TomTom Capital Markets Day: Delivering Growth (Taco Titulaer)

I'll take you through the financial models, starting with the gross margin, then looking at the balance sheet, the automotive backlog, enterprise, and concluding with the outlook.

TomTom's quarterly address. Ten years ago, most of our revenue came from hardware. Now that has flipped: about 60% comes from software and content. Software is more sticky, with long-term contracts and deep integration into customer products, leading to higher gross margins.

Ten years ago, our gross margin was around 40%. Now we expect it to reach about 70% for 2019, and this trend continues as technology evolves and our product mix changes. We are able to digitize, and the business model is shifting to content as a service.

For pure drive and navigation, the business is defined. Looking to the future, content with or without an application layer will bring significant change. This shift affects capitalization: less capital expenditure for hardware, more capitalization of content. The balance sheet reflects this.

If you look at the balance sheet, the capitalization of content is now about 700 million euros, and after amortization it reduces to a few hundred million. You will see a continuing decline in book value over time.

Looking at the spending slide, we expect cash spend to increase by 17%. But don't worry, this increase is to meet necessary steps in the application layer and engineering. Cash spend is about 500 million euros plus depreciation, with about a third for engineering and 5% for marketing.

Zooming in on the engineering spend: about 60% goes to content and software. The trend is toward less spending on sourcing and processing of sources thanks to automation and faster cycle times, while more spend goes to machine learning and AI possibilities.

In the automotive backlog, we have learned that the pipeline and order intake are mixing with future products. We are currently updating the automotive backlog and will provide details in due course.

We have signed a contract that includes committed purchasing, which is a first for us. This links car sales to revenue based on take rate and pricing. We expect a 30% jump in 2020. The future journey with this customer will bring recurring revenue.

A fair estimate of future revenue will be shared later. We will publish an update in the interim. In the delta there are three trends: one is the order intake, two is the number of contracts, three is the revenue per contract. The enterprise business is sticky with long-term all-you-can-eat contracts.

You will see a shift from the consumer market to the US and other contexts. The nature of contracts allows for introducing new clients. For example, Microsoft is a reason for the new norm. The best in the chain for future work.

Looking at the outlook, we start with the revenue picture for 2020: about 1.1 to 1.2 billion euros, with a 15% margin. This is location technology revenue, excluding consumer. Cash flow is important for the business, and our focus is on free cash flow. In the long term, we aim to bring that to double digits. The balance sheet combined with strong cash flow positions us well.

We have reset the net position a month ago, giving back to shareholders. That covers all the things.