IFRS 15 and IFRS 16 adopted, full retrospective method, software and services, half year report

TomTom N.V. – Half year report – 30 June 2018

Industry: software


  1. Summary of significant accounting policies

The principal accounting policies and method of computations applied in these consolidated interim financial statements are consistent with those applied in the annual financial statements for the year ended 31 December 2017, except as described below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of preparation

The consolidated interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as endorsed by the EU. As permitted by IAS 34, the consolidated interim financial statements do not include all of the information required for full annual financial statements and the notes to these consolidated interim financial statements are presented in a condensed format. Accordingly, the condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations as adopted by the European Union. The presentation currency of the group is the euro (€).

Other new accounting standards and developments

Effective from 1 January 2018, the group has adopted IFRS 15 ‘Revenue from Contracts with Customers’, IFRS 16 ‘Leases’, IFRS 9 ‘Financial Instruments’ and to the extent relevant, all other IFRS standards and interpretations including amendments that were in issue and effective from 1 January 2018. IFRS 16 ‘Leases’ is effective for annual periods beginning after 1 January 2019, however the group has early adopted the new standard on 1 January 2018 as permitted by the transitional guidance.

The adoption of IFRS 9 as well as other not specifically mentioned relevant standards, interpretations and amendments had no material impact to the group, while the impact of adopting IFRS 15 and IFRS 16 on the comparative income statement for H1 ’17 and balance sheet position at 31 December 2017 are presented below. Other than the reclassification of the principal portion of operating lease payments to financing activities and customer specific investments to operating activities, these standards had no other material impact to the cash flow statement.

The below tables only show the line items affected by the transition to the new accounting standards and include change in presentation of certain balance sheet items from 1 January 2018 onwards.



IFRS 15 ‘Revenue from contracts with customers’

In adopting IFRS 15, the group has applied the fully retrospective transitional approach using the practical expedients allowing the group for not restating contracts that have been fully completed nor restating the impact of modifications of contracts that have taken place before 1 January 2017.

IFRS 15 uses the terms ‘contract asset’ and ‘contract liability’ to describe what the group historically referred to respectively as ‘unbilled’ and ‘deferred revenue’, however, the Standard does not prohibit an entity from using alternative descriptions. Accordingly, the group will continue to use the terms ‘unbilled revenue’ and ‘deferred revenue’ in these statements and the related disclosure notes. The term ‘Contract related assets’ is used to denote the aggregate balance of unbilled revenue and capitalised contract costs while ‘Contract related liabilities’ refers to the collective balance of deferred revenue and other contract related liabilities.

The group’s accounting policies for its revenue streams as applicable from 1 January 2018 are disclosed in Note 3.

The IFRS 15 impact on the H1 ’17 revenue and operating result as well as the balance sheet position at 31 December 2017 for each of the operating segments is explained below.


1 The balance sheet impact presented does not include the impact of reclassification to conform to current year’s presentation.


Revenue in Automotive is generated through licensing of software and digital map content as well as through provision of traffic and/or other location-based services. In some arrangements, the customers also pay for the required customisation and/or integration efforts.

IFRS 15 guidance on licenses primarily impacts the accounting for the license of map within Automotive. Depending on the nature and contractual terms, each contract is assessed as to whether it should be treated as one license agreement whereby TomTom must estimate the total consideration or a framework agreement that covers multiple licenses.

For contracts that are treated as one license agreement the estimated transaction price (e.g. sales / usage-based royalties) is recognised based on time as a measure of progress but restricted to the royalties TomTom is entitled to. For contracts with multiple licenses, the payment for each identified license is either recognised immediately if they pertain to a one-time installation of the map or fully spread on a straight-line basis over time if the license includes the right to receive map updates during the agreed license period. To the extent possible, the group makes use of the practical expedient to use right to invoice instead of time as a measure of progress as long as the invoice reflects the benefits to the customers.

Under IAS 18, each individual license of map which includes the right to receive updates was separated as a license for the initial map and a license for the updates. The portion of the payment allocated to initial installation was recognised upfront while the portion allocated to the updates was spread over the update period.

In addition, fixed fee transaction price and associated costs from customisation and/or integration efforts (non-recurring engineering) which is not distinct from software provided under ‘right to use’ to the customer must be recognised at the moment the control of the software is transferred to the customer restricted by the royalties TomTom is entitled to. Under IAS 18, this revenue was recognised over the contract period. In addition, internal development costs for customer specific projects which were previously capitalised as part of intangible assets is now presented as capitalised costs under Contract related assets on the balance sheet.

The above changes in accounting for the Automotive segment increased the result for H1 ’17 by €5.3 million and decreased the equity at 31 December 2017 by €5.0 million. The impact of these changes on other items in the consolidated statement of financial position is a decrease in deferred revenue as well as intangible assets of €15 million and €22 million respectively.


In the Enterprise segment we have assessed all material contracts resulting in the identification of material rights which qualify for separate recognition under IFRS 15. The accounting for these material rights decreased the result H1 ’17 and equity at 31 December by respectively €0.3 million and €1.3 million. The impact of these changes on other items in the consolidated statement of financial position is an increase in deferred revenue of €1.7 million.


In the Telematics segment we sell hardware products (Telematics Control Unit) which enable the end-customer to receive our Webfleet services. Currently, the revenues from the sale of such hardware is recognised when risks and rewards of ownership have passed to the customers. Under IFRS 15 there is enhanced guidance on performance obligations and whether these are distinct. Based upon this guidance we assessed that the delivery of the hardware unit that enables the Webfleet service is not distinct from the delivery of the Webfleet service and should be treated as one performance obligation. Accordingly, the hardware revenue must be recognised over time in line with the revenue from Webfleet service from the moment the service is activated.

The above change in accounting for the Telematics segment will increase the result of H1 ’17 by €0.6 million with a total decrease in equity at 31 December 2017 of €23 million. The impact of these changes on the consolidated statement of financial position is an increase in deferred revenue of €30 million. This increase in deferred revenue consists out of a netted position of a contract asset (the hardware) and contract liability (deferred revenue).


For the Consumer segment we have assessed all material revenue streams. Our revenue recognition principle as applied under IAS 18 was in line with IFRS 15 for most of our revenue streams. The main difference relates to the treatment of customer-related marketing expenses. Given the more detailed guidance under IFRS 15, certain payments that were previously presented as marketing expenses need to be classified as a reduction in revenue. Some smaller differences were noted in the treatment of deferred revenue for niche products. The total difference has limited impact on the result for H1 ’17 and equity as at 31 December 2017 (decreases of €0.3 million and €1.6 million respectively). The impact on our revenues and operating expenses for H1 ’17 is a decrease of €4.2 million and €3.7 million respectively.

IFRS 16 ‘Leases’

The group has adopted IFRS 16 in accordance with the fully retrospective transitional approach. The group applies the standard only to leases which were previously identified as leases under IAS 17 and IFRIC 4 in accordance with the practical expedient allowed under the standard.

The leases within the group comprises only of buildings and car leases. The adoption of this standard results in almost all leases being recognised on the balance sheet, except for short-term and low-value leases. As at 31 December 2017, the group recognised lease assets of €45.7 million and a corresponding lease liability of €48.2 million which resulted in a decrease in equity of €1.9 million. The impact to the income statement for H1 ’17 is a decrease in operating expenses of €1.5 million and increase in finance cost of €0.5 million.

Use of estimates

The preparation of these interim financial statements requires management to make certain assumptions, estimates and judgements that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the date of the interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and the future periods if the revision affects both current and future periods. For areas involving a higher degree of judgement or areas where assumptions and estimates are significant to the (interim) financial statements, reference is made to note 3 of the Consolidated financial statements in the 2017 Annual Report.

In addition to those described in the 2017 Annual Report, the adoption of IFRS 15 and IFRS 16 brings additional areas that require use of judgement and estimates that are significant to the (interim) financial statements as described respectively in Note 3 and 7.

  1. Revenue from contracts with customers

Accounting policies

The revenue recognition policy for each type of revenue or their combination is presented below:

License revenue

License revenue is generated through licensing of digital map content and/or navigation software to B2B customers of Automotive and Enterprise and through sale of map update services directly to the end-customers.

In the B2B license arrangements, the license of our navigation software is typically granted as ‘right to use’ license while the license of digital map content can either be granted as ‘right to access’ and/or ‘right to use’. Right to access licenses provides the customer the right to access over a certain period of time, TomTom’s proprietary map data that are continuously developed and enhanced during the contract period. Right to use licenses are those that only provides the customer the right to use certain map data or software as they exist at the moment the control passes to the customer without giving the right to receive future updates or upgrades other than those that can be considered as minor enhancements or bug fixing.

Revenue from ‘right to access’ licenses is recognised over the (estimated) period during which TomTom is obliged to provide access to the customers. For royalty-based arrangements, the revenue is either recognised based on (estimated) reported royalties, as typically the royalties reflect the usage and benefits to the customers or based on time as progress measure but restricted to the amount of the (estimated) reported royalties. When restrictions in license terms result in multiple individual licenses in royalty-based arrangements, each reported unit of usage is treated as a separate license and the revenue is recognised on a straight-line basis over the applicable service period.

License revenue for ‘right to use’ licenses is recognised at the moment the control passes to the customer, except for the usage-based royalties, which are recognised when the usage has taken place based on royalties TomTom is entitled to for the period.

When license arrangements include a minimum guarantee, the excess of the reported royalties above the guaranteed amount is only recognised when cumulative reported royalties have exceeded the minimum guarantee, unless if the expected total royalties is estimated to be above the minimum. In this case, the revenue is recognised based on the royalties TomTom is entitled to. When contracts include annual minimum instead of a contract minimum, the excess of royalties above the annual minimum is recognised in the respective period when the royalties exceed the annual minimum.

To the extent possible, the group makes use of the practical expedient to use right to invoice as a measure of progress as long as the invoice reflects the benefits to the customers.

Service revenue

Service revenue includes revenue generated from sale of traffic and travel information services to both B2B and/or end-customers, sale of online map and location-based services through hosted API solutions (Online APIs) and providing connected navigation and fleet management services.

The (estimated) revenue relating to the service element is recognised over the agreed or estimated service period on a straight-line basis or based on the invoiced amount if such invoice reflects the benefit of the services to the customer over the service period. The service period for life-time traffic and map update service offering within Consumer is estimated at 4 years.

Sale of goods

Revenue from the sale of goods is generated through sale of Consumer navigation and sport devices and related accessories, Automotive hardware products and Telematics devices. Revenue from sale of goods is generally recognised at the moment the control passes to the customers except for the products of which the customers can only benefit in combination with other products and/or services such as Telematics Control Unit (TCU). In this case, the revenue from sale of such products is deferred at the moment of sale and recognised on a straight-line basis over an (estimated) service period of 5 years.

Bundled goods and services

When products and services are offered as a bundle under one agreement or under a series of agreements that are commercially linked, the (estimated) total transaction price of the agreement is allocated to each of the identified ‘distinct’ performance obligations based on the relative selling price of each element. Depending on their nature, the revenue from each of the ‘distinct’ performance obligations is recognised based on the applicable revenue recognition policy as described above.

Contract costs

Contract costs are capitalised only to the extent they are recoverable. Internal development costs relating to customers specific customisation of software and/or other technology platforms are capitalised as contract costs if they have no alternative use. The group does not capitalise costs to obtain multi-year contracts as they are deemed not significant. Where the amortisation period of an asset recognised for the costs to obtain a contract is one year or less, the practical expedient to expense the costs has been used.



Other contract related liabilities comprise of items such as accrued rebates, sales return allowance and stock protection accrual.

Significant estimate

Estimation of total transaction price for contracts with customers

Under IFRS 15, the (expected) total transaction price of contracts that include variable considerations need to be estimated at the inception of the contract and each future reporting date. Such estimates are in particular relating to expected usage of our licenses and/or services which may be susceptible to factors outside our influence such as the developments in the market and industry in which our customer operates. In making such estimates management makes use of input from different sources such as historical experience, estimated sales volumes of customers as well as other relevant sources. The estimated variable consideration is only taken into account to the extent that management believes that it is highly probable that that it will not be subject to significant reversal in the future.

  1. Segment reporting

The operating segments are identified and reported on the basis of internal reports about components of the group that are regularly reviewed by the Management Board to assess the performance of the segments.

The group’s internal management reporting is structured primarily on the basis of the market segments in which the four operating segments – Automotive, Enterprise, Telematics and Consumer – operate.

Management assesses the performance of segments based on the measures of revenue and operating result (EBIT), whereby the EBIT measure includes allocations of expenses from supporting functions within the group. Such allocations have been determined based on relevant measures that reflect the level of benefits of these functions to each of the operating segments. As the four operating segments serve only external customers, there is no inter-segment revenue. The effects of non-recurring items such as goodwill impairment are excluded from management’s measurement basis. Interest income and expenses and tax are not allocated to the segments. There is no measure of segment (non-current) assets and/or liabilities provided to the Management Board. The non-current assets within the group include a significant portion of the carrying value of the step up resulting from a historic acquisition in 2008. As this step-up is not geographically allocated to the respective regions for internal management reporting, we believe that disclosure of geographic allocation would be highly judgemental and would not give a true representation of geographical spread of the group’s assets.


The effects of non-recurring items, such as goodwill impairments (if any) are excluded from management’s measurement basis. Interest income and expenses, and tax are not allocated to segments.

A reconciliation of the segments’ performance measure (EBIT) to the group’s result before tax is presented below.


Measures of (non-current) assets and/or liabilities are not provided internally to the chief operating decision maker and hence, no measure of segment assets and/or liabilities is reported.

  1. Leases

Accounting policy

At inception of a contract, the group assesses whether a contract conveys the right to control the use of an identified asset for a period in exchange for consideration, in which case it is classified as a lease.

The group recognises a right-of-use asset (lease asset) and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received.

The lease asset is subsequently depreciated using the straight-line method from the commencement date to the end of the useful life of the right-of-use asset, considered to be indicated by the lease term. The lease asset is periodically adjusted for certain remeasurements of the lease liability and impairment losses (if any).

The lease liability is initially measured at the present value of outstanding lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the group’s incremental borrowing rate. Generally, the group uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortised cost using the effective interest method and is remeasured when there is a change in future lease payments arising from a change in an index or rate or if the group changes its assessment of whether it will exercise a purchase, extension or termination option. A corresponding adjustment is made to the carrying amount of the right-of-use asset with any excess over the carrying amount of the asset being recognised in profit or loss.

The group has elected not to recognise lease assets and lease liabilities for short-term leases (leases with a term of 12 months or less) and leases of low-value assets, including IT equipment. The group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Significant estimate

Estimation of lease period

Some leases of office buildings contain extension options exercisable by the group up to one year before the end of the non-cancellable contract period. Where practicable, the group seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the group and not by the lessors. The group assesses whether it is reasonably certain to exercise the options at lease commencement and subsequently, if there is a change in circumstances within its control. Such assessment involves management judgement and estimate based on information at the time the assessments are made.