Good day, ladies and gentlemen. Welcome to the TomTom fourth quarter and full year 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. At which time, if you would like to ask a question, you may do so by pressing star one on your telephone. If at any time during the call you require audio assistance, feel free to press star zero and a conference coordinator will be happy to assist you. Please note that this conference is being recorded. I will now turn the call over to your hostess for today's conference, Jacoline Overdevest , investor relations officer. You may begin.
Thank you, operator. Good afternoon, welcome to our conference call, during which we will discuss our operational highlights and financial results for the fourth quarter and full year 2016. With me today are Harold Goddijn, our CEO, and Taco Titulaer, TomTom's CFO. You can also listen to the call on our website, and a recording of the call will be available shortly afterwards. As usual, I would like to point out that Safe Harbor applies. We will start today's call with Harold, who will discuss the key operational developments, followed by a more detailed look at the 2016 financial results and the financial outlook for 2017 from Taco. We will then take your questions. With that, Harold, I would like to hand over to you.
Thank you, Jacqueline, welcome, ladies and gentlemen. Thank you for joining us on today's earnings call. We've delivered on our updated 2016 guidance, with revenue of EUR 987 million and adjusted earnings per share of EUR 0.23. We are shifting towards high-margin software business, which now reflects nearly 50% of our revenue mix and more than 70% of our gross result. As a result, gross results grew strongly this year with 9%, and gross margin grew to 57%. Taco will provide further information on the financial highlights and the financial outlook for 2017 later during the presentation. I will now discuss our key operational highlights and strategic priorities. Our automotive products continue to do well, that resulted in order intake for 2016 of more than EUR 300 million. Order intake from previous years now are starting to deliver a strong revenue growth in automotive.
We're working with the majority of automotive OEMs and Tier 1s to integrate our high-definition map product samples into their self-driving systems. We acquired earlier this year an autonomous driving startup with around 35 employees, of which a majority holds a PhD in fields that are of key importance to autonomous driving, such as artificial intelligence, neural networks, robotics, cognitive location analysis, computer vision algorithms, signal and information processing. We have acquired a vast amount of technical expertise that will be of value in the further development of our location technologies. In the quarter, we partnered with Lucid Motors and entered some smaller contracts with Tier 1 and Tier 2 suppliers, including Digen, through which TomTom maps, software, and services appeared in models for Mitsubishi. The innovative nature of our products was recognized by Fiat Chrysler, who gave us an award for Innovation Supplier of the Year 2016.
In licensing, we announced a partnership with Microsoft to integrate our APIs into the Azure platform. Our technology will power the location component of the Azure intelligent cloud. This partnership opens up a large market of enterprises and software developers who are already using Azure for application development. We also expanded existing agreements with MapQuest, Pitney Bowes, and SAP. Telematics business has continued to grow throughout 2016, reaching nearly 700,000 subscribers by the end of the year. This growth has been realized organically and represents a 15% increase compared to the end of last year. Our consumer business is transitioning from a declining PND market to a growing sports business. In 2016, we shipped over 1 million sports devices. To confirm our commitment to the sports business, we introduced TomTom's sports brand and advertising campaign to encourage people to get going and live healthier.
Moving to the next slide, let me give you a short update of our strategic priorities. Over the year, we have advanced in maps, online services, including traffic and navigation software. These location-based applications are licensed through our automotive business to automotive customers and to non-automotive customers through our licensing business. Given the similar nature of the products, we have decided to combine automotive and licensing business going forward from a strategic and reporting point of view. In automotive and licensing, we aim to grow through technology leadership in real-time mapmaking, traffic services, application software, and a wider range of location technologies. New growth opportunities in ADAS and autonomous driving are now materializing. Within telematics, we continue to grow our fleet management business and new connected car services, such as vehicle leasing, will start to contribute to top-line growth in 2017.
We expect to increase our market share as the leader in a fragmented European market. We will capitalize on our scale by continuing to invest in our connected car platform to provide new APIs that will form the basis for accelerated product innovation. We will continue to nurture and grow our partner ecosystem software developers who help us to enter new markets and are adding depth and breadth to our service offerings. As I mentioned earlier, consumer is transitioning from a declining PND market to growing sports business. We have established a robust and growing consumer sports category, and we will invest for further growth with the ambition of being the number one sports wearable brand in Europe. As well as having growth potential, the sports category is a good fit with the brand and our capabilities in smart devices with associated cloud-based applications and smartphone applications.
We will exploit niche growth opportunities in the drive sector, such as our bridge driver terminals for businesses, which take advantage of our device platform and capabilities. To summarize, we feel we are well positioned to capture growth opportunities across our automotive licensing, telematics, and consumer businesses. Many of those growth opportunities are driven by big trends, including connected car, autonomous driving, smart cities, and wearables. This concludes my part of the presentation. I hand over to Taco.
Thank you, Harold. I shall now begin a more detailed look at our financial results. I will mainly focus on the full year results 2016. In 2016, we delivered revenue of EUR 987 million, 2% lower compared with last year. Automotive, telematics, and consumer sports grew strongly, partly offsetting the reduction in consumer drive revenue. With 40% of the group total, consumer drive remained the biggest revenue contributor for the group. This percentage was 48% in 2015. Automotive revenue was up by 25% to EUR 133 million this year. This strong 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 EUR 59 million at the end of 2016. This contributed to our strong cash generation during the year.
Licensing revenue decreased 4% year-on-year to EUR 136 million, and telematics revenue was up by 15% year-on-year to EUR 155 million. The recurring subscription revenue for the year increased with 21% to EUR 118 million. Recurring subscription revenue represents 76% of the total telematics revenue, and that is up from 72% of the total in 2015. Consumer products revenue decreased by 9% to roughly half a billion in 2016. This decline was driven by lower PND revenue, which was partly offset by a strong growth in sports revenue. Sports revenue amounted to more than EUR 100 million in 2016, and that represents an increase of 53% compared with last year. The consumer PND markets were weak during the second half of 2016. The European PND market experienced the faster rate of decline compared with the first half of the year.
The market in units was down by almost 20% for the year as a whole. As Harold already mentioned, despite the modest decline in our group revenue, we have seen an increase in our gross margin and our gross results this year. High margin software business now reflects nearly 50% of our revenue mix and more than 70% of our gross results mix. As a consequence, our gross results grew strongly this year with 9%, and our gross margin increased to 57% of total. Operating expense for the year were EUR 557 million compared with EUR 518 million in 2015. The year-on-year increase was driven by higher amortization cost, which grew with more than 20% to EUR 123 million in the OpEx lines.
2016 EBITDA grew by 14% year-on-year to EUR 141 million and EBIT amounted EUR 9 million versus only EUR 1 million in 2015, reflecting the higher gross results, partly offset by an increase in OpEx. The net result for the year was EUR 12 million, which translated in an adjusted earnings per share of EUR 0.23 on a fully diluted basis. Free cash generators amounted EUR 35 million in a year. At the end of 2016, we reported the net cash position of EUR 133 million, and that is up from EUR 98 million at the end of 2015. The cash flow used in investing activities was EUR 120 million in the year. This is a decrease of EUR 34 million compared to last year, which include two acquisitions of combined EUR 42 million. Investments in 2016 relate to our transactional mapmaking platform, the map database, and automotive customer specific projects.
Let me go to the next slide, the automotive order intake. What we show on this graph, is the automotive order intake since 2013, in the gray bars. We compare that with the reported automotive revenue and the addition to the deferred revenue on our balance sheet. What I want to highlight here is the development of the order intake and the translation thereof into recognized automotive P&L revenue and the net deferred revenue on the balance sheet. Recognized revenue together with the net deferred revenue on the balance sheet represents the total operational revenue in a year for automotive. For example, adding recognized revenue of EUR 133 million and a net deferred revenue of EUR 36 million for 2016 totals EUR 169 million in 2016. If you compare that with the operational revenue of 2015 of EUR 160 million, this represents a growth of 46%.
In 2017, we expect to report an automotive growth of more than 20%. Together with the addition to deferred revenue on the balance sheet, this will present an operational revenue of above EUR 200 million. Order intakes from 2014, 2015 and 2016 will continue to contribute to a strong growth of our automotive business in the coming years. It will deliver growth to our recognized P&L revenue, but also it will continue to increase the automotive deferred revenue balance. The last slide, the full year outlook of 2017. As already communicated in the press release, we expect revenue of between EUR 925 million and EUR 950 million. The adjusted earnings per share is expected to grow to around EUR 0.25, and we expect a combined revenue of automotive licensing and telematics businesses to grow above 10% year-on-year in 2017.
This is in line with our previous expectation 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 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're investing in advanced content and software for the automotive industry and in our mapmaking activities. This concludes my part of the presentation. Operator, we would now like to start with the Q&A session.
Certainly. If you would like to ask a question, please press the star or asterisk key followed by the digit one. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, that's star one to ask a question. We will take our first question from Francois-Xavier Bouvignies from UBS. Please go ahead.
Hello. Thank you for taking my questions. I have a couple if I may. The first one is on your PND performance, obviously in 2016, which were lower than expected, at least based on numbers. Given the outlook in this business, what should we expect in terms of actions in 2017, that you could make? What is your strategy for this business, going forward, given the trajectory of the growth? The second one is on the M&A strategy. You acquired a new business recently. Do you need to acquire more businesses in 2017 and beyond? That's the second one. The last one is on the order intake. Can you give a maybe qualitative comment around your number, like market share, ASPs? How do you see it going forward as well? Thank you very much.
Yeah, thank you very much. First let's have a look at the PND market. It is a declining market. It's been a declining market for a long time. We continue to play in that space. We run that, a profitable operation. We bring and we have brought our costs in 2016 in line with the new market size. We expect that the market will continue to decline in 2017 and beyond. What we will do is we'll bring the costs in that segment in line with those new realities.
M&A strategy. We've nothing planned for 2017 or beyond. There's not something that we want to acquire or where we are on the lookout at this stage. We continue to look at opportunities for telematics. As you know, we've done it in the past. We've acquired four businesses. If and when there are other opportunities to make a deal in that space, we will look at that very carefully. Otherwise, we don't have anything planned. The third question was about order intake for automotive?
Yes. Maybe your market share, how do you see it evolving and the ASPs and the trend of the market? Okay, thank you.
Yeah. Market share, I don't know, to be honest, because we don't have the full picture. There's no external party who is charting the size of that market. It would be highly speculative for me to give you a number there. I think the trend is that we are increasing our market share. You've seen that in 2016, where we continued to grow. I think we are on the right track there. ASPs, we see two things in ASPs. We see the prices for maps as standalone products coming down slightly. We also see increased demand for new services and products, and that includes software, mobile phone applications, update services, traffic services, parking services, and so on and so forth. The total available amount of money per car is actually going up. Thank you.
Okay, thank you.
We will now take our next question from Martijn den Drijver from NIBC. Please go ahead.
Yes, good afternoon, gentlemen. With regards to your CapEx, OpEx in 2017, can you share with us if that assumption includes or is based on the current client roster, or is that already taking into account the assumption of contract wins? That would be question 1A. If you look at automotive and your ambitions for market share gains, and I think that you mentioned, Harold, 45% or 50% longer term target, how should we then think of CapEx, OpEx going forward? Do you expect it to continue to increase given that for each large client that you win, which is only logical if you have to get to the 45%, 50% market share, do you expect that then OpEx, CapEx to continue to increase, or are there some learning effects or other elements that could bring the increase to a lower level? Thank you.
Let me take the last question first. If you win an automotive deal, a couple of things happen. Typically, if you sell the full stack, you sell maps, compiled maps, software applications, services like traffic, and that's it. Then, of course, you need to provide integration services as well to get all that software running on a head unit. The only variable bit, in principle, is the integration service, which is a small proportion of the total deal size. The amount of money we need to spend per car to get that software running on a specific head unit is typically coming down. That is because the quality of our components is better, and we've done it before. We have incorporated features and functionalities on demand of our customers, and we can resell those.
It is a highly scalable business. The same is true for traffic services and other services. Sometimes, we need to do something extra in the map because a customer is selling cars where our coverage is subpar. That doesn't happen very often, but it does happen, and then we need to additionally make some cost in additional map making or improving certain map elements or attributes. In principle, the automotive business is highly scalable, except for integration services, but those integration services are a small proportion of the total deal size.
Martin, to answer your first question, we have an unallocated part in our planning for deal wins. That means that if the structure or the size of the deal wins is more complicated or larger than we have anticipated, OpEx and CapEx can be higher and the other way around.
Okay. To put that differently, if you win a total Toyota North America, we're looking at higher CapEx OpEx. If it's a contract like Digen, you'll be fine. That's the way to look at it?
It depends. It's not always volume-based. It is more what the customer asks for. Is it a standard map or is it a map plus software or map plus software map updates, et cetera? The size of the opportunity, there is some form of correlation, but not necessarily.
Okay. A final question for Harold. At the TomTom Tech event, you guys have been very open about the competitive advantage that you have relative to HERE. Harold was saying that you've tried a couple of times, but you have it right now. You have a competitive lead, if you will, for around three years. Recently, there have been a number of announcements by HERE with partners like Mobileye. I know that these are just announcements of partnerships, but do you feel that your competitive advantage has slipped or may slip, or do you feel as confident as in November?
Yes, I do. I don't think that our competitive advantage is slipping at all. I'm confident that we have that lead and that we continue to build on that. I don't think those announcements that you talk about make any difference to that competitive position. No, we feel good. We feel good not because we want to feel good, but that's also what our customers are telling us. Our customers are giving us strong indications that we have a good grip on HD maps, on real-time mapmaking, traffic information, all things that matter. We do have that edge. I think we will continue to accelerate that rather than slow down, because now we have that platform in 2017, we can start building on top of that, and that will lead to higher degrees of automation, reduced cost, reduced cycle times.
That real-time map is becoming a reality.
Okay. Thank you very much, gentlemen.
We will now take our next question from Marc Hesselink from ABN AMRO. Please go ahead.
Yes, thank you. Firstly, on the order pipeline for automotive. You've said in the past that 2016 was a bit more quiet year versus 2015, still signing up a similar amount of orders. What is your feel for this year? Are there a lot of contract awards in the market this year?
Yeah.
Yeah, sure?
Yeah. No, that's what we said, 2016 was a small year in terms of available order size. 2017 will be bigger.
Okay.
The RFPs that are available in 2017 in aggregate are significantly higher than what was available in 2016. Doesn't mean we've won it, but the opportunity is bigger.
Okay, that's clear. Then second, actually a follow-up on those partnerships. Like you said, didn't really impact the competitive advantage at the moment. Is this kind of partnership, is that something you're thinking about yourself as well? Do you think you have an advantage if you stay relatively standalone in developing this?
No, we have no desire to be standalone, and we're not standalone. We are part of that ecosystem. We have partnerships with a number of companies in that space. We are expanding those partnerships. It fits in our vision of a more open industry that is driven by standards, and I think we are fully embracing that. I don't see any strategic shift or any issues.
Okay. Final question is on more your view on cost in the medium term. You had a step-up of cost in 2016. Now in 2017, you have the benefit of consumer costs coming down, but the rest is still up. I think there's sometimes a fear in the market that you will continue to have invest quite heavily for all these new functions in automotive. Do you have a bit of a feel on whether you think if there's a continually high cost growth environment or that it is more modest in the medium term?
You see the order intake in automotive. I think that speaks for itself. You see new partnerships, including the one with Microsoft, which is important. We've indicated that we will grow 15% per annum, those business-to-business activities for the next four years. That means that from 2016, that revenue was about EUR 425 million combined. That will grow by 2020 to about EUR 750. That will give you that 15% CAGR. That is very high gross margin revenue, with an average gross margin of 85%-90%. We see very significant growth there.
We will increase over the years some of our OpEx and some of our CapEx, but nowhere near what we're seeing in top-line growth in the next four years.
Okay, that's clear. Thanks.
We will now take our next question from Marc Zwartsenburg from ING. Please go ahead.
Yeah. Thank you for taking my questions. First question, could you give us maybe underlying EPS for 2016 if you would have not have deferred revenues or IFRS? Could you give us an indication of the underlying profitability, please? My first question.
Yeah. Can you give also the second question then?
Yeah, I've got multiple. Well, maybe the second one then. If you look to your OpEx and cost of sales, there seems to be a step up in your amortization in there of technology. Could you provide us what the impact was on Q4, but also how you look to 2017? There will be a step up again, I presume, in the amortization. Can you give us the split how that phases into both cost of sales or in the OpEx? Maybe comment also then, if you strip it out and just look at OpEx excluding these kind of non-cash items, what then the direction is of your OpEx, because I still hear a lot of questions about operational leverage and your OpEx growth versus your top line. If I'm not mistaken, you're out if you strip that out. The OpEx growth is actually quite modest.
Maybe also in relation to your EPS guidance, how much was the impact of this amortization on that front? I know you adjust for it, but it always has some impact. That's my second question, which is quite complex.
Okay. We've broken out the amortization in our press release. I'm sure you've seen that.
Yep.
The total amortization in 2016 was EUR 132 million. If you only look at the OpEx part, that was EUR 123 million, and that represents a 21% growth. There's nothing in there what we would identify as an extraordinary item, and that makes us feel that we need to highlight it more than we're already doing.
There seems to be an acceleration towards the end of the year. Is that correct?
In this case, that is the case indeed. That is not structural. Apart from that, the underlying amortization will continue to go up also next year. The guidance for next year is that we will see another EUR 10 million-EUR 15 million increase of our combined D&A line for 2017. I don't want to go to earmarking all kinds of incidentals in every quarter. It is more the bigger trend that's happening in our D&A line, and that is in continued growth, and that is just following the growth that we've seen in the CapEx line over the last year.
This EUR 10 million-EUR 50 million is all in D&A, nothing is in cost of sales?
It's all in D&A. It's not all in OpEx. The cost of sales part is EUR 10 million-EUR 15 million max.
Okay. The first question, could you perhaps answer that one first on EPS adjusted for deferred for 2016? Do you have that number?
I think it's a EUR 0.04 negative impact for the full year.
We had to add EUR 0.04, that's what you're saying, to adjust for the deferred. Sorry. Hello?
We're there, Marc.
Sorry.
We're adding EUR 80 million to the balance, right?
Yeah.
The EUR 80 million that we're adding to the balance, that's high margin business, and that you need to divide that by the outstanding shares. If that's roughly 240 million shares, that represents EUR 0.04.
Okay. A question on deferred revenues, the guidance, because there's a bit of a mismatch now between your P&L numbers and your cash flows because of all these deferred revenues. Can you give us any indication what would be, you're already giving some guidance on deferred revenues for automotive in 2017, north of four years. What was the number? Can you give us an indication of the impact you would have on your cash flows next year from capitalizing all that and releasing it?
Yeah. If you look at the line by line, I think telematics is probably more or less worse or maybe an increase in the deferred position, but that will be single EUR millions. Consumer will start to release on the deferred revenue line. For automotive, we expect a large increase. That increase, we expect that will be more than the increase that we saw in 2016.
Licensing?
Licensing is more triggered by seasonal patterns and customer payments. There is no underlying trend there.
Okay.
Similar to telematics.
If we add it all up, it comes down to the automotive part, which we should add to your cash flow.
Yeah. Ballpark numbers, let's say, a release in consumer of EUR 15 million and an increase of automotive of EUR 50 million makes an increase in deferred revenue line of EUR 35 million.
Yeah. Okay. That's clear. On the gross margin, what are your expectations there going forward? The mix is improved.
Yeah, exactly. It is the clear trend to where consumer used to be 48% of our group mix in 2015. We think that will decline to one third of the group mix. That will have an impact on our gross margin, together with the continued increase of, especially automotive. We're confident that we can pass the 60% for a full-year basis in 2017.
You have the.
The years beyond that, I don't want to give too much concrete guidance, but the trends are obviously towards a further strengthening of the gross margin.
Yeah, would you say for 2017, you can see maybe already a 4% or 5% increase, or is that a bit too wild, given the deferred part of revenues?
What I said. We reported a gross margin of 57%, and we're comfortable enough to say that the gross margin for 2017 will start with the six.
I have one more here. The cash out for acquisitions expected in the first quarter, what should we take into account? That payment is still due, I assume.
It's something like EUR 25 million.
Okay. The last one, coming back to the HERE analysis teaming up also with NVIDIA. I think also there was some questions on the Capital Market Day in November, where people asked for the exclusivity of that contract, and it wasn't at that stage, that was the answer. It also seemed a bit like it was rather exclusive or not going to be as competitive. We see the news of HERE a few, two months later that they're also teaming up. How do you see that also HERE is in there with NVIDIA? How do you look to those kind of news items? How does it impact you?
As I said, it's a big industry, a lot of players. NVIDIA wants to play an important role as a computing platform in the car of tomorrow. I think what is very interesting for us is that the relationship is very good. We have defined joint research and development programs. The DRIVE PX 2 platform will come with standard sample maps, high-definition maps of TomTom included, so software developers can start playing with that and see how it all works in practice. Cooperation is developing nicely, and I'm very happy with the partnership, and we will continue to nurture it.
Okay. All right. Those were my questions. Thank you very much.
Again, as a reminder, to ask a question today, please press star one. We will now take our next question from Andrew Humphrey from Morgan Stanley. Please go ahead.
Hi. Good afternoon. Thanks for taking my questions. I have a couple on autos and one on consumer, if I may. Looking at the profile of the orders you've been announcing over the last few years in autos and the target you've given us there for EUR 200 million of revenue, I'd like to understand, could you reach that EUR 200 million effectively without signing any additional orders from today? What scope is there for growth beyond that figure, I guess, is how I'd phrase it. Secondly, on the autos business, I'm conscious when you announce booked orders, there are a lot of assumptions on pricing, attach rate, and the like that go into those order book numbers. Any additional that you could give us around that would be great.
My third question on the consumer business is, clearly it looks to me from the guidance you've given as though that's where the bulk of the downside is this year. There's clearly also a material decline in the automotive hardware business that goes into the consumer segment factored in there. My question on that is, to what extent are we kind of getting into the territory of the law of small numbers with that automotive hardware business? And how much conservatism is baked into your assumptions about that PND business, which is obviously still somewhat more material there?
Yeah. Okay. Thank you. The first question is, can we reach EUR 200 million revenue without signing up any orders? The answer is yes, we can. Then, automotive hardware in consumer. Yeah, it's a bit of an old one. We did a deal, I think it was back in 2009, if I'm correct, where we started to sell hardware to one of our customers. We have long since decided to stop doing hardware. This is the tail end of that contract that will run down. It has actually a much longer shelf life than everybody had expected, but it is running down, and I think that will come down completely in 2019. That is the current planning. From 2019 or 2018 even, I think, it will come down completely to zero.
That is automotive hardware that's reported in consumer side, and it carries not a high margin there, which was one of the reasons to stop it in the first place. When we communicate the order book and the order intake, we base ourselves on the numbers that are provided by us in the RFQs from the car makers. The car makers obviously give us the numbers both based on their own planning. Traditionally, those plannings are reasonably accurate, and often somewhat on the conservative side. They are not 100% accurate, but for planning purposes, they are good enough in our experience. The last question.
About the prospect of any material difference in the PND business from what you're currently assuming.
No, yeah. At the end of the day, we don't know. The decline was faster in 2016 than we had anticipated and what we could anticipate based on historical numbers. The decline in 2015 was very benign, was a bit more aggressive, and especially in the second half 2016. We continue to plan based on that more aggressive scenario for 2017 and beyond.
Thanks. That's great.
Within the category, there are some growth areas as well. We do a motorcycle product. We do a programmable terminal for business applications. Those are, in that mix, are growing quite nicely. They don't represent a very large number, but they are growing. We can play in that space because most of the technologies we have to develop anyway, we are developing for automotive customers, reporting them on a PND, package them, if you like, on a PND for those type of applications and markets.
Great. Thank you very much.
We will now take our next question from Shyam Kumar from Kuvari Partners. Please go ahead.
Hi there. Can I just follow up on consumer? I guess, given it's obviously, and PND in particular, given it's obviously a much less good business than the rest of the group, it's facing structural headwinds. I don't think it generates much cash. It's been responsible for two revenue downgrades in the last six months, which has seen your stock price fall like today, 8%-10%. I would argue is the reason your company is woefully undervalued at EUR 8 versus some of the parts valuations from the likes of ABN and ING at EUR 14-EUR 15. Is it not obvious that a very strategically positive thing to do for shareholders and for stakeholders is to either dispose of that business or make a more aggressive attempt to shut it down and divert capital and resources for the software and services part, please?
Yeah, thank you for the comment. I hear your concerns. I don't think it is as dramatic as you just picture that business. It's not that distracting from management.
It certainly is for investors. It definitely is for investors. They're right to have been distracted by it because many investors say they're not interested in investing in TomTom because of what they consider a bad hardware business. Actually, on two occasions in the last six months, they were right not to have invested on that basis, despite the amazing stuff going on in the software and services part of the business, which is huge credit to you guys, because of succession of revenue downgrades. It's the year 2017, and we're still having a kind of revenue downgrade and disappointment based largely on consumer. I just feel a more aggressive approach is needed from you guys at this juncture, because it's very obvious that PND is in structural decline.
I'm not sure how much cash you realistically think you're going to get out of the business. I'm just wondering why the steps and the motion isn't in place to get ahead of the obvious decline before it turns into structural loss-making business to try and salvage it now?
Yeah. Thank you for those comments. I don't want to comment on that right now. We take it into account. Thank you.
Okay, fine. I've got one more question just on HERE, given the structure of HERE whereby it's had stakeholders take an equity stake in the map, sorry, the company itself. Is there not an industrial logic for that? What I'm wondering is the industrial logic not based around maybe getting guaranteed access to data? If they're doing it, why is it not logical for you to do it? What's their industrial logic that is not what you're sharing?
You're referring to the HERE situation?
Yeah, the HERE structure. They're selling stakes in their map left, right, and center. There must be an industrial logic to that besides just reclaiming some cash because they're owned by the biggest automotive companies in the world.
Yeah.
Is there an industrial logic they're thinking, which is, "Hey, we get guaranteed access to data for the rest of our lives," which is maybe a risk point that maybe you should address as well?
Yes. I think the industrial logic for the German carmakers buying HERE is not strong. I think it comes with a lot of negatives as well. You're right, the access to probe data and sensor data is going to be important, and we're fully aware of that. Our customers with whom we are working on HD maps and those location technologies, also understand that that data is important for us. I think what we have pulled off in traffic, where we get probe data from all of our customers, is a good model for us to continue. I don't think those car makers need to participate in the capital. I think that comes with more concerns and more downside than just being a neutral player who is making a mark based on technology, and forward-looking technologies.
I don't see that industrial logic at the moment. Yes, probe data is important, and yes, we are working on that.
Okay. I guess one last very boring one. As the hardware division falls, how much cash can be released from inventory or just lower inventory levels going forward, please?
I defer that question to the CFO.
Thank you, Harold. Yeah, tens of millions EUR.
Okay. That's everything from me.
Okay.
As there are no further questions, I would like to thank you all for joining us this afternoon. If you have any follow-up questions at a later time, please don't hesitate to give us a call. Thank you all very much. Operator, you can close the call.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.