is critical for delivering long-term shareholder value. The company would like to protect its stakeholders against a sudden change in management by maintaining the qualified majority and voting quorum requirement, which is consistent with Dutch law.
Article 2a of the Dutch Decree on additional requirements for annual reports, last amended on 1 November 2015 (the Decree) requires companies to publish a statement concerning their approach to corporate governance and compliance with the Corporate Governance Code. The information required to be included in this corporate governance statement as described in articles 3, 3a and 3b of the Decree are incorporated in this paragraph.
The main characteristics of the company's internal risk management measures and control systems connected to its financial reporting process, as required by article 3a sub a of the Decree, are described in the Risk Management and Control section.
The Dutch Corporate Governance Code applicable to the company in 2016 can be found at www.commissiecorporategovernance.nl. The Monitoring Committee Corporate Governance has published an amended version of the Dutch Corporate Governance Code on 8 December 2016, which will be applicable to the company for the financial year starting on 1 January 2017.
The Management Board states that all information, which must be disclosed pursuant to Article 10 of the EU Takeover Directive Decree, is included in this paragraph, the Supervisory Board Report section and the notes referred to herein, to the extent that it is applicable to TomTom.