Overview: off the pace?

Next week Pace Micro Technology will reveal its preliminary results for 2006
and the figures are not expected to make easy viewing for the digital set-top
box maker. It has also been a period of change ­ while finance director David
Brockson has remained in place, both his chief executive and chairman have been
replaced in recent months.

What’s happened?

Brockson and new chief executive Neil Graydon, an insider who was given the
top job in April following the retirement of John Dyson, are presiding over a
company that has been forced to make several profit warnings in the last year,
largely due to development hold-ups in the US.

Currently, analysts are predicting the company will reveal a pre-tax loss in
the region of £15m on revenues of £180m. All will be revealed on 4 September:
Oriel Securities is predicting a loss of £15.4m. That said, the Yorkshire-based
company has started to ship its high-definition TV boxes in Italy and Germany,
as well as cable kit in the Netherlands, which allowed TV operators to meet
demand prior to the World Cup.

What’s going to happen?

While many eyes are on the potential market for high-definition TV, there are a
couple of technical issues that could have an impact on the company.

Pace and its investors are watching developments among the EU’s customs
authorities with interest. There is the possibility that customs regulations
could be reinterpreted to allow the extension of import duties to interactive
set-top boxes manufactured outside, but imported into, the EU.

FD Brockson could also need to grapple with IAS 38 (intangible assets).
Depending on the board’s view on the outcome of 2006/07, there could be an
impact on some carrying values at the current year-end, in particular the
carrying values of goodwill and development expenditure capitalised under the

Until all of these issues and the problems in the US are resolved, the
company has readily admitted to a higher than usual degree of uncertainty in
predicting the outcome of its next financial year.

Pace has said its new executive management team will be reviewing all aspects
the company’s operations to improve efficiencies in all areas, in particular
product development and delivery, but believes it will still be able to
capitalise on the anticipated growth of high-definition broadcasting.

This is why some brokers are saying that the company remains a ‘buy’.


Last year Pace signed contracts with two big US cable companies, Comcast and
DirecTV, but earnings from the deals were pushed from the first to the second
half, and then to the next financial year as the orders were recast and Pace
suffered from industry-wide component shortages. In March this year the company
made its third profit warning in six months after more delivery delays in the
US. However, the picture looks better elsewhere as shipments to Australia, New
Zealand and several European countries are expected to boost revenues.

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