TomTom's (TMOAF) CEO Harold Goddijn on Q3 2016 Results - Earnings Call Transcript

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TomTom NV (OTCPK:TMOAF) Q3 2016 Earnings Conference Call October 21, 2016 8:00 AM ET

Executives

Bisera Grubesic - Head of Treasury and Investor Relations

Harold Goddijn - Chief Executive Officer

Taco Titulaer - Chief Financial Officer

Analysts

Marc Hesselink - ABN AMRO

Martijn den Drijver - NIBC Markets

Francois Bouvignies - UBS

Andrew Humphrey - Morgan Stanley

Marc Zwartsenburg - ING

Andrew Hayman - Independent Minds

Shyam Kumar - TT International

Operator

Good day, ladies and gentlemen. Welcome to the TomTom's Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's prepared remarks. [Operator Instructions] Please note this conference is being recorded.

I will now turn the call over to your host for today’s conference, Bisera Grubesic, Head of Treasury and Investor Relations. You may begin, ma’am.

Bisera Grubesic

Thank you, operator. Good afternoon, ladies and gentlemen, and welcome to our conference call, during which we will discuss our operational highlights and financial results for the third quarter of 2016. With me today are Harold Goddijn, our CEO; and Taco Titulaer, our CFO. You can listen to the call on our website and a recording of the call will be available shortly afterwards. And as usually, I would like to point out that Safe Harbor applies to today's call.

We will start today with Harold, who will discuss the key operational developments, followed by a more detailed look at the financial results and the financial outlook for 2016 from Taco. And after that, we will take your questions.

And with that, Harold, I would like to hand over to you.

Harold Goddijn

Thank you, Bisera, and welcome, ladies and gentlemen. Thank you for joining us today. We’ve reported revenue of €239 million in the third quarter, which is 6% lower compared to last year. However, gross margin was strong with 60% as we are reducing our dependency on hardware products and growing our high gross margin, recurring data software and services business. Gross profit for the quarter was up 7%.

Taco will provide further information on financial highlights and financial outlook for 2016 later during the presentation. I will discuss the key operations highlights for the quarter.

Consumer PND markets have been weak over recent periods which caused a decline in our consumer revenue. We saw our Sports revenue more than doubling year-over-year but this could not offset PND decline we have seen this year.

In Sports, we introduced a new range of sports watches including new GPS watch for outdoor activities with dedicated sports modes for hiking, trail running, skiing and snowboarding. We also introduced new TomTom TOUCH, our first fitness tracker that combines body composition analysis with steps, sleep and all day heart rate tracking.

The Automotive, Licensing, and Telematics businesses are developing in line with our expectations. In Automotive, we continue to make good progress in delivering our connected navigation system components to existing and new customers.

PEUGEOT i-Cockpit is enhanced with TomTom navigation, 3D Maps and Traffic services and the first car model to introduce the new i-Cockpit with our navigation components is the new PEUGEOT 3008.

TomTom Traffic services already available to sister companies Audi, Volkswagen, Porsche and Bentley, will be extended to all ŠKODA car models across Europe in the course of 2017.

We also announced that Subaru’s next generation infotainment platform will be equipped with our Maps and Navigation software. This product will be launch first in North America with the all-new 2017 Subaru Impreza.

Finally, Volvo Trucks selected us as the supplier of Maps, Traffic and Navigation software for their new infotainment system, launching first in Europe in 2017. Order intake for the year so far is about €200 million and that’s in line with our expectations. We won the largest deal available to the market this year and together with orders secured earlier, this will support continued growth in our Automotive business.

This quarter we announced a partnership with NVIDIA to create a cloud-to-car mapping system for High Definition maps for self-driving cars. This collaboration is an important step for TomTom.

In Telematics, the installed based reached 671,000 subscribers or subscribe vehicles by the end of the quarter, and that represents 29% growth compared with the same quarter last year. Telematics was recognized as Europe's leading and most innovative fleet fashion and service provided by Berg Insight for the second year in a row.

This concludes my part of the presentation. I'm handling over to Taco.

Taco Titulaer

Thank you, Harold. I shall now begin a more detailed look at our financial results as already mentioned by Harold, our generated revenue of €239 million in the quarter. This is a 6% decrease compared with the same quarter last year. The decline was mainly driven by lower Consumer PND revenue which was only partly offset by revenue growth in Consumer Sport, Automotive and Telematics. Licensing showed relatively flat revenue compared to last year. Our revenue was impacted by the GPS depreciation versus the euro with a €4 million this quarter.

Let me briefly discuss the business units one by one. In Consumer, the PND business declined faster than we expected. In Europe, market was down with 21%, in North America, the market was down with 23%. Our market share strengthened in both regions. The Sports category continues to grow with revenue doubling compared to last year in the quarter, I ever did was not enough to offset the decline in PNDs.

Automotive delivered a strong performance with revenue growth of 21% year-on-year to €31 million. The increase is driven by higher revenue from our existing contracts and ramping up a new contract.

Licensing revenue was €34 million in the second quarter, flattish compared with the same quarter last year. Telematics revenue was up by 15% year-on-year to €37 million. Recurring subscription revenue for the quarter increased by 17% year-on-year to €29 million. Our monthly subscription ARPU decreased year-on-year, owing to the impact of the acquisition in Poland.

Gross margin was strong this quarter with 60% and reducing our dependency on hardware products by growing recurring data, software and services business.

Total operating expenses for the quarter was €144 million compared with €130 million in the same quarter last year. The year-on-year increase was driven by an increase in personal expenses, partially offset by lower marketing expenses. We delivered an adjusted net result of €12 million this quarter which translates in adjusted earnings per share of €5 on a fully diluted basis.

At the end of the quarter, we’ve reported a net cash position of €81 million. Our cash flow from operating activities for the quarter was €54 million, €7 million higher compared with last year. This was mainly due to lower working capital utilization, partly offset by higher tax payment. The cash flow used in the investing activities excluding the effects of acquisitions increased to €32 million in the quarter similar to last year.

Then let's look at the outlook on Slide 4. As previously announced, on the 13, October, 2016 we're updating our guidance. We now expect full year group revenue of around €918 million and the outlook for adjusted earnings per share remains at €0.23.We expect the level of investments in both OpEx and CapEx and our core technologies to be higher than last year.

That concludes the formal part of the presentation. And operator we would now like start with the Q&A session.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] Our first question is from Marc Hesselink from ABN AMRO. Please go ahead.

Marc Hesselink

Yeah, thank you. My first question is on the auto order intake, do we have a feel on, if your market share there is similar towards last year, so the - of the OBM orders that were out there, did you get a similar or did your winning from some market share? And also on the request for proposals that are out there in the market is it - is the feasibility going into 2017, will 2017 will there be growth for as this year or will those will be a bit more subdued like this year versus last year?

And my second question is on your partnership with NVIDIA, and what does that exactly mean, does it mean that NVIDIA if they use their computing power that they will use your mapping technology and your localization technology. And what does it mean for the future for autonomous driving? Will it help you to it to be available to the market or will speed up the process?

Harold Goddijn

Yeah, okay. Thank you, Marc. This is Harold, thank you very much. Our market share, it’s difficult to see, I don't want to give you a number on market share win, because we don't have reliable data and there's no third parties either collecting reliable data on total availability of deals, but we think we're doing okay and certainly no worse than last year.

But I think it's also true that the total available deals for 2016 were lower than it was in 2015. But I think on the whole, we are happy with the results as developed in line with our expectations and it's going according to plan. I don't want to give you indication for 2017 at this moment, partly because we don't have that visibility completely, and second because I want to give guidance in when we do to the Q4 numbers and not now for 2017.

Yeah, the NVIDIA partnership, that's really interesting for us. So it's a partnership that often you needs to develop but the idea is that we do map compilation super real time in the car based on the processing power at the NVIDIA platform produces. At the moment, we do a lot of code in the cloud that given the enormous amount of data that sensors are collecting, it will be much more efficient to process that data in the car and only move the digitized data from the sensors into the cloud.

That is what the NVDIA partnership is about and this what we’re building and that should then also result in a highly accurate positioning product, in other words if you use the NVIDIA platform in our Maps and RoadDNA then the software developer for automated driving has a very good understanding of where exactly the car is and that is critical to get the whole system to work.

So an exciting partnership for us that we are developing now it will - now it will involve exchange of technical information development, so we are excited about that. And also what the technology can offer in terms of map-making, it will greatly improve the efficiency of our map-making process if we get the technology and the control.

Marc Hesselink

As a follow-up, is that deal with of the partnership with NVIDIA, is that exclusive and would it imply that if NVIDIA wins an order for autonomous driving or any development on that, does it mean that you are indirectly you are connected to that as well?

Harold Goddijn

No, I don’t think it will go thus far. As at the end of the day, the car marker decides which technology you will use and the partnership with NVIDIA is also not exclusive that is that will be a typical for the industry. But the fact that we are working together will help us in our commercial efforts but also well is helping us and we see that already in getting in more granular and deeper understanding of what’s going on in the market for autonomous driving, where the issues are and where we can play well.

Marc Hesselink

Okay, thank you.

Operator

We will take our next question from Martijn den Drijver from NIBC Markets. Please go ahead.

Martijn den Drijver

Yes, good afternoon, gentlemen. Yesterday there was an exciting announcement as well from Tesla stating that its cost will be capable of level-five autonomy with the update hardware suite. I had two technical questions if I may. Do you think an HD Map can be uploaded to such a vehicle over the air by Wi-Fi? That’s question number one.

And the second one is, do you believe it’s technologically possible to achieve level-five autonomous driving with sensors cameras and a current automotive grade map, so not an HD Map but a current automotive grade map? Thank you.

Harold Goddijn

First, can we load a full HD Map on the system? Yes, you can. But there are limitations in the degree of geographical size of course you can’t load probably the whole of the U.S., but certainly a very significant part of the U.S. is possible to load that and also to maintain that. It needs to be done in the clever way, but technically that is possible. It’s certainly nothing impossibility.

Second question is, what is the - exactly the second question? Can you achieve level-five?

Martijn den Drijver

Can you achieve level-five? Yeah, can you achieve level-five autonomous driving given that there is so many advanced in sensor capabilities can camera capabilities are becoming cheaper and a current automotive grade map because the industry seems to assume that you need an HD Map, but I am always - I am a little bit on between the Mobileye view and the let’s say the opposite view?

Harold Goddijn

Yeah, so I think everybody is coming around like you do needed high definition map. And then for a simple reason that the range of the sensors is just limited in distance. You need some sort of - you need two things, you need to know where our all other objects are relative to the map also further away and you need to be able to plan your route further out. And for that you need to have high definition maps. And I don’t think currently there are many people who don’t think you need a digital map for that.

Martijn den Drijver

Just wanted to be absolutely sure. Thank you.

Operator

Our next question is from Francois Bouvignies from UBS. Please go ahead.

Francois Bouvignies

Hey, hallo, thank you for taking my questions. I have a couple if I may. The first one is on the order intake, can you update a bit on the situation on the IC and also the penetration of in-dash. I mean do you see - feel increasing the penetration?

Also on the HD Map, what is the timeline, I mean when do you think you will have contract with HD Maps and how should we think about the pricing?

And the last one is one the your investments, so in OpEx and CapEx, can you give us a bit of color if you need to invest more, how do you think about the industry and to next year, if you can give some color would be great. Thank you.

Harold Goddijn

Yeah, okay, so thanks for the question. So ASPs in automotive relatively stable. I think that was your first question. It actually going up a little bit for us, but we need to do more. So we need to may provide an app updated often software technologies compilation services. But on the whole, the price per car sold is stable and firming up a little bit.

Penetration I think for now we see is higher levels of penetration than before. I think even in mid-range the attachments rates are going up, we do see that reversing for the moment. So that’s also a positive. By the way, the fact that we offer services with our map sales also means that we need to defer a proportion of our income under IFRS rules. So you need to take it and it can’t be look at the revenue numbers as well.

HD Map, there is demand for the HD Man but not yet for autonomous driving, but there is demand for the HD Map for better digitalization standard in navigation functions which is quite exciting for us because it gives us a way also to generate revenue from those early investment. So what you can do is an HD Map is given much more accurate representation, visual representation, around vehicle and that helps with building a clear user interface, that’s easier to understanding, givers the driver more special awareness. So for those type of applications, we see some demand developing already.

And then I hand to Taco for the last question with regards to financials.

Taco Titulaer

Yeah, comments on OpEx and CapEx and just to add to what Harold’s comments on deferral as we have guides for automotive to grow with roughly 20% this year, so then you end up at bit north of 1.25. I expect the amount of deferral to be north of 30 million only this year. So if you would look at operational revenue for automotive, you could add those two together.

For CapEx, we’ve guided that it will go up this year. If you exclude the acquisition CapEx we saw last year, we had 108 million of CapEx last year and the guidance is that it will go up with roughly 15% to a level 1 to 5.

For OpEx, we set single digits increase. I think it is - it’s still single digit but it’s probably more in the 6% to 7% range for the full year. And the indication for next year, I would like to answer in a couple of months from now when we have seen the full results of 2016 and we have a better view of our 2017 what will look like.

Francois Bouvignies

Okay, thank you. And just on the HD Map, the timeline I mean do you think you are going to for next year or in two years the momentum has development will translate into booking or how should we think about the timing just to have an idea?

Harold Goddijn

Well for self-driving, you’re looking into not before, any time before 2020 I don’t think. And that’s in line with what you read from the car makers when they want to introduce their self-driving technologies.

Francois Bouvignies

Okay, thank you very much.

Harold Goddijn

And I think we also need to point out that in the Tesla case what has been announced is to equip the car with the hardware not necessarily with all the software that’s needed for level-five self-driving levels. I think that will take some more time.

Francois Bouvignies

Okay, thank you.

Operator

We will now take a question from Andrew Humphrey from Morgan Stanley. Please go ahead.

Andrew Humphrey

Hi, thanks for taking my question. Maybe a couple on the PNDs if I may and then one on mapping. On PNDs, I wonder if you could give us an idea of how you view shorter term market prospect by which I mean over the next two to three quarter there. Are we looking at an issue with product cycle or is it broader based market demand and then what should we expect the deep view things over coming quarters?

And secondly, whether you can quantify the impact that FX has had on ASP that is a year ago?

And then finally on mapping and automotive, and the differed revenue you’ve highlighting it will be useful on how you see that developing over the next year or two, really there is a long lead time on these deals and the deals that are being sign today, you might not see shipping unit and sales for 2018 and 2019, so if we may see a couple of years with differed revenue going up, if you could give us more detail on the dynamics around that, that would be great.

Harold Goddijn

Yeah, so - yeah, thanks for those questions. So PNDs were weak especially in the last quarter with you know with quietly deeper decline than we had anticipate. The market decline in 2015 was actually quite benign, it was single digit numbers and that has accelerated a decline 2016. We expect for the lack of further insights that decline to continue at 20% for the fourth quarter of this year and probably also into the first quarter of next year.

So the FX question, I differ for Taco, but we’d be hit by the found, obviously that has some effect. Then automotive revenue, so what you will see over the coming years is that automotive revenue based on IFRS will increase and that trends will continue and that’s based on the order intake of past years and delivery schedules that we’re working toward that we confident that will lead to a growth in the automotive revenue in years to come.

When we - so the deferral of income has nothing to do with the introduction date, but that is when a car leaves the factor with our products, we charge certain amount of money for maps and services and traffic but only a proportion of that revenue can be recognized in the P&L. And a very significant proportion, I think it need to be 25% of that income used to be differed in line with IFRS rules and we’ll then come through to the P&L for typically in a period of three to five years.

Taco Titulaer

So the - so if you look at FX, it’s mainly the sterling that had an effect, so in consumer alone the effect is roughly a bit north 3 million this quarter and the remainder is in Telematics south of 1 million. Automotive and licensing are not really impacted by sterling.

ASPs in the PND category year-over-year we’re flat or even the bit up. So the volume was the main driver or the only driver actually of the revenue decline.

Andrew Humphrey

Thanks very much.

Taco Titulaer

Okay.

Operator

We take our next question from Marc Zwartsenburg from ING. Please go ahead.

Marc Zwartsenburg

Yeah, thanks for taking my call. Few questions left. I wonder, first going back to the order intake, we’ve seen a number of 220 for ‘14, a number of at least 300 for last year and we’re above 200. What I am trying to understand a bit is of course I understand that it is less in the market that you have a lower order intake but I want to get a bit feeling what is a normal year on average say over an automotive cycle in terms of numbers of RFQs and if you would say we have a stable market share in RFQs, should average say the last three years or should - is it a doubt the nonsense way of looking at order intake. Can you give a bit of feel and just not willing to share the pipeline or the expectations in terms of RFQs for next year and wait for the full year results, but to get a little bit of a sense for how we should look at that towards the future that will be very helpful, so if you could help there?

Harold Goddijn

So the - by the way the 200 that we published now is for the first three quarters and the 300 you related to was for the year as a whole last year, so just to be clear there. Yeah, so the - it’s all that easy to give you a prediction of the size of the available market. Really you know we’ve seen steady increase over the last couple of years in our total bookings. This is in terms of the total demand for our services, the addressable market was another great year in the sense that it was at an offer. But I think we are doing okay in line with our expectations in terms of what we can win and what we have won so far. I think that’s the only think I can say at this stage.

Marc Zwartsenburg

No, of course I understand and indeed it looks from number of RFQs in the market that need your market share is probably either rising but I want to get a bit of a feel for whatever it’s remains at this level, what is sort of a market in general over longer periods. So if you catch up your share, isn’t then sustainable to have at least 200 million of order intake in the certain year, is it - your order intake has been rising over the years but maybe even the line market have that stage stable that you’ve been gaining market share. I just want to get a feel because we don’t have the order books and the RFQs in addressable markets for past four years but I kind of what to get a feel for that whether market as a whole has remained rather stable and that it’s also a good proxy and planned for the new four years to come?

Harold Goddijn

Well, it’s definitely true that we have been winning market share in the last three, four years. Our order intake total has nearly travelled in the last three or four years I think, so we are getting better, we are winning market share. What we’ve seen of course here being our own years, but the German car makers that will make it more difficult to win business from German car markers with that all impossible but we expect that the bulk of their orders will not be available to us. But that also means that there are better opportunities for us to grow outside of that market and we are seeing that at the moment.

There was a clear market win with Volvo for incidence which we not been serving in the past and it was very significant win both financially but also strategically an important step for us to be able to get into that account. I think we will more of that. We’ve seen last year Nissan coming our way which was a new one. And you know I think that will continue, that will continue in 2017 and beyond.

Marc Zwartsenburg

Is there any indication from larger OEMs which are either client not yet client that are scheduling big mobile overhauls for next year because that’s the natural moment that you would up for a total overall your mapping and infotainment systems. Is there anything out there that already see and that will bring an indication for next year’s RFQs whether that the years looks promising?

Harold Goddijn

Well we have that externally but it’s - we have those particular internal but they are acquired globally and lumpy because their indications, estimates from our side, we often see their things are not developing exactly in line with our expectations, so I don’t think it will be good for us to give you guidance on those internal judgments. I think it’s - that wouldn’t be good. But I think generally speaking what we're seeing is market share wins in the last couple of years, we've repeated that this year with specific accounts, we're on the right track to continue to grow.

Marc Zwartsenburg

Okay. And in terms of your cooperation with NVIDIA what that also are also in the Tesla, would that strengthen your relationship there would have begun in relative with Tesla, can you give us any feel what the trend and the developments are with Tesla?

Harold Goddijn

I can’t give you specifics on Tesla unfortunately. I think the fact that we are getting better involved in the North American market is about with significant wins not only with carmakers, but also with tech firms what we showed you last year.

Marc Zwartsenburg

As you do already provide some services to Tesla, is that correct or not?

Harold Goddijn

I can't comment on that.

Marc Zwartsenburg

Okay. And final one, SG&A looking to your Consumer segment and the shrinkage there in PNDs, I assume that you will take quite some measures there to take out costs for next year. Would that imply that for next year and we now might end up in a high single digits OpEx increase given the current pipeline in Automotive in a work you budgeted there, would it imply that it will for next year at least look a little bit better on the OpEx line, because you can squeeze out some cost from the Consumer segment?

Harold Goddijn

We're not going to comment on that. We want to wait for the end year results and to have internal planning finalize and we’ll give more guidance during our February results.

Marc Zwartsenburg

Okay, so we shouldn’t extrapolate the Q4 guidance to next year?

Harold Goddijn

I can't give any guidance.

Marc Zwartsenburg

Okay, okay. Fair enough. Thank you very much.

Harold Goddijn

Okay, welcome. Thank you.

Operator

Our next question is from Andrew Hayman from Independent Minds. Please go ahead.

Andrew Hayman

Hi, thank you. In terms of the HD Maps, you have 200,000 kilometers map now and presumably you've done that to show your automotive clients what you're capable of. For the next step, I mean you've got obviously a lot of mapping that still needs to be done. Are you planning to do that by yourself and is that feasible or you very much looking for partnerships there?

And then a second question maybe on the Sport segment, I was wondering how you build or differentiate your products there, I mean in terms of the sport watch, initially you’ve partnered with Nike and then you went your own route, but if we look at the outdoor watch now the fitness tracker and the action camera, you - there's - in all three of those markets is very much an established player there. So how are you building your position in those newer areas for you?

Harold Goddijn

Okay. So first on the mapping side, yeah we have done quite a good coverage for customers to show not only our capabilities, but also for our customers to test and give us feedback on that product. So we can work on detail specifications. At the same time there's we're going on to achieve high levels of automation, you also need to read partly the partnership with NVIDIA is to achieve those higher levels of automation.

We are hopeful that that map making process for HD Maps can be automate fully or that at least to a very large extent and with the new technologies including the type of computers that NVIDIA is building computer vision, artificial intelligence deep learning, we believe it is possible to achieve much higher levels of automation enhance efficiency than what we currently can achieve. So it’s an ongoing work, and we need to do that of course, because maps are never good enough and productivity is a key metrics in the map making business and we’re working hard on that.

So does that answer your question Andrew on the mapping side?

Andrew Hayman

Yeah, just some maybe one clarification, with the NVIDIA partnership, at the moment, it's the NVIDIA solution that's going into your own mapping vehicles, am I correct with that? and then obviously there's a much more potential if the NVIDIA solution starts going into cars with some sort of assisted driving, is that the way to think about it?

Harold Goddijn

Yeah, that's a way to think about it. Yeah.

Andrew Hayman

Okay.

Harold Goddijn

And what we offer the carmaker of course lot of platform is digital maps, high definition maps would also accurate positioning which is a technically a problem for the market it needs to be solved.

Andrew Hayman

Okay, great. Thank you.

Harold Goddijn

Okay. And then on Sports business, you're right, there is a competition and we are not the first of the market, but we are quite happy with progress we’re making. And I think we're building a nice ecosystem of applications, websites and devices that has great potential not only for today's type replications, but also has more to do in that space. And the link from sports to wellbeing potentially housed can be further developed.

We’re happy with the progress. We’re happy with the stickiness. We see that customers actually using our products for a long period of time, interacting frequently, we building up of all knowledge, and statistics and data that we think will help us to design a next generation products and services around sports, health and wellbeing.

Andrew Hayman

Okay, great. Thank you very much.

Operator

Our next question comes from Shyam Kumar from TT International. Please go ahead.

Shyam Kumar

Hi Harold. Can you talk a bit about I guess ADAS the middle of road between map to navigation self-driving cars that you said is the 20-20 type phenomenon. When will that start, when will ADAS start to impact the business in terms of the size of orders coming through and in terms of revenue?

And secondly, does the HD Map help facilitate more advanced ADAS capabilities as well. And thirdly, how much more do you make when a car is sold with some with ADAS component please?

Harold Goddijn

Yes, so ADAS is there, ADAS is real, it exists and we’re selling it. And ADAS is used in various applications. So including motor management, braking, and there's a whole range of applications car made, electronic arise and as all range of applications where ADAS data are used for, we’re selling that already and typically that commands a premium over a non-ADAS enable map. And a premium you need to think about 15% to 20%.

Shyam Kumar

Okay.

Harold Goddijn

Your way to collect ADAS features is very much in the same way as we get the HD Map. So wherever we have HD coverage, the ADAS attributes that we have are a not a free buy product, but a very cheap bye product of our AG mapping efforts, which we have been able to automate to a very high degree at this stage.

Shyam Kumar

Okay.

Harold Goddijn

There’s no free, but ADAS and HD are very closely linked and we have HD, you also have ADAS attributes.

Shyam Kumar

Okay, but it does, your current standard map it's sufficient to obviously deliver ADAS as the technology that this current level?

Harold Goddijn

Yes, it is.

Shyam Kumar

Okay. And look the kind of penetration rate of ADAS sales and how fast is it growing because I imagine it it's quite a low penetration technology at the moment.

Harold Goddijn

That's right. It is early days, but it is becoming mainstream, we can see that from the RFQs and the RFIs approved receiving, so you will see a fast uptake of ADAS features in the higher segment in the mid-range segment in the coming years and that is - that's going to be mainstream in volume in 2017 maybe 2018 - 2019.

Shyam Kumar

So in terms of when will the benefit of that I guess, it will first speed through into your order book before it speeds through into revenue base, right so when with that start benefiting the order book please?

Harold Goddijn

Well you can see it already in the - and this year there is not all of those contracts we’ve done are including ADAS features but there is some contribution from ADAS features in the order book for this year, last year the same thing, that took my mind which percentage but I do know that we did sell or took orders for ADAS features in 2015. And now again in 2016 and I think the penetration for ADAS will go up in Q4 and years to come.

Shyam Kumar

Okay, perfect. And can you talk about - sorry, when you said the penetration of ADAS goes up, you mean in terms of that coming through the orders or in terms of the revenues?

Harold Goddijn

Both.

Shyam Kumar

Okay, fine. Okay, good. And in terms of Licensing and Telematics, in Licensing obviously going flat this year, any kind of interesting growth drivers on the horizon there? And also on Telematics if you can just kind of give us some comfort to why kind of double digit growth rate is sustainable going forward and what are going to be some of the key drivers there please?

Harold Goddijn

Yeah, I think for Licensing, we’re working on some interesting thing but I think it’s too early to give you more indication of what it will mean for the P&L, but there are new opportunities opening up and that’s also driven by the fact that all of companies are use location based services don’t feel comfortable with the current vendors. So I think there are opportunities to there. It’s a bit early to talk about more detail and what I can do now.

Telematics, I think is there is some exciting stuff going on in Telematics, so we are working in the last years to kind of explore the world of both UBI, so user based insurance, as with also connected car services for other than fleet management. And I think both those opportunities will start to materialize in 2017, it will start to contribute to growth in a segment that we didn’t offer before.

And when I say connected car services, you need to think about leasing companies, dealer organizations, and insurance companies who want one way or another want to get data about vehicle to use it for verity purposes. We see it as a trend and those are typically deals where ASPs are lower than for web fleet where the value-add is higher, but also significant volume involved.

We’ve learned a lot about at segment and I think 2017 will give first indications tangible prove that we are penetrating that market with our product portfolio.

Shyam Kumar

Perfect. And just last one, in terms of I guess the consumer in the hardware business given the growth in the software and the services business, is there any logic to separating out that business, maybe disposing it or doing a management buyout with the divisional management of that business?

Harold Goddijn

I can’t speculate on that Shyam.

Shyam Kumar

Okay, fine. Okay, that’s great, thanks Harold.

Harold Goddijn

Yeah, thank you.

Bisera Grubesic

Thanks Shyam. I would like to thank you all for joining us this afternoon. We are closing the call. If you have any questions, please do not hesitate to contact the IR department. Operator you can close the call now.

Operator

Thank you. Ladies and gentlemen just to confirm, this now concludes today’s conference call. Thank you for your participation. You may now disconnect.

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