We expect the combined revenue of the Automotive, Licensing and Telematics businesses to grow around 15% year on year in 2017.
We expect the level of investments (both CAPEX and OPEX) to show a modest increase compared with 20166, excluding acquisitions.
Financial review for the six-month period ended 30 June 2017
In the first half of 2017, the Group generated revenue of €466 million, which is €16 million less compared with €482 million in the same period of 2016. Our year on year revenue development reflects growth in Automotive, Licensing and Telematics revenue offset by the revenue decline in Consumer. The Group’s gross margin for H1 '17 was 63% (H1 '16: 56%) and the operating result for H1 '17 was a loss of €164 million (H1 '16: €8.4 million) as we recorded an impairment charge of €169 million on the goodwill of our Consumer segment.
Revenue
Automotive & Licensing generated revenue of €161 million in H1 '17, an increase of 23% compared with €132 million in H1 '16. Automotive generated revenue of €90 million in H1 '17, an increase of 39% compared with €65 million in H1 '16. This increase is mainly the result of the ramp up of revenue from a contract that went live at the end of H1 '16. Licensing revenue in H1 '17 was €72 million compared with €67 million in H1 '16. This increase is driven by a catch-up of revenue for content delivered in the earlier quarters but the revenue recognition criteria were not yet fulfilled.
Telematics revenue increased by 5% year on year from €77 million in H1 '16 to €81 million in H1 '17. The increase was mainly driven by growing recurring service revenue.
Consumer revenue for H1 '17 declined year on year by 18% to €224 million, driven by difficult market circumstances in Sports, a declining PND market in line with expectations and phasing out of Automotive hardware contracts which are included in the Consumer segment.
Gross result
The gross profit for H1 '17 was €293 million, an increase of €24 million compared with the same period last year (H1 '16: €269 million). The gross margin in H1 '17 was 63% compared with 56% in H1 '16, mainly reflecting the shift of our revenue mix towards higher margin data, software & services revenue.
Goodwill impairment
The difficult market circumstances combined with lower sales than planned for the second quarter has resulted in a downward revision in the future profitability projections for Consumer Sports. As a result, TomTom recorded a full impairment charge against the goodwill of the Consumer segment of €169 million in the second quarter 2017. This non-cash impairment charge is included within operating income (loss). The goodwill that was impaired was originally recorded at the time of the acquisition of Tele Atlas in 2008.
Operating expenses
Excluding the impairment charge, operating expenses in H1 '17 were €289 million compared with €260 million in H1 '16. The operating expenses in H1 '16 included a one-off gain relating to a pending customs case. Excluding this one-off gain, the underlying operating expenses increased by €22 million year on year. This increase mainly came from higher expenses on our long-term employee incentive program and amortisation.
Operating result
The operating result for H1 '17 was a loss of €164 million compared with a gain of €8.4 million in H1 '16.
Financial result
The group recorded €0.5 million interest expenses in H1 '17 compared with €0.7 million in the same period of 2016. The other financial result in H1 '17 was a gain of €1.9 million versus a gain of €0.5 million in H1 '16, mainly driven by a gain on foreign exchange revaluation of our monetary balance sheet items.
Income taxes
In H1 '17, the group recorded an income tax expense of €2.0 million versus a gain of €8.3 million in the same period last year. The gain in 2016 was mainly the result of the remeasurement of our deferred tax positions as the result of application of innovation box facility in the Netherlands.
Cash flow
The cash flow from operating activities was €27 million, an increase of €12 million compared with €15 million in the same period last year. The increase is mainly due to lower working capital utilisation in H1 '17.
Excluding acquisition-related cash flows and dividends received, the cash flow used in investing activities during H1 '17 was €62 million, an increase of €3 million compared with €59 million in the same period last year.
The cash flow from financing activities includes a cash inflow of €11
million from the exercise of 2.2 million options related to our
long-term employee incentive programmes during H1 '17.
