PND volumes and average selling prices

In the quarter we sold 1.6 million PNDs, an increase of 15% year on year. The ASP was €89, a decrease of 10% year on year and an increase of 13% sequentially.

The growing services component of our PND revenue will make it increasingly difficult to compare ASPs. In addition, our revenue mix is becoming increasingly broader. As a result we will no longer specifically disclose ASPs and volumes for PNDs as of the next quarter.

Gross margin

The gross margin for the group was strong at 54%, which represents an increase of four percentage points year on year (Q1 2009: 50%) and an increase of eight percentage points compared to the fourth quarter of last year (Q4 2009: 46%). The sequential increase is the result of a change in product and geographical mix, while year on year foreign exchange rates also had a significant positive impact.

Operating expenses

In the quarter, total operating expenses amounted to €127 million, which represents an increase of 3.2% or €4.0 million compared to the first quarter last year (Q1 2009: €123 million). The increase in operating expenses was mainly the result of increased investments in research and development activities as well as higher stock compensation expenses. Operating expenses as a percentage of revenue for the quarter decreased to 47% from 58% in Q1 2009 (Q4 2009: 25%). Operating expenses included €1.4 million of restructuring charges for the quarter (Q1 2009: €5.4 million, Q4 2009: €2.7 million).

Research and development (R&D) expenses for the quarter were €41 million, a 12% increase compared to the previous quarter (Q4 2009: €37 million) and an increase of 10% compared to the same quarter last year (Q1 2009: €37 million). The increase is the result of additional investments in our R&D activities in 2010, which we indicated would be the case at the time of our fourth quarter results.

Amortisation of technology and databases for the quarter was €17 million (Q4 2009: €18 million, Q1 2009: €17 million).

Marketing expenses for the quarter amounted to €15 million, representing a sequential decrease of 42% and a year on year decrease of 11% (Q4 2009: €26 million; Q1 2009: €17 million). The sequential decline in marketing spending results from the seasonal pattern of our business. Total marketing expenses represented 8.1% of Consumer revenue, an increase of 2.3 percentage points sequentially and a decrease of 2.5 percentage points compared to the same quarter last year (Q4 2009: 5.8%; Q1 2009: 11%).

Selling, general and administrative (SG&A) expenses for the quarter amounted to €51 million, which was slightly down compared to the previous quarter and the same quarter last year (Q4 2009: €52 million; Q1 2009: €52 million). SG&A expenses represented 19% of current quarter group revenue, compared to 10% in the previous quarter and 24% in the same quarter last year.

Stock compensation expenses for the quarter were €2.8 million, up from an expense of €1.7 million in the previous quarter and € 0.2 million in Q1 2009.

The operating result for the quarter increased year on year by €33 million to €17 million (Q1 2009: loss of €16 million). As a percentage of revenue, the operating profit increased from a negative 7.5% in Q1 2009 to a positive 6.3% in Q1 2010.

Financial results

The interest expense for the first quarter amounted to €8.5 million (Q1 2009: €17 million, Q4 2009: €11 million). The decline in the interest expense was the result of the reduction in borrowings following the repayment of €619 million in the second half of 2009 together with the year on year decrease in interest rates.

The other financial result was a loss of €5.7 million (Q1 2009: loss of €16 million), which arose mainly from foreign exchange contracts which were put in place to cover committed and anticipated exposure in non-functional currencies.

Tax

The income tax charge was €0.9 million in the first quarter (Q1 2009: a credit of €13 million). The effective tax rate in the first quarter was 22.6% (Q1 2009: 25.7%).

Cash flow

During the quarter, we recorded a cash outflow from operations of €23 million. This was the result of an increase in working capital of €54 million in combination with a cash outflow on financial instruments partially offset by the operating profit of €17 million.

Year on year there was a significant reduction in interest paid to €5.9 million for the quarter (Q1 2009: €31 million).

The cash flow used in investing activities during the quarter decreased to €15 million from €32 million in Q1 2009 and €32 million in the previous quarter. The decrease results from the investments we made in the comparative quarters. In Q4 2009 we acquired business listing company ilocal and in Q1 2009 we had significant investment in our HD Traffic network.