24th Jul 2007 07:00
Pace Micro Technology PLC24 July 2007 Pace Micro Technology plc results for the full year ended 2 June 2007 24 July 2007 Saltaire, UK, 24 July 2007, Pace Micro Technology, the leading independentdeveloper of digital TV technologies for the global payTV industry, announcesits audited financial results for the full year ended 2 June 2007. Operating Highlights • Significant success in North America with ongoing solid performance from EMEA and APAC regions • Volume shipments increased by 77% to 3.9m set-top boxes (2006: 2.2m) • Growing operator demand for specialist high definition technology across all main payTV markets • Increased consumer demand for digital TV, high definition and PVR products • Company restructure and new management team are delivering results Financial Highlights • Revenues more than doubled to £386.5m (2006: £178.1m) • Full year gross margin of 15.9% (2006: 18.0%), with uplift in H2 to 16.6% (H1 2006/07: 15.3%) • Profit before tax and exceptional items £6.1m (2006: loss £15.6m) • Earnings per share of 3.0p (2006: loss per share 13.0p) • Net cash position £11.9m (2006: net borrowings £6.1m) • On track to deliver against expectations for shortened financial year ending 31 December 2007 Commenting on the results, Neil Gaydon, Chief Executive Officer, said: "These results reflect our ability to support many of the world's leading payTVoperators with high value, specialist technology. Our company wide restructureand new management team is delivering greater customer focus with an improvedoperating model, and we have begun to see the benefits of this work. With flatpanels, digital TV, high definition and PVR all becoming 'must haves' for theconsumer, alongside increasing competition for subscribers amongst the operatorcommunity, the consequent demand for set top boxes gives us an exciting marketto address and one that we are well positioned to capture." There will be an analyst presentation on 24 July 2007 at 9.00am at The LincolnCentre, 18 Lincoln's Inn Fields, London, WC2A 3ED. Contacts Fiona Laffan/Tim Williamson/ Neil Gaydon/Stuart Hall/Raphael Mazet Helen KettleboroughBrunswick Pace Micro Technology +44 20 7404 5959 Today only - +44 20 7404 5959 Thereafter - +44 1274 538005 Overview Pace is a specialist technology company delivering digital TV products to theworld's most successful payTV operators. The Group is building on the newfoundations established by the management team over the last year and isdelivering against plan. The balance of Pace's global shipments has shifted with over 50% of the Group'srevenues now coming from the North American market, the result of Pace'sstrategy to target the world's largest payTV operators and early investment innew technology platforms. At the same time organisational changes implementedover the last year, which have restructured Pace's business around thetechnologies and needs of its customers, are beginning to deliver encouragingresults. Improving profitability is a key priority and over the year Pace has returned toprofit, with profit before tax and exceptional items of £6.1m (2006: loss£15.6m) on revenues that more than doubled to £386.5m (2006: £178.1m). Thebusiness restructure that took place in 2006 included the establishment ofCustomer Account Teams, which are responsible for all aspects of the customerrelationship, including product development. As a result, product execution isbetter, quality is increasing and margins are improving. The full benefits areexpected over the next 12 months as these improvements work through the typicalset-top box development cycle. North America is the world's largest market for digital television technologyand Pace is making good progress in both satellite and cable. Significantly,Pace commenced new product shipments to DirecTV and Comcast in the US, two ofthe world's largest payTV operators. During the year, Pace delivered its highdefinition (HD) MPEG-4 personal video recorder (PVR) to DirecTV and its standarddefinition (SD) PVR to Comcast. The Group also now has over 30 North Americancable customers, selling a broad range of SD and HD products and has launchedits CableCARD range, anticipating regulatory changes in the US market. In EMEA and APAC Pace enjoyed solid revenue and volume growth as additionalbusiness was secured with new and existing customers from basic to highspecification products. The market dynamics remain attractive with the prospectof analogue switch-off in some countries and increasing competition forsubscribers in many key markets. Global consumer demand for high definition and PVR products and services is oneof the most important drivers in the payTV market. According to Screen Digestthere will be over 228m homes by 2010 with high definition ready flat panel TVsand over 200 high definition channels, requiring a high definition set-top boxto access them. There is also strong competition between payTV operators and newmarket entrants such as telcos providing video services over broadband. Thiswill drive demand for high definition and PVR services as operators use them todifferentiate their platforms to win and retain subscribers. Pace's strategy ofbuilding long term relationships with the world's leading payTV operators, aswell as being first to market with new technologies, means it is well placed toserve those markets and deliver returns for shareholders. Results and Financial Review The focus on delivery and customers has started to show improved results.Shipments increased by 77% to 3.9m set-top boxes (2006: 2.2m) and revenues morethan doubled to £386.5m (2006: £178.1m). Average selling prices have risen from£81 to £100, reflecting the growing demand for higher specification productssuch as HD PVR, a demand Pace has been able to meet due to its ongoing earlyinvestment in new technology. While gross margin improved from 15.3% in the first half to 16.6% in the secondhalf, the full year outcome was lower than last year at 15.9% (2006: 18.0%). Asexpected, this was a feature of some high volume products, in particular for theUS market, with lower margins. In addition, the full benefit of the Group'simprovements to product design and operations have not impacted some of theolder and less cost-efficient designs still in production. Overheads, excluding restructuring costs and the impact of IAS38, were £55.7m(2006: £55.6m). R&D spend before capitalization of development expenditure inline with IAS38 was £31.3m (2006: £28.7m) as Pace continued to invest in higherspecification products such as HD PVR. The IAS38 adjustment was a net credit of£2.4m (2006: net credit £7.3m) as the delays in launching certain products in2006 have been resolved during 2007. Profit before tax and exceptional chargeswas £6.1m (2006: loss of £15.6m). Exceptional costs were £1.2m (2006: £11.9m)representing the remaining costs of the 2006 restructuring and organisationalchanges. The interest charge was £2.2m (2006: credit £0.6m) due to the increasedborrowing position during the year and the tax credit was £1.8m (2006: charge£1.3m), reflecting an increased recognition of deferred tax assets relating tobrought forward tax losses. Retained profit for the year was £6.8m (2006: loss£28.8m). The Board does not recommend the payment of a dividend. The net working capital position improved in the year by £13.3m (2006: worsened£1.3m) due to a combination of inventory reduction £9.5m (2006: increase£24.7m), debtor increase £10.2m (2006: decrease £9.5m) and creditor increase£14.0m (2006: increase £13.8m). Inventory reduced principally as productsdeveloped in the previous financial year were delivered to customers. Debtorsincreased due to turnover more than doubling, however debtor days improvedslightly to 46 days (2006: 48 days). During the year the Group negotiated a new Asset Based Lending Facility of £35msecured principally against debtors. The Group finished the period with asignificant improvement in its net cash position at £11.9m (2006: net borrowings£6.1m), due mainly to the return to profitability within the period and thereduction in inventory levels following the resolution of delayed productapproval in the prior year. Regional Operating Review During the first half of the year, Pace successfully worked through somechallenges faced by the entire industry in the transition to MPEG-4-based highdefinition platforms, which had impacted deliveries of some new and highlycomplex set-top box products. The resolution of these issues, combined withchanges put in place by the new management team, is enabling the business tomove forward. Americas Shipments into the Americas increased six-fold to 1.2m units (2006: 200,000) asPace developed its relationships with DirecTV and Comcast, two of the world'slargest payTV operators, and executed well on its contracts. For DirecTV, Pace is delivering its MPEG-4 HD PVR and has order visibilitythrough to mid-2008. For Comcast Pace is delivering the SD PVR and there arecommitted orders in place for the rest of 2007. At the same time Pace's NorthAmerican cable customer base has expanded to over 30 operators, selling a broadrange of SD and HD products. As of 1 July 2007 US cable set-top boxes must, under Federal CommunicationsCommission (FCC) regulations, incorporate 'separable security', similar to thecard-based conditional access systems used by many European payTV operators. Tomeet the new market requirements Pace has developed a full range of CableCARDproducts (it includes SD, SD PVR, HD, HD PVR and analogue options). Pace'sCableCARD boxes are also fully OpenCable Application Platform (OCAP) compatible. OCAP is a software layer many operators intend to introduce over the next fewyears to improve software compatibility among various set-top vendors. Unlikeother potential new entrants into the US cable set-top market, Pace has thenecessary licences and software assets to sell boxes running today'sapplications and OCAP applications in the future. Pace launched its CableCARD range in June 2007 and all products are nowcommercially available and shipping to multiple customers. Pace's ability tolaunch CableCARD products so quickly to multiple operators with varying softwarerequirements, was enabled by a core asset that took over three years to develop,a Pace middleware called EnginewareTM. The switch to CableCARD has influencedoperator buying patterns across the market. This was anticipated and factoredinto our forecasts as there will be a lower level of box orders during the thirdcalendar quarter of 2007. Overall the Group is very pleased with the progress that has been made in theAmericas given the particularly high barriers to market entry. Progress has beenboth in terms of the breadth and depth of customer relationships and the productrange, which addresses a wide range of customer needs. EMEA and APAC Pace has achieved long-term strong performance in these markets. Shipments intothe EMEA region increased by over 37% to 2.2m set-top boxes (2006: 1.6m), withAPAC shipments increasing slightly to 432,000 (2006: 401,000) as additionalbusiness was secured with new and existing customers. In EMEA Pace's customerscomprise a large number of this region's major payTV operators, including BSkyB,Sky Italia, Viasat and UPC. In Australia and New Zealand Pace works with themajority of significant players, Foxtel, Optus and Sky New Zealand. At Foxtel,Pace is the lead supplier and has recently celebrated its one millionth boxshipment. During the year, Pace won new business with the majority of its customers forboth basic boxes and standard definition PVRs, with an increasing number alsoordering HD PVR designs for 2007 and 2008. Of the new HD PVR business that hasbeen signed, Digiturk, a major Turkish operator, will be the first to markettoward the end of 2007. The product range we are developing for Digiturkintroduced a new technical integration challenge through its use of the Irdetoconditional access platform and OpenTV middleware. The Group expects that anumber of other payTV operators in this region will want to utilise a similarcombined solution. Pace has a proud history of leading new technology developments in these marketsand has created a strong product range. In addition to the growing demand for HDand HD PVR, there is a new trend for integrated satellite and IP enabled hybridproducts and Pace's product capability has been showcased at European tradeshows during the year. Board and Executive appointments Stuart Hall, joined the Pace Board in April 2007 as Chief Financial Officer.Previously Stuart was Finance Director at IQE plc and has held a number ofFinance Director positions. In addition David McKinney, Pace's Chief OperatingOfficer, who has been with the Company for over one and a half years, wasappointed to the Board last September. Outlook The Board is pleased that this year significant improvements have already beenshown against key metrics and short-term goals for the business in North Americahave been achieved. Going forward, senior management is working with a highlymotivated and accountable organisation, one that is focused on delivering andinnovating leading products for its customers. Through this focus, on theGroup's strategy and structure, Pace is much better placed to address the keycompany targets of margin performance, technology innovation and operationalexcellence. The Board acknowledges that while significant progress has been made, the Groupis not complacent as there remains much to do as this is a highly competitiveand difficult market for all suppliers to predict. Pace is working hard todeliver against our critical success factors in an effort to try and deliver amore predictable business within this market. The Board is pleased with the progress of the last year, and is confident thatPace is on track to meet its expectations for the shortened financial year to 31December 2007. Neil GaydonChief Executive Officer24 July 2007 CONSOLIDATED INCOME STATEMENTFOR THE 52 WEEKS ENDED 2 JUNE 2007 Note 52 weeks ended 52 weeks ended 2 June 2007 3 June 2006 £000 £000 Revenue 2 386,513 178,095Cost of sales:Before exceptional items (324,865) (145,984)Exceptional items 3 - (5,500) _____________ _____________Total Cost of sales (324,865) (151,484) _____________ _____________Gross profit 61,648 26,611 Administrative expenses:Research and Development expenditure: 3 (28,949) (21,433)Before exceptional items - (3,500)Exceptional itemsOther administrative expenses:Before exceptional items (24,379) (26,864)Exceptional items 3 (1,208) (2,383) _____________ _____________Total Administrative expenses (54,536) (54,180) _____________ _____________Other operating expenses:Impairment loss on trade investment 3 - (505) _____________ _____________Operating profit/(loss) 7,112 (28,074) Financial income - interest receivable 138 755Financial expenses - interest payable (2,325) (131) _____________ _____________Profit/(loss) before tax 4,925 (27,450) Tax credit/(charge) 4 1,841 (1,334) _____________ _____________Profit/(loss) after tax 6,766 (28,784) _____________ _____________Attributable to: 6,766 (28,784)Equity holders of the CompanyBasic earnings/(loss) per ordinary share 5 3.0p (13.0)pDiluted earnings/(loss) per ordinaryshare 5 3.0p (13.0)p CONSOLIDATED BALANCE SHEETAT 2 JUNE 2007 Note 2 June 2007 3 June 2006 £000 £000ASSETSNon Current AssetsProperty, plant and equipment 6,508 7,671Intangible assets - goodwill 9,436 9,436Intangible assets - developmentexpenditure 13,670 11,286Other investments 349 349Deferred tax assets 4,968 2,887 ____________ ____________Total Non Current Assets 34,931 31,629 ____________ ____________Current AssetsInventories 25,268 34,792Trade and other receivables 52,563 42,337Cash and cash equivalents 12,049 - ____________ ____________Total Current Assets 89,880 77,129 ____________ ____________Total Assets 124,811 108,758 ____________ ____________EQUITY 11,659 11,576Issued capital 36,751 36,246Share premium 227 240Translation reserve 2,300 (5,595) ____________ ____________Retained earnings Total Equity 50,937 42,467 ____________ ____________ LIABILITIES Non Current Liabilities Interest bearing loans and borrowings 99 154Provisions 6 9,646 9,284 ____________ ____________ Total Non Current Liabilities 9,745 9,438 ____________ ____________Current Liabilities Trade and other payables 59,368 45,406Current tax liabilities 282 3Interest bearing loans and borrowings 60 5,937Provisions 6 4,419 5,507 ____________ ____________Total Current Liabilities 64,129 56,853 ____________ ____________Total Liabilities 73,874 66,291 ____________ ____________Total Equity and Liabilities 124,811 108,758 ____________ ____________ CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Share Translation Retained Total capital premium reserve earnings equity £000 £000 £000 £000 £000 ________ ________ ________ ________ ________ Balance at 4 June 2005 11,349 35,677 150 22,576 69,752 ________ ________ ________ ________ ________ Loss for the period - - - (28,784) (28,784)Currency translationadjustments - - 90 - 90 ________ ________ ________ ________ ________ Total income and expense for the period - - 90 (28,784) (28,694)Employee share incentive charges - - - 493 493Movement in employee share trusts - - - 120 120Issue of shares 227 569 - - 796 ________ ________ ________ ________ ________ Balance at 3 June 2006 11,576 36,246 240 (5,595) 42,467 ________ ________ ________ ________ ________ Profit for the period - - - 6,766 6,766Currency translationadjustments - - (13) - (13) ________ ________ ________ ________ ________ Total income and expense for the period - - (13) 6,766 6,753Employee share incentive charges - - - 684 684Movement in employee share trusts - - - 445 445Issue of shares 83 505 - - 588 ________ ________ ________ ________ ________ Balance at 2 June 2007 11,659 36,751 227 2,300 50,937 ________ ________ ________ ________ ________ CONSOLIDATED CASH FLOW STATEMENTFOR THE 52 WEEKS ENDED 2 JUNE 2007 52 weeks ended 52 weeks ended 2 June 2007 3 June 2006 £000 £000 Cash flows from operating activities 4,925 (27,450)Profit/(loss) before taxAdjustments for:Share based payments charge 684 493Depreciation of property, plant andequipment 4,277 4,116Amortisation of development expenditure 14,172 13,296Impairment of trade investment - 505Loss on sale of property, plant andequipment 90 241Net financial charge/(income) 2,187 (624)Movement in trade and other receivables (9,966) 9,490Movement in trade and other payables 13,794 13,871Movement in inventories 9,524 (24,657)Movement in provisions (826) 51 _____________ _____________Cash generated from/(used in) operations 38,861 (10,668)Interest paid (2,361) (142)Tax paid (124) (258) _____________ _____________Net cash generated from/(used in)operating activities 36,376 (11,068) _____________ _____________Cash flows from investing activities - (180)Acquisition of trade investments (3,256) (5,862)Purchase of property, plant andequipmentDevelopment expenditure (16,556) (17,132)Proceeds from sale of property, plantand equipment - 5Interest received 138 842 ____________ ____________Net cash used in investing activities (19,674) (22,327) ____________ ____________Cash flows from financing activities Proceeds from issue of share capital 588 796Proceeds from exercise of employeeshare options 445 120Repayment of loans (55) (50) ____________ ____________Net cash generated from financingactivities 978 866 ____________ ____________Net change in cash and cash equivalents 17,680 (32,529)Cash and cash equivalents at start ofperiod (5,880) 26,647Effect of exchange rate fluctuations oncash held 249 2 ____________ ____________Cash and cash equivalents at end of period 12,049 (5,880) ____________ ____________ NOTES 1 Basis of preparation The financial statements have been prepared in accordance with applicableaccounting standards and under the historical cost convention as modified by therevaluation of derivative instruments. Significant judgements, key assumptions and estimation uncertainty The Group's main accounting policies affecting its results of operations andfinancial condition are set out in the Group's financial statements. Judgementsand assumptions have been required by management in applying the Group'saccounting policies in many areas. Actual results may differ from the estimatescalculated using these judgements and assumptions. Key sources of estimationuncertainty and critical accounting judgements are as follows: Inventory and purchase commitments As referred to in the Business Environment section below, the Group customarilyhas a level of inventory and purchase commitments, the realisation of which isnot certain. As noted in the Annual Report for the year ended 3 June 2006, andas a result of delays in the launch of certain products for the North Americanmarket, the Group had stock and purchase commitments for these products of £23mand £60m respectively where there were not corresponding customer approvals orpurchase agreements. As a result of subsequent approvals and shipments, theGroup's net exposure to such North American product has reduced to £2.6m at 2June 2007. The Directors have considered the ongoing sales and consider thatthis value is likely to be realised. Going concern The Group has put in place new borrowing facilities to January 2010, based upon85% of relevant trade debtors, as adjusted, up to a maximum of £35m. Thesefacilities are subject to financial performance covenants. The Board has prepared a working capital forecast based upon assumptions as totrading as well as building in the other circumstances noted in the BusinessEnvironment section below. The Board has also modelled a number of alternativebusiness scenarios. Based upon these the Board has concluded that the Group hasadequate working capital, will meet the financial performance covenants and thattherefore it is appropriate to use the going concern basis of preparation forthis financial information. Warranties Pace provides product warranties for its set-top boxes. Although it is difficultto make accurate predictions of potential failure rates or the possibility of anepidemic failure, as a warranty estimate must be calculated at the outset of aproduct before field deployment data is available, these estimates improveduring the lifetime of the product in the field. A provision for warranties is recognised when the underlying products orservices are sold. The provision is based on historical warranty data and aweighting of all possible outcomes against their associated probabilities. Thelevel of warranty provision required is reviewed on a product by product basisand provisions adjusted accordingly in the light of actual performance. Royalties Pace's products incorporate third party technology, usually under licence.Inadvertent actions may expose Pace to the risk of infringing third partyintellectual property rights. Potential claims can still be submitted many yearsafter a product has been deployed. Any such claims are always vigorouslydefended. A provision for royalties is recognised where the owners of patents coveringtechnology allegedly used by the Group have indicated claims for royaltiesrelating to the Group's use (including past usage) of that technology. Havingtaken legal advice, the Board considers that there are defences available thatshould mitigate the amounts being sought. The Group will vigorously negotiate ordefend all claims but, in the absence of agreement, the amounts provided mayprove to be different from the amounts at which the potential liabilities arefinally settled. The provision is based on the latest information available. EU Import duty classification Pace, along with other set top box manufacturers and broadcasters, continues tomonitor the potential re-interpretation by European Union customs authorities ofcustoms regulations that could result in the extension of import duties tointeractive set-top boxes manufactured outside, but imported into, the EU. Nofinal decision has been made so it remains impossible to quantify any potentialimpact. However, Pace has analysed its options against the range of possibleoutcomes and has plans in place to manage these outcomes. Writ Issued against Company A writ has been issued against the Company by a former customer relating to thesupply of set top boxes in 2000/01. The amount claimed is circa $7.2m. TheDirectors believe that they have good defences to the claim and therefore, inthe absence of any liability, no provision has been made. In addition on 15 July2007 Pace filed a counterclaim for circa $10m against this former customer and arelated third party. Financial information The financial information set out in this document does not constitute thecompany's statutory accounts for the 52 week period ended 2 June 2007, or the 52week period ended 3 June 2006, but is derived from the 2007 accounts. Statutoryaccounts for 2006 have been delivered to the Registrar of Companies, and thosefor 2007, will be delivered in due course. The auditors have reported on thoseaccounts; their reports were (i) unqualified, (ii) did not include anyreferences to any matters to which the auditors drew attention by way ofemphasis without qualifying their reports and (iii) did not contain statementsunder section 237(2) or (3) of the Companies Act 1985. The Pace Board resolved on 23 July 2007 that it has decided to change itsAccounting Reference Date from 31 May to 31 December. This follows Pace'sstatement released on 23 March 2007 when it was announced that the change inGroup Accounting Reference Date would be made in order to more closely align theGroup's business reporting cycle with those of its principal customers andsuppliers. Pace will publish interim accounts for the period ended 30 November 2007 inJanuary 2008 and audited financial statements for the 30 week period ending 31December 2007 shortly thereafter. BUSINESS ENVIRONMENT Priorities The Group continues to focus on: • Operational excellence to deliver a range of quality products on time and profitably for Pace's global customer base. • Growing deeper customer relationships by ensuring Pace has the products and services needed in order for them to be competitive and to improve their average revenue per user (ARPU). • Utilising Pace's core skills to create innovative technology and solutions that will excite the market and drive long-term business growth. Customers and Markets The global market for payTV products (primarily set-top box products) isgrowing, although concentrated within a limited number of operators, some ofwhich are currently in an unprofitable business development phase. The payTVmarket is attractive, and as with most modern markets, it is highly competitivewith Pace's competitors ranging from divisions of large multinationalelectronics companies to specialist smaller companies. There are a number ofbarriers to market entry, in particular a requirement for complexpost-deployment support to ensure deployed set-top boxes can continue to deliverover time a payTV service as this service grows in size and sophistication. Orders placed by Pace's payTV customers are typically large one-off orders fordelivery over a number of months with supplemental orders for additionalvolumes. As the eventual deployment of the set-top boxes can be unpredictable,revenues can be volatile. The difficulty in predicting Pace's business flow andits risks can be exacerbated by a number of other factors including, forexample, the development process for an advanced set-top box which can take over12 months. The Group works on long lead times (e.g. four months or more) forcomponent supply and manufacture, typical of the industry. In the US market, inparticular, customers firm order lead times may be less than the component leadtimes. There are third party delivery risks, for example, difficulties in thedelivery of components or software code, and the final go ahead for manufactureand firm contractual commitments is usually dependent on product approvals andacceptance both from the operator and sometimes from third parties. In addition,there is a requirement for frequent design revisions that take into accountprice deflation and introduction of new, more cost effective electroniccomponents. The revision process places increased demand on engineeringresources but, at the same time, provides a further barrier to entry to newcompetitors. The combined impact of these factors, together with the need to meet customersdelivery requirements, imposes risk on Pace's product introduction programme. Currency Risks The standard 'industry currency' is the US dollar, with the majority ofcomponents and manufacturing capacity purchased in this currency. As a result,due to part of the Group's sales being in Sterling and Euros (the sale prices ofwhich will be fixed for months in advance) the Group remains exposed to the riskof foreign currency movements. To manage this risk, the Group's treasury policyis progressively to cover cash flows when these are sufficiently certain and toseek a greater percentage of US dollar sales to provide a commercial hedgeagainst currency exposures. Interest Rate Risk The Group's policy is to review regularly the terms of its available short termborrowing facilities and to assess individually and manage each long-termborrowing commitment accordingly. The Group does not currently take out anyinterest rate swaps. Credit Risk Management has a credit insurance policy in place, which provides cover overmost debtors, subject to excesses, and the exposure to credit risk is monitoredon an ongoing basis. The Group does not require collateral in respect offinancial assets. Deposit investments are undertaken only in liquid securities and only withcounterparties that have a credit rating equal or better than the Group. Engineering The Group is dependent on the technological skills of its employees and isworking to increase the average skill base at all of the main development sites.At the same time Pace is seeking to outsource a larger part of its developmentand next generation cost down activity to independent development centres anddesign and manufacturing partners. During the last year a significant number ofnew products for new customers have been developed. Development costs directlyattributable to these products are capitalised according to specified criteriaand amortised over the product life. To improve business effectiveness, so the Group is better able to manage thesignificant volume of development work currently underway and in plan, there hasbeen a significant internal re-organisation programme. The programme has focusedon organisation structures and is now focused on business processes; inparticular improving the effectiveness of Pace's development process both ineffectiveness of delivery and in the improvement of product cost. Third Party and Other Risks The business environment in respect of the use of third party technology and ofproduct warranties is described under "Significant judgements, key assumptionsand estimation uncertainty" above. The Group outsources its manufacture to third party specialist electronicsmanufacturers, in particular to Solectron Corporation and to Asustek. Regulatory Like all other businesses, the Group remains exposed to changes in theregulatory environment, including potential modifications in import dutyregimes, discussions on which have been and continue to be held. The Company hasmanaged the implementation of the EU WEEE and RoHs directives in the period. 2 Revenue 52 weeks 52 weeks ended ended 3 June 2006 2 June 2007 £000 £000 The geographical analysis of revenue by destination is: United Kingdom 69,487 64,446 Continental Europe 62,693 56,517 Asia Pacific 30,888 38,309 North America 223,239 18,823 Rest of the World 206 - ____________ ____________ 386,513 178,095 ____________ ____________ 3 Exceptional items 52 weeks ended 52 weeks ended 2 June 2007 3 June 2006 £000 £000 Exceptional charge in respect of US product - 9,000 Restructuring and reorganisation costs 1,208 2,383 Impairment loss on trade investment - 505 ____________ ____________ 1,208 11,888 ____________ ____________ The restructuring and reorganisation charges relate to a restructuring programme within the Group. An exceptional charge was made in the 52 weeks ended 3 June 2006 following the delay in the delivery of US product, which charge was reflected as a £5.5m inventory write down and a £3.5m impairment charge against capitalised development costs. The US product relates to the HD PVR product for the US cable market, where delays have affected the anticipated product life. The impairment loss in the 52 weeks ended 3 June 2006 related to the Company's investment in VegaStream Limited. 4 Tax credit/(charge) 52 weeks ended 52 weeks ended 2 June 2007 3 June 2006 £000 £000 The tax credit/(charge) is based on the estimated effective rate of taxation on trading for the period and represents: United Kingdom corporation tax at 30% - - Overseas tax (240) (212) Deferred tax 2,081 (1,122) ____________ ____________ 1,841 (1,334) ____________ ____________ 5 Earnings/(loss) per ordinary share Basic earnings/(loss) per ordinary share have been calculated by reference to the profit/(loss) after taxation, and the average number of qualifying ordinary shares of 5p in issue of 225,501,387 (2006: 221,742,588). Diluted earnings/(loss) per ordinary share vary from basic earnings/(loss) per ordinary share due to the effect of the notional exercise of outstanding share options. The diluted earnings are the same as basic earnings/(loss). The diluted number of qualifying ordinary shares was 226,873,420 (2006: 224,618,352). 6 Provisions Royalties Onerous Warranties Total under contracts £000 £000 negotiation £000 £000 At 3 June 2006 6,262 493 8,036 14,791 Charge for the period 1,854 - 4,134 5,988 Utilised (643) (493) (5,578) (6,714) ____________ ___________ ____________ ___________ At 2 June 2007 7,473 - 6,592 14,065 ____________ ___________ ____________ ___________ Due within one year - - 4,419 4,419 Due after more than one year 7,473 - 2,173 9,646 Circulation to shareholders The Annual Report and Accounts will be posted to shareholders as soon aspracticable and will be available to the public from the Company's registeredoffice at Pace Micro Technology plc, Victoria Road, Saltaire, West Yorkshire,BD18 3LF. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
PIC.L