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Pace Micro Technology PLC
12 January 2004
Pace Micro Technology plc
Interim Report 2004
12 January 2004
Pace Micro Technology plc
for the 26 weeks ended 29 November 2003
SALIENT POINTS
* Turnover increased 32% to #110.4m (2002: #83.4m);
* Profit before tax and amortisation of goodwill #1.1m (2002: loss
#15.9m);
* Adjusted diluted earnings per share before amortisation of goodwill
0.7p (2002: loss per share 7.3p);
* Overheads for half year reduced to #20.1m, with annual run rate down to
#40m p.a. (year ended 31 May 2003: #52.3m);
* Net cash position #13.8m (31 May 2003: #13.1m);
* Modest improvement in business performance expected.
Pace Micro Technology's Chairman Sir Michael Bett commented:
"I am pleased to announce that Pace has returned to profit following a difficult
couple of years. We see opportunities for development in both continental Europe
and Asia, which should result in a modest improvement in the performance of the
business."
Chairman's Statement
Pace's results for the six months ending 29 November 2003 continued the
improvement that started in the first half of calendar 2003 and the Board is
pleased to report that the Group has made a welcome return to profit.
Results
Turnover on Pace's digital set-top box sales and additional services rose 32% to
#110m (2002: #83m). Profit before tax and amortisation of goodwill was #1.1m
(2002: loss #15.9m). Earnings per share were 0.7p (2002: loss 7.3p).
Trading and financial review
During the period under review Pace shipments rose 51% to 985,000 units and
approximately 50% of these units were for the UK market. In the UK revenues
remained fairly stable; a decline in average selling prices was offset by an
increase in unit shipments through BSkyB's continued acquisition of subscribers
and a marked increase in Sky+ demand towards the end of the period. However as
expected, our cable customers took very little product.
Asia Pacific and continental Europe generated the majority of Pace's growth in
this period, accounting for 45% of shipments by volume. These markets are now
showing more activity than they have for several years and Pace shipped boxes to
over 20 different countries, with Sky Italia becoming one of our largest
customers. We made our first shipments to Viasat in Scandinavia and the first
boxes were shipped to Foxtel in Australia to enable them to commence their
trials. In Germany, our box is in final testing at Premiere and we have
recently signed a contract with Kabel Deutschland. We envisage that these
markets will be important sources of demand over the next year.
Within the US market, demand remains slow and Pace shipped 45,000 boxes, albeit
at better margins than previously achieved. The low level of shipments, high
level of engineering and customer support have resulted in continuing losses in
our US operations. However consumer demand for high-definition (HD) content,
set top boxes, televisions and displays is accelerating. Cable operators are
beginning to focus their attention on digital video recorders (DVRs), during the
period Pace commenced its DVR development programme for this market.
The global set-top box market remains highly competitive, reflected in the gross
margin of 19.1% (2002: 12.7%). The 2002 margin was lower than normal due to
one-off losses incurred on the initial Sky+ shipments, removing this impact
gives a like-for-like margin comparison of 19.1%.
As a result of the business restructuring effected in the last financial year,
overheads for the half year were reduced to #20.1m, with the annual cost run
rate reducing to #40m from #52.3m in the year ended 31 May 2003.
Net assets were unchanged at around #45m. Within net current assets, debtors
decreased to #56.2m (31 May 2003: #57.2m), creditors decreased to #34.1m (31 May
2003: #38.6m), stocks decreased to #14.3m (31 May 2003: #16.0m) and net cash
increased a little to #13.8m (31 May 2003: #13.1m).
Our world class engineering expertise is being enhanced, which includes
development of some software in India. We are also improving competitiveness
through new product innovation, cost-effective designs and quality improvements.
Dividend
The Board has decided not to declare an interim dividend (as last year). The
position for the full year will be reviewed in the light of the results for the
second half of the year.
Outlook
The dynamics of the global digital TV markets means that the outlook varies from
region to region.
In the UK, more than half of homes have digital TV and the increase in
penetration is likely to continue. However, due to the decline in average
selling prices, we expect to see a reduction in our UK revenues over current
levels.
Continental Europe and Asia represent opportunity for future growth, which will
be stimulated by lower set-top box prices and DVR deployments, enabling
broadcasters and operators to roll out their digital services in a profitable
way.
In the US our goal is to grow our relatively small market share through our
engagements with Comcast and Time Warner, together accounting for over 50% of
the US cable market.
Since the close of the first half the US dollar has declined, which in principle
should benefit margins, as lower product costs will offset the decline in
average selling prices. However, it is not possible to predict the impact of
future exchange rate developments.
Overall we expect our business performance to continue to improve. This will
depend on our ability to win the available business and our customers'
willingness and financial ability to develop their services and utilise Pace
set-top box technology in volume.
Sir Michael Bett
Chairman
12 January 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE 26 WEEKS ENDED 29 NOVEMBER 2003
Note 26 weeks ended 26 weeks ended 52 weeks ended
29 Nov 2003 30 Nov 2002 31 May 2003
(unaudited) (unaudited) (audited)
#000 #000 #000
Turnover 2 110,412 83,408 166,597
Cost of sales:
Recurring (89,314) (72,777) (131,794)
Exceptional 3 - - (2,542)
_____________ _____________ _____________
Gross profit 21,098 10,631 32,261
Other operating income and charges:
Recurring (20,433) (26,832) (52,257)
Exceptional 3 - - (29,981)
_____________ _____________ _____________
Operating profit/(loss) 665 (16,201) (49,977)
Net interest receivable/(payable) 109 (218) (100)
_____________ _____________ _____________
Profit/(loss) on ordinary activities before taxation 774 (16,419) (50,077)
Tax on profit/(loss) on ordinary activities 4 486 2,289 2,046
_____________ _____________ _____________
Profit/(loss) on ordinary activities after taxation 1,260 (14,130) (48,031)
Dividends payable 6 - - -
_____________ _____________ _____________
Retained profit/(loss) for the financial period 1,260 (14,130) (48,031)
_____________ _____________ _____________
Basic earnings/(loss) per ordinary share 5 0.6p (7.5)p (22.0)p
Diluted earnings/(loss) per ordinary share 5 0.6p (7.5)p (22.0)p
Dividend per ordinary share 6 Nil Nil Nil
The results from the current period derive from continuing operations.
RESULTS BEFORE AMORTISATION OF GOODWILL AND EXCEPTIONAL ITEMS
#000 #000 #000
Operating profit/(loss) 947 (15,666) (16,053)
Profit/(loss) on ordinary activities before taxation 1,056 (15,884) (16,153)
Adjusted basic earnings/(loss) per ordinary share 0.7p (7.3)p (6.8)p
Adjusted diluted earnings/(loss) per ordinary share 0.7p (7.3)p (6.8)p
CONSOLIDATED BALANCE SHEET
AT 29 NOVEMBER 2003
29 Nov 2003 30 Nov 2002 31 May 2003
Note (unaudited) (unaudited) (audited)
#000 #000 #000
Fixed assets
Intangible 9,661 30,648 10,000
Tangible 8,747 13,445 10,269
Investments 7 2,515 4,015 2,515
____________ ____________ ____________
20,923 48,108 22,784
____________ ____________ ____________
Current assets
Stocks 14,325 25,146 15,967
Debtors 8 56,153 52,752 57,201
- due within one year 50,997 44,506 49,317
- due after more than one year 5,156 8,246 7,884
Cash at bank and in hand 14,154 15,677 13,410
____________ ____________ ____________
84,632 93,575 86,578
Creditors: amounts falling due within one year (34,109) (32,286) (38,638)
____________ ____________ ____________
Net current assets 50,523 61,289 47,940
____________ ____________ ____________
Total assets less current liabilities 71,446 109,397 70,724
Creditors: amounts falling due after more than one (257) (288) (288)
year
Provisions for liabilities and charges 9 (26,029) (26,370) (26,331)
____________ ____________ ____________
Net assets 45,160 82,739 44,105
____________ ____________ ____________
Capital and reserves
Called up equity share capital 11,316 11,312 11,312
Share premium account 35,434 35,426 35,427
Shares to be issued - 5,360 -
Merger reserve - 17,209 -
Profit and loss account (1,590) 13,432 (2,634)
____________ ____________ ____________
Total shareholders' funds 45,160 82,739 44,105
____________ ____________ ____________
CONSOLIDATED CASH FLOW STATEMENT
FOR THE 26 WEEKS ENDED 29 NOVEMBER 2003
26 weeks ended 26 weeks ended 52 weeks ended
29 Nov 2003 30 Nov 2002 31 May 2003
(unaudited) (unaudited) (audited)
Note #000 #000 #000
Net cash inflow from operating activities 10 6,470 28,858 32,093
Returns on investments and servicing of finance 101 (617) (496)
Taxation 758 9,074 9,082
Capital expenditure and financial (1,477) (1,374) (2,001)
investment
Acquisitions and disposals (5,093) - (5,000)
Equity dividends paid - (1,523) (1,528)
____________ ____________ ____________
Cash inflow before financing 759 34,418 32,150
Financing (15) (49) (48)
____________ ____________ ____________
Increase in cash in the period 744 34,369 32,102
____________ ____________ ____________
Reconciliation of net cash flow to movement in net funds/(debt)
Increase in cash in the period 744 34,369 32,102
Cash flow from decrease in debt 26 49 49
____________ ____________ ____________
Movement in net funds in the period 770 34,418 32,151
Net funds/(debt) at start of period 13,077 (19,074) (19,074)
____________ ____________ ____________
Net funds at end of period 13,847 15,344 13,077
____________ ____________ ____________
ANALYSIS OF CHANGES IN NET FUNDS
At 31 May 2003 Cashflow At 29 Nov 2003
#000 #000 #000
Cash at bank and in hand 13,410 744 14,154
Debt due within one year (45) (5) (50)
Debt due after one year (288) 31 (257)
____________ ____________ ____________
13,077 770 13,847
____________ ____________ ____________
NOTES
1 Basis of preparation
The interim financial information for the 26-week period ended 29 November 2003 has not been audited,
nor has the interim financial information for the 26-week period ended 30 November 2002. They comply
with relevant accounting standards and have been prepared on a consistent basis using the accounting
policies set out in the 2003 Annual Report and Accounts. The figures for the 52-week period ended 31
May 2003 do not constitute the Group's statutory accounts for that period but have been extracted
from the statutory accounts, which have been filed with the Registrar of Companies. The auditors have
reported on those accounts and that report was unqualified and did not contain a statement under
Section 237(2) or (3) of the Companies Act 1985. The accounts for the full year will be for the
52-week period ending 29 May 2004.
Uncertainty arising from market conditions
There is some evidence of improved outlook over the last six months in the global technology market,
but risks remain in the digital broadcasting industry. Lower selling prices are a feature of current
and anticipated market conditions.
The Group has remained cash positive since July 2002, whilst maintaining bank facilities in an amount
of #20m. These facilities are due to expire in July 2004 but may be further renewed.
The Board has considered these factors in reviewing its working capital forecasts. Based on this, the
Board has concluded that, whilst recognising there is some uncertainty, the Group has appropriate
existing banking arrangements and that, in the event it should need to, it will be able to maintain
such facilities.
The Board has therefore concluded it is appropriate to confirm the going concern basis of preparation
for the financial statements.
2 Turnover
26 weeks ended 26 weeks ended 52 weeks ended
29 Nov 2003 30 Nov 2002 31 May 2003
(unaudited) (unaudited) (audited)
#000 #000 #000
The geographical analysis of turnover by
destination is as follows:
United Kingdom 58,191 64,999 137,494
Europe 41,915 4,542 9,806
Far East (including Australasia) 1,241 5,593 9,060
North America 6,925 7,287 9,911
Rest of the World 2,140 987 326
____________ ____________ ____________
110,412 83,408 166,597
____________ ____________ ____________
3 Exceptional items
26 weeks ended 26 weeks ended 52 weeks ended
29 Nov 2003 30 Nov 2002 31 May 2003
(unaudited) (unaudited) (audited)
#000 #000 #000
Restructuring costs - - 5,900
Onerous contracts - - 3,671
Impairment of own shares held in ESOP and QUEST - - 1,500
Impairment of Xcom Multimedia goodwill - - 21,452
____________ ____________ ____________
- - 32,523
____________ ____________ ____________
4 Tax on profit/loss on ordinary activities
26 weeks ended 26 weeks ended 52 weeks ended
29 Nov 2003 30 Nov 2002 31 May 2003
(unaudited) (unaudited) (audited)
#000 #000 #000
The tax charge/(credit) is based on the
estimated effective rate of taxation for the
period and represents:
United Kingdom corporation tax at 30% (909) 129 -
Overseas tax 39 290 300
Deferred tax (see note 8) 384 (2,708) (2,346)
____________ ____________ ____________
(486) (2,289) (2,046)
____________ ____________ ____________
5 Earnings per ordinary share
Basic earnings/(loss) per ordinary share have been calculated by reference to the profit/(loss) before
and after the amortisation of goodwill and exceptional items, and after taxation, and the average
number of qualifying ordinary shares of 5p in issue of 218,251,847 (2002: 218,180,942).
Diluted earnings/(loss) 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/(loss) are the same
as basic earnings/(loss). The diluted number of qualifying ordinary shares was 223,912,904 (2002:
218,638,976).
6 Dividends payable
The directors have not declared an interim dividend (2002: Nil).
7 Investments
An amount of #2,515,000 (2002: #4,015,000) is held by the Pace Micro Technology Employee Benefits
Trust and the QUEST in respect of own shares purchased to satisfy options granted to employees.
Debtors
8
Debtors include a deferred tax asset of #7,500,000 (2002: #8,246,000), of which #5,156,000 (2002:
#8,246,000) is due after more than one year.
9 Provisions for liabilities and charges
Royalties Onerous Warranties Total
under contracts #000 #000
negotiation #000 Corporation
(see below) tax
#000 #000
At 31 May 2003 10,491 3,671 2,082 10,087 26,331
Net charge for the 830 - 2,047 - 2,877
period
Utilised (504) (1,315) (1,360) - (3,179)
____________ ____________ ____________ ____________ ____________
At 29 November 2003 10,817 2,356 2,769 10,087 26,029
____________ ____________ ____________ ____________ ____________
The owners of patents covering technology allegedly used by the Group have
indicated claims for royalties relating to the Group's use (including past
usage) of that technology. Whilst negotiations over these liabilities continue,
they are not concluded. The directors have made provision for the potential
royalties payable based on the latest information available. Having taken legal
advice, the Board considers that there are defences available that should
mitigate the amounts being sought. The Group will vigorously negotiate or
defend all claims but, in the absence of agreement, the amounts provided may
prove to be different from the amounts at which the potential liabilities are
finally settled.
The directors consider that to disclose the amounts unused following the
negotiation of royalty claims during the period would be seriously prejudicial
to other royalty claims under negotiation, in litigation or dispute.
Accordingly the directors have aggregated amounts released unused with
additional provisions made in order to arrive at the net charge for the period.
10 Net cash inflow from operating activities
26 weeks ended 26 weeks ended 52 weeks ended
29 Nov 2003 30 Nov 2002 31 May 2003
(unaudited) (unaudited) (audited)
#000 #000 #000
Operating profit/(loss) 665 (16,201) (49,977)
Exceptional items - - 32,523
__________ __________ ________
Operating profit/(loss) before exceptional 665 (16,201) (17,454)
items
Goodwill amortisation 282 535 1,401
Depreciation 2,681 3,293 6,303
Loss/(profit) on sale of tangible fixed assets 178 (29) 595
Decrease in stocks 1,642 21,398 30,752
Decrease in debtors 796 30,577 25,759
Increase/(decrease) in creditors 528 (18,792) (15,714)
(Decrease)/increase in provisions for
liabilities and charges
(302) 8,077 451
____________ ____________ ____________
Net cash inflow from operating activities 6,470 28,858 32,093
____________ ____________ ____________
11 Contingent Liability
The Company is currently involved in a dispute relating to events two years ago with a maximum
liability of #1.5 million. On the basis of advice received, the Company is contesting both the
basis and quantum and the matter is likely to be resolved within the next twelve months. In the
opinion of the directors the outcome is uncertain as to basis and quantum and therefore the
Company has not made a provision in these results.
Copies of this Interim Report will be sent shortly to shareholders and are
available on application to the Registered Office: Pace Micro Technology plc,
Victoria Road, Saltaire, Shipley, West Yorkshire, BD18 3LF.
There will be an analysts' presentation at 9.00am at Citigate Dewe Rogerson's
office at 26 Finsbury Square, London, EC2.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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