29th Jan 2008 07:00
Pace Micro Technology PLC29 January 2008 Pace Micro Technology plc results for the seven month period ended 31 December 2007 29 January 2008 Saltaire, UK, 29 January 2008, Pace Micro Technology, the leading independentdeveloper of digital TV technologies for the global payTV industry, announcesits audited financial results for the seven month period ended 31 December 2007. Operating Highlights • Exceptional performance during the period, in line with increased expectations • Solid underlying business trends, platform for growth now embedded • Good balance of business across the group and broadened product range • Volume shipments of 2.4m set-top boxes (year ended 2 June 2007: 3.9m) Financial Highlights • Revenues of £249.9m (year ended 2 June 2007: £386.5m) • Gross margin improvement to 20.3% (year ended 2 June 2007: 15.9%) • Profit before tax £15.4m (year ended 2 June 2007: £4.9m) • Earnings per share of 6.1p (year ended 2 June 2007: 3.0p) Outlook • Board continues to be confident that Pace will meet its expectations for the 2008 financial year Commenting on the results, Neil Gaydon, Chief Executive Officer, said: "I am pleased to report exceptional results for the shortened financial year,which met our increased expectations. We strengthened our position as theleading digital TV technology company with both new and existing customers,delivered new products and technologies and increased market share in key areassuch as high definition and PVR. We continue to focus on delivering profitableproducts on time, closely managing our business and investing in the right keytechnologies for the future. At the end of 2007 we announced we intend toacquire the set-top box and connectivity solutions business of Royal PhilipsElectronics. This deal would make Pace the world leading set-top box technologycompany with an unmatched global customer portfolio." Contacts Fiona Laffan/Tim Williamson/Raphael Mazet Neil Gaydon/Stuart Hall/Helen KettleboroughBrunswick Pace Micro Technology+44 20 7404 5959 Today only - +44 20 7404 5959 Thereafter - +44 1274 538005 Results Overview Pace is the leading company in digital TV technology and creates products formany of the world's most successful digital payTV operators. The Company hasdelivered exceptional performance during the period, meeting its increasedexpectations, due to ongoing action to improve business efficiencies andexceptional performance in North America, principally in satellite. At the sametime, the organisational changes which are now complete have structured Pace'sbusiness around the technologies and needs of its customers, and provided Pacewith a solid and sustainable platform for growth. Product margins, execution and quality all continued to improve throughout theperiod and Pace has increased profit before tax to £15.4m (year ended 2 June2007: £4.9m) on revenues of £249.9m (year ended 2 June 2007: £386.5m). Pace's revenues remain well balanced between its markets in North America (58%of total) and European and Australasian markets (42%). Pace has continued to winnew customers in both market groups while also growing market share fromexisting customers. North America, the world's largest market for digital television technology, hasperformed strongly with shipments of 0.9m set-top boxes in the seven monthperiod (year ended 2 June 2007: 1.2m). Strengthening its US market position byinvesting early in next generation products, Pace has been quick to market withits new OCAP-ready CableCARDTM range to meet new US regulatory requirements forseparable security in cable set-top boxes. Orders of CableCARD products havebegun to increase, while demand for satellite products remained strong. Pacecontinued to develop and deepen its customer relationships in North America inthe period and now supplies over 40 operators, including the two largest payTVorganisations, DirecTV and Comcast, where Pace has order coverage through 2008. Pace performed strongly in the EMEA and APAC markets, achieving a level ofshipments into the EMEA region of 1.3m set-top boxes (year ended 2 June 2007:2.2m), and shipments into the APAC region of 0.2m (year ended 2 June 2007:0.4m). Demand for HD PVR has grown and Digiturk has recently launched a HD PVRservice using Pace set-top boxes, which is also the first implementation ofPace's new Irdeto conditional access / OpenTV middleware platform. As expectedthis platform is enabling Pace to win further new customers in these regions andin September Pace announced a business win with Multichoice in South Africa.Multichoice is typical of the customers Pace aims to work with: the leadingpayTV operator in a region with rights to the best content, strong engineeringand a customer base receptive to the latest developments in digital TVtechnology. Most recently Pace was chosen by existing customer Viasat to launchHD PVR in the Nordic countries. Multichoice and Digiturk have extended Pace's customer-base of leading payTVoperators that also includes BSkyB, Sky Italia, and UPC in EMEA. In Australiaand New Zealand Pace has continued to ship products to Foxtel, Optus and Sky NewZealand. Looking further ahead, Pace is building on its leadership and skills in digitalTV technology to develop in new markets. Key initiatives include Pace Networks,a new business unit to target opportunities further up the digital deliverychain, and a re-entry into retail markets with an advanced hybrid product. Thefirst Networks product will be MultiDwellerTM, a network class of product thatconverts existing wiring in apartment blocks into high-speed triple-playbi-directional networks, without the need for any modification or additionalcabling. Financial Review The Pace Board resolved on 23 July 2007 to change its Accounting Reference Datefrom 31 May to 31 December. Accordingly the results reported are for the 7 monthperiod to 31 December 2007 with comparatives for the year ended 2 June 2007. In the seven month period Pace shipped 2.4m set-top boxes (year ended 2 June2007: 3.9m) with revenues of £249.9m (year ended 2 June 2007: £386.5m). Averageselling prices rose from £100 to £102, reflecting the ongoing trend in demandfor higher specification products such as HD PVR, a demand Pace has been able tomeet due to its ongoing early investment in new technology. Gross margin of20.3% shows a significant improvement from the previous year (year ended 2 June2007: 15.9%) through thorough and close management of the business. Overheads, excluding the impact of IAS38, were £37.2m (year ended 2 June 2007:£55.7m, excluding restructuring costs). R&D spend before capitalisation ofdevelopment expenditure in line with IAS38 was £21.5m (year ended 2 June 2007:£31.3m) as Pace continued to invest in higher specification products such as HDPVR and new technologies. The IAS38 adjustment was a net credit of £2.2m (yearended 2 June 2007: net credit £2.4m) principally as a result of the investmentin Multi-Dweller and retail products that are scheduled to be launched during2008. Profit before tax was £15.4m (year ended 2 June 2007: £4.9m). The interestcharge was £0.5m (year ended 2 June 2007: £2.2m) the reduced level of chargesreflecting higher levels of cash held during the period. A tax charge of £0.9m(year ended 2 June 2007: credit £1.8m) reflects overseas tax charges of £0.4mand deferred tax movements of £0.5m (relating to change in UK Corporation taxrate from 30% to 28%). Retained profit for the period was £14.4m (year ended 2June 2007: £6.8m). The Board does not recommend the payment of a dividend, butis keeping the position under review. The net working capital position at 31 December 2007 was £58.4m (2 June 2007:£30.5m). This change was due to an inventory increase of £3.4m (in line withnormal working capital requirements), debtor increase of £49.8m and creditorincrease of £13.3m. Debtors increased due to the exceptional sales performanceand debtor days increased to 52 days (year ended 2 June 2007: 46 days) due tocustomer mix. Creditor days of 64 days remained in line with the prior year of65 days. Due to the increase in the level of working capital at the period end, the Groupfinished the period with a net borrowings position of £12.1m (2 June 2007: netcash £11.9m). Philips STB and CS business Proposed Acquisition On 19 December 2007 Pace announced that it had entered into a conditionalagreement to acquire the set-top box and connectivity solutions business ofRoyal Philips Electronics. The Philips STB and CS Business employs approximately335 staff predominantly based in France and is a leading designer and supplierof a range of digital TV products including satellite, cable, terrestrial andIPTV set-top box products. While the Board is confident in the organic growthprospects for Pace, the proposed acquisition would provide complementary productranges, customers and geographical reach to Pace's existing business. The acquisition is classified as a 'reverse takeover' under the Listing Rules byvirtue of its size and is as a result conditional, inter alia, on the approvalof Pace shareholders which will be sought at a General Meeting of Pace expectedto take place in March 2008 following posting of the circular and publication ofthe prospectus. As the acquisition is classified as a 'reverse takeover', theordinary shares of Pace have been suspended from trading since 19 December 2007and will re-commence trading on the posting of the circular to shareholders andpublication of the prospectus, expected to be in early March. Outlook The Board is pleased with progress and the benefits the organisation isdelivering in the form of a solid, sustainable platform for growth that has beenembedded across the group. Demand is being driven by increasing competition between payTV providers, newentrants, new content delivery systems and analogue switch off in many markets,and these fundamental trends are expected to stimulate growth for theforeseeable future. For example, according to market analysts, by the end of2007 it is expected that only 4% (just over 2m) of digital set-top boxes shippedinto Europe, the Middle East and Africa (EMEA) will be HD, while during the sameperiod 16m new HD-ready TV panels will have been shipped. While the market remains difficult to predict and Pace's performance is largelypredicated on the performance of its customers, the Board is confident that Paceis investing in the right products and technologies to meet the demands of itsgrowing customer base. Following the exceptional sales performance and improvements made across theGroup in 2007 the Board is confident it is on track to meet its expectations forthe 2008 financial year. Neil GaydonChief Executive Officer29 January 2008 CONSOLIDATED INCOME STATEMENTFOR THE 7 MONTHS ENDED 31 DECEMBER 2007 Note 7 months ended 52 weeks ended 31 Dec 2007 2 June 2007 £000 £000 Revenue 2 249,875 386,513Cost of sales (199,040) (324,865) _____________ _____________Gross profit 50,835 61,648 Administrative expenses:Research and Development expenditure (19,293) (28,949)Other administrative expenses:Before exceptional items (15,656) (24,379)Exceptional items 3 - (1,208) _____________ _____________Total Administrative expenses (34,949) (54,536) _____________ _____________Operating profit 15,886 7,112 Finance income 53 138Finance expenses (589) (2,325) _____________ _____________Profit before tax 15,350 4,925 Tax (charge)/credit 4 (935) 1,841 _____________ _____________Profit after tax 14,415 6,766 _____________ _____________Attributable to: 14,415 6,766Equity holders of the CompanyBasic earnings per ordinary share 5 6.3p 3.0pDiluted earnings per ordinary share 5 6.1p 3.0p CONSOLIDATED BALANCE SHEETAT 31 DECEMBER 2007 Note 31 Dec 2007 2 June 2007 £000 £000ASSETSNon Current AssetsProperty, plant and equipment 8,621 6,508Intangible assets - goodwill 9,436 9,436Intangible assets - developmentexpenditure 15,882 13,670Available for sale financial assets 349 349Deferred tax assets 5,059 4,968 ____________ ____________Total Non Current Assets 39,347 34,931 ____________ ____________Current AssetsInventories 28,668 25,268Trade and other receivables 102,382 52,563Cash and cash equivalents - 12,049 ____________ ____________Total Current Assets 131,050 89,880 ____________ ____________Total Assets 170,397 124,811 ____________ ____________EQUITY 11,684 11,659Issued capital 36,885 36,751Share premium 425 227Translation reserve 18,608 2,300Retained earnings _______ _______Total Equity 67,602 50,937LIABILITIES _______ _______Non Current Liabilities - 99Interest bearing loans and borrowings 12,487 9,646Provisions 6 _______ _______Total Non Current Liabilities 12,487 9,745Current Liabilities _______ _______Trade and other payables 72,625 59,368Current tax liabilities 460 282Interest bearing loans and borrowings 12,094 60Provisions6 5,129 4,419 ____________ ____________Total Current Liabilities 90,308 64,129 ____________ ____________Total Liabilities 102,795 73,874 ____________ ____________Total Equity and Liabilities 170,397 124,811 ____________ ____________ CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share capital Share premium Translation Retained Total equity reserve earnings £000 £000 £000 £000 £000 ------- ------- -------- ------- -------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 theperiod - - (13) 6,766 6,753Employee shareincentive charges - - - 684 684Movement in employeeshare trusts - - - 445 445Issue of shares 83 505 - - 588 ------- ------- -------- ------- -------Balance at 2 June 2007 11,659 36,751 227 2,300 50,937 ------- ------- -------- ------- ------- Profit for the period - - - 14,415 14,415Currency translationadjustments - - 198 - 198 ------- ------- -------- ------- -------Total incomeand expense for the period - - 198 14,415 14,613Deferred tax adjustments - - - 606 606Employee shareincentive charges - - - 570 570Movement inemployee share trusts - - - 717 717Issue of shares 25 134 - - 159 ------- ------- -------- ------- -------Balance at 31 December 2007 11,684 36,885 425 18,608 67,602 ------- ------- -------- ------- ------- CONSOLIDATED CASH FLOW STATEMENTFOR THE SEVEN MONTHS ENDED 31 DECEMBER 2007 7 months ended 52 weeks ended 31 Dec 2007 2 June 2007 £000 £000 Cash flows from operating activities 15,350 4,925Profit before tax Adjustments for:Share based payments charge 570 684Depreciation of property, plant and equipment 2,483 4,277Amortisation of development expenditure 9,958 14,172Loss on sale of property, plant and equipment 136 90Net financial charge 536 2,187Movement in trade and other receivables (49,874) (9,966)Movement in trade and other payables 12,828 13,794Movement in inventories (3,400) 9,524Movement in provisions 3,551 (826) _____________ _____________Cash (used in)/generated from operations (7,862) 38,861Interest paid (468) (2,361)Tax paid (242) (124) _____________ _____________Net cash (used in)/generated fromoperating activities (8,572) 36,376 _____________ _____________Cash flows from investing activities (4,258) (3,256)Purchase of property, plant and equipmentDevelopment expenditure (12,170) (16,556)Interest received 53 138 ____________ ____________Net cash used in investing activities (16,375) (19,674) ____________ ____________Cash flows from financing activities Proceeds from issue of share capital 159 588Proceeds from exercise of employee share options 717 445Repayment of loans (159) (55) ____________ ____________Net cash generated from financing activities 717 978 ____________ ____________Net change in cash and cash equivalents (24,230) 17,680Cash and cash equivalents at start of period 12,049 (5,880)Effect of exchange rate fluctuations on cash held 87 249 ____________ ____________Cash and cash equivalents at end of period (12,094) 12,049 ____________ ____________ 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: Warranties Pace provides product warranties for its set-top boxes. It is difficult to makeaccurate 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. Going concern The Group has in place borrowing facilities to January 2010, based upon 85% ofrelevant trade debtors, as adjusted, up to a maximum of £35m. These facilitiesare subject to financial performance covenants. The Board has prepared a working capital forecast based upon assumptions as totrading and has concluded that the Group has adequate working capital, will meetthe financial performance covenants and that therefore it is appropriate to usethe going concern basis of preparation for this financial information. CHANGE OF YEAR END 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 in Group Accounting Reference Date would be made in order tomore closely align the Group's business reporting cycle with those of itsprincipal customers and suppliers. Financial information The financial information set out in this document does not constitute thecompany's statutory accounts for the 7 month period ended 31 December 2007, orthe 52 week period ended 2 June 2007, but is derived from the 7 month periodended 31 December 2007 accounts. Statutory accounts for the 52 week period ended2 June 2007 have been delivered to the Registrar of Companies, and those for the7 month period ended 31 December 2007, will be delivered in due course. Theauditors have reported on those accounts; their reports were (i) unqualified,(ii) did not include any references to any matters to which the auditors drewattention by way of emphasis without qualifying their reports and (iii) did notcontain statements under section 237(2) or (3) of the Companies Act 1985. 2 Revenue 7 months 52 weeks ended ended 2 June 2007 31 Dec 2007 £000 £000 The geographical analysis of revenue by destination is: United Kingdom 48,451 69,487 Continental Europe 41,107 62,693 Asia Pacific 15,586 30,888 North America 144,731 223,239 Rest of the World - 206 ____________ ____________ 249,875 386,513 ____________ ____________ 3 Exceptional items 7 months ended 52 weeks ended 31 Dec 2007 2 June 2007 £000 £000 Restructuring and reorganisation costs - 1,208 ____________ ____________ The restructuring and reorganisation charges in the prior period related to a restructuring programme within the Group. 4 Tax (charge)/credit 7 months ended 52 weeks ended 31 Dec 2007 2 June 2007 £000 £000 The tax (charge)/credit is based on the estimated effective rate of taxation on trading for the period and represents: Current tax: Overseas tax charge (420) (240) ____________ ____________ Total current tax charge (420) (240) Deferred tax: Origination and reversal of timing (1,367) 2,081 differences Adjustment in respect of previous 1,169 - periods Effect of change in tax rate (317) - ____________ ____________ (515) 2,081 ____________ ____________ Tax (charge)/credit (935) 1,841 ____________ ____________ 5 Earnings per ordinary share Basic earnings per ordinary share have been calculated by reference to the profit after taxation, and the average number of qualifying ordinary shares of 5p in issue of 229,141,578 (year ended 2 June 2007: 225,501,387). Diluted earnings per ordinary share vary from basic earnings per ordinary share due to the effect of the notional exercise of outstanding share options. The diluted earnings are the same as basic earnings. The diluted number of qualifying ordinary shares was 234,652,472 (year ended 2 June 2007: 226,873,420). 6 Provisions Royalties Warranties Total under £000 £000 negotiation £000 At 2 June 2007 7,473 6,592 14,065 Charge for the period 2,540 5,541 8,081 Utilised (805) (3,725) (4,530) ____________ ____________ ___________ At 31 December 2007 9,208 8,408 17,616 ____________ ____________ ___________ Due within one year - 5,129 5,129 Due after more than one year 9,208 3,279 12,487 Circulation to shareholders The Annual Report and Accounts will be made available in due course to Paceshareholders via Pace's website (www.pacemicro.com) unless a shareholder hasrequested to receive a printed copy. The Annual Report and Accounts will beavailable to the public from the Company's registered office at Pace MicroTechnology 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