INTERNATIONAL EXPANSION
The global nature of our business increases risks associated with our international operations and potential future expansion into new international markets.

Our business operations span five continents and we therefore face the economic, regulatory, legal and political risks inherent in having relationships, operations and sales in a variety of jurisdictions. Our rapid growth in a relatively short period of time has placed, and may continue to place, significant demands and strains on our resources, systems, internal controls and management.

In order to manage risks related to international expansion we continuously focus on successful integration of new personnel and systems in order to manage our growth.

HUMAN RESOURCES
The success of our business depends upon attracting, integrating and retaining qualified personnel in IT, finance, sales, marketing, research and development, product management, supply chain management, and other key areas. The loss of key members of management could have a material adverse effect on our business. Furthermore, if we are unable to retain or increase our pool of talented personnel to keep pace with our overall rate of growth, our business could suffer.

In order to mitigate this risk, we have implemented policies for attracting and retaining staff, which include management training and career planning.

MARKET AND COMPETITION
The market for satellite navigation products in each of the geographic markets in which we operate is highly dynamic and competitive. Convergence in the Technology, Media, and Telecommunications industries leads to increased competition and associated new business opportunities
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There can be no assurance that our products will compete successfully against current or new market entrants or competing technologies. Our markets are characterised by rapid technological change, which could render our products obsolete and cause us to make substantial expenditures to replace our products.

We mitigate these risks by investing in the development of our technology and by focusing on innovative benefits that enhance the navigation experience for our customers.

PRODUCT DIVERSIFICATION
The majority of our revenue is derived from integrated personal navigation devices. If new product implementations do not achieve required levels of market acceptance, or if the speed of development and time-to-market of these products compares unfavourably with directly competing products, this could have a material adverse effect on our business, results of operations or financial condition.

By expanding our other revenue streams, seeking new markets, and introducing new products and services (e.g. TomTom WORK, Automotive, TomTom HOME, TomTom HD Traffic™ and TomTom Map Share™), we aim to diversify product concentration risks over the medium- and long-term.

SALES PRICE
The sales prices of our products are primarily affected by the competition we face in various markets, our pricing compared to alternative products, our ability to provide enhanced services, and the strength of our brand in terms of innovation, quality and user-friendliness. We expect the prices we charge for our products to decrease over time, as supply increases, market competition intensifies and more personal navigation products become available.

We mitigate the risks of sales price erosion primarily by cost engineering our products and seeking operational cost leverage from increasing sales volumes. Unique differential benefits in our navigation products (such as TomTom Map Share and TomTom HD Traffic) help to reduce the effects of price erosion, as consumers are prepared to pay additionally for these unique features.

BRAND
We may not be able to sustain or improve the strength of our brand; or may as a consequence experience difficulty in maintaining our market acceptance. We could also face other factors that negatively affect our reputation or brand image, such as adverse consumer publicity, which could have a material adverse effect on our business, results of operations or financial condition.

We are constantly striving to increase awareness of our brand and strengthen our reputation for providing smart, easy-to-use, high-quality personal navigation products and services.

INTELLECTUAL PROPERTY
We rely on a combination of trademarks, trade names, patents, confidentiality and non-disclosure clauses and agreements, copyrights, and design rights to define and protect our trade secrets and rights to the intellectual property in our products.

Although we have implemented protection mechanisms, these may prove to be inadequate, or may not extend to all countries in which we operate or may operate in the future, or may not cover all our intellectual property assets.

We may be faced with claims that we have infringed the intellectual property rights of others, leading to royalty costs, license fees, legal costs, a restriction on the use of certain technologies and innovations, and/or an inability to secure intellectual property rights.

SUPPLY CHAIN
We depend on a limited number of third parties, and in certain instances sole suppliers, for component supply and manufacturing. Our supply chain and distribution model is outsourced. This increases our ability to scale up or down the supply chain, while limiting capital expenditure risks. However, any disruption to or termination of our relationships with third-party manufacturers, suppliers or distributors, or reduction in their ability to meet our needs, could have a material adverse effect on our business, results of operations or financial condition.

We continually evaluate the risks associated with outsourcing our supply chain. Our Engineering and Quality Assurance departments in Asia perform regular audits and ongoing reviews of our manufacturing partners and component suppliers.

The supply disruption risk for our highest volume products are mitigated by dual-sourcing production with two different manufacturing partners. For inbound and outbound freight we make use of multiple carriers. In order to limit component supply risks, we perform de-risking of hardware design by evaluating component supply at the earliest possible stage of the design process.

We mitigate supply disruption risks through actively minimising the number of single source components.

We have taken out insurance for our lost market opportunity in the event that a natural catastrophe significantly impairs our manufacturing capabilities.

PRODUCT QUALITY
We are subject to risks resulting from defects in our products, as well as returns and warranty expenses. We develop hardware and software products which may contain defects in design or manufacturing, or other errors or failures. Material defects in any of our products could therefore result in decreasing revenues, increased operating costs and/or the possibility of significant consumer products liability.

We have introduced extensive failure mode and effects analysis and finite element analysis at the start of all projects to understand, minimise and manage the design risks at an early stage which reduces the risk of manufacturing, hardware and component defects after the start of mass production.
We set out the guidelines and manage the quality control procedures for testing and manufacturing to our specifications and in addition our contract manufacturers perform quality control tests themselves.
In order to mitigate this risk, we have Quality Assurance and Engineering departments that monitor the quality of our contract manufacturers and component suppliers.

PRODUCT LIABILITY
The use of the device itself, and the provision of map data and route instructions to vehicle drivers carries an inherent risk of product liability claims and associated adverse publicity. Product liability claims present the risk of protracted litigation, financial damages, lawyers’ fees, and diversion of management’s attention from the operation of our business.

We use disclaimers, limitations of liability to the maximum extent permitted by law and similar provisions in our licence agreements, but we cannot be absolutely sure that these provisions will prove effective barriers to product liability claims.

We mitigate the risks of product liability claims through product testing and by including security features in the product design.

INFORMATION TECHNOLOGY
Our information technology, telecommunications and other infrastructure systems, could face the risk of failure which might seriously disrupt our operations. We have back-up procedures in place, making use of outsourced partners, which are closely monitored.

A significant disruption to the availability of our information technology, telecommunications or other infrastructure systems could cause interruptions in our service to customers, loss of or delays in our research and development work and/or product shipments, or affect our distributor and consumer relationships.

We mitigate this risk by constantly striving to improve and strengthen our information technology and telephony infrastructure.

DEMAND FORECASTING
Accurate forecasting of the market demand for our products is important to our financial performance and to maintaining good customer relationships with distributors and retailers. If the demand is over-forecast and we over-stock the distribution and retail channel, we are more susceptible to downward pricing pressure resulting in loss of revenues, as well as an increase in finished goods inventory and net working capital. If demand is under-forecast, resulting in a shortage of products in the distribution and retail channel, we could face unfulfilled consumer demand and resulting loss of revenues, as well as damage to our reputation and relationships with distributors and retailers.

As part of mitigating this risk, we monitor sell-out rates and expectations of future demand at our major distributors and retailers. To further improve the accuracy of forecasting, we develop local forecasts, based on regional information that is consolidated into our sales forecasting process.

NEW PRODUCT INTRODUCTION
We introduced a significant number of new and upgraded products and services this year. The transition to new products requires careful management of existing stock levels, and the introduction of new products, together with seasonal demand, significantly increases working capital requirements.

If there is an excess of existing stock when a new product is released, the retail price of that stock is likely to decrease and we could, in certain circumstances, owe compensation to our distributors and retailers on the price difference for their existing stock.

Our success is dependent on our ability to develop and commercialise new and upgraded products and services, the timing of releases of these, our product mix relative to that of our competitors, and our ability to meet changing consumer preferences.

TRADE CREDIT
Trade receivables relate mainly to our wholesale customers. Our exposure to credit risk is influenced mainly by the individual characteristics of each customer. There is some concentration of credit risk with respect to trade receivables, but this is actively monitored by management. Credit risks in Asia, Australia, Africa and Europe are mitigated by the purchase of excess loss insurance.

We have an established credit policy under which each new customer is analysed individually for creditworthiness before our standard delivery terms and conditions are offered. We take into account the view of external rating agencies when determining creditworthiness.

Credit limits are established for each customer then reviewed on a quarterly basis, or more frequently if required. In monitoring customer credit risk, customers are grouped according to their credit characteristics. Customers who are graded “high risk”, or who otherwise fail to meet our benchmark creditworthiness, are placed on a restricted customer list and may only transact with us on a prepayment basis.

Total bad debts currently represent 0.3% of sales revenue.

Certain financial assets, such as trade receivables, are individually assessed for impairment. When assets are considered not to be individually impaired, these assets are subsequently assessed for impairment on a collective basis. Evidence of impairment could include our past experience of debt collecting and/or changes in economic conditions that have an effect on receivables.

LIQUIDITY
Our approach to managing liquidity is to ensure, so far as possible, that we will always have sufficient liquidity to meet our liabilities when they fall due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation.

We consistently monitor future cash flow requirements to ensure we have sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations.

Management ensures adequate reserves, banking facilities and reserve borrowing facilities are maintained by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. The potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters, have been excluded. There were no lines of credit at balance sheet date. The contractual maturity of our trade and other liabilities is less than one year.

CURRENCIES
The objective of market risk management is to manage and control foreign exchange risk arising from various currency exposures and price risk arising from the holding of investments classified as at fair value through profit or loss.

Foreign exchange risk is managed through the buying and selling of derivatives and option contracts for forecast commitments and forward contracts for actual commitments. All such transactions are carried out within the guidelines set by the financial risk management policy, which is approved by the Supervisory Board.

We are exposed to currency risk on our estimated purchases and sales transactions that are denominated in a currency other than the reporting currency of the Company – the euro (€). Foreign currency exposures are based on invoices, orders and the outcome of monthly forecast meetings. We aim to cover our currency exposure for 9 months for both purchases and sales.

We do not make use of natural hedges for anticipated exposures, as these can prove ineffective in the event of sharp increases or decreases in currency rates and therefore are not considered best practice from a risk management point of view. Foreign currency exposures are grouped per currency to allow for more efficient hedging. We hedge at least 80% to 85% of our anticipated and committed foreign currency exposure, in respect of forecast sales and purchases over the next nine months. We use foreign exchange (FX) plain vanilla options and foreign exchange (FX) forward contracts to hedge our currency risk, all with a maturity of less than one year from the reporting date.

A 2.5% strengthening or weakening of the euro against the currencies listed below at 31 December would have increased (decreased) equity, and profit or loss, by the amounts shown below. This analysis assumes that all other variables remain constant. The analysis is performed on the same basis for 2006.