Pace Micro Technology plc

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• Pace Micro Technology plc
• Results for the period ended 29 May 2004
• 12 July 2004

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SALIENT POINTS

• Turnover 239.9m (2003 166.6m)
• Profit before tax, amortisation of goodwill and
  exceptional items 5.9m (2003 loss of 16.2m)
• Gross margin 19.0 (2003 20.9 before
  exceptional items)
• Adjusted diluted earnings per share before
  exceptional items and amortisation of goodwill
  4.5p (2003 loss per share 6.8p)

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SALIENT POINTS

• Overheads before exceptional items and
  amortisation of goodwill reduced to 39.8m (2003
  50.9m)
• Net cash position 20.4m (2003 net cash 13.1m)
• Shipments increased to 2.2 million set-top boxes
  (2003 1.3 million)
• Good order book cover for H1 2004/05

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SUMMARY FINANCIAL PERFORMANCE
m
m
5
BALANCE SHEET
m
m
6
CASH FLOW
m
m
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REVENUE BY GEOGRAPHIC MARKET
Revenues by half year
UK market solid performance US revenues
improving EMEA/APAC significant growth
m
UK
US
EMEA/ APAC ROW
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REVENUE CONTRIBUTION BY GEOGRAPHIC MARKET
To 29 May 2004
To 31 May 2003
9
6
11
33
83
58
EMEA/ APAC ROW
UK
US
9
GROSS MARGIN
before exceptional items
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OVERHEADS m
m
SGA
Overall
Engineering
excluding exceptional items and goodwill
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HEADCOUNT
SGA
Overall
Engineering
Tata Elxsi
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Business Review
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MAJOR CUSTOMER HIGHLIGHTS
Viasat
BSkyB Ntl Telewest
KDG Premiere
Sky Italia
Time Warner Comcast Bright House
Foxtel
Existing
New
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BUSINESS HIGHLIGHTS 2004

• Pace taking advantage of momentum in digital TV
  markets
• Non-UK revenues now 102m, 42 of overall
  revenues
• Volume growth aided by ASP reduction
• Focus on payTV operators
• Benefiting from customer wins in Europe and
  Australia
• New engineering initiatives
• Growing skills in personal video recorder (PVR)
  and high definition (HD)
• New strategies for software and hardware delivery
• Expansion of future technologies team

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UNITED KINGDOM AND IRELAND
Continues to be an important market for
Pace Shipments approximately 1 million
boxes Currently supplying BSkyB, Ntl and
Telewest Sky volumes growing Moving away from
Freeview market New shipments to UK cable
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EMEA APAC
New business wins broaden revenue base Customer
list now includes Foxtel (Australia) Kabel
Deutschland (Germany) Premiere (Germany) Pace
delivering to new customer demand Low-cost
launch boxes to launch services Followed by
demand for PVR Will now target New EU
entrants Asia low-cost market Telecommunications
operators
Sky Italia Viasat (Scandinavia)
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US
Shipments continuing to grow Benefiting from
growth in HDTV services Competition between cable
satellite stimulating demand Good customer
relationships Time Warner Cable Comcast
Communications Bright House Networks First
set-top box for networks using the Motorola CA
well advanced Development well underway on first
HD PVR
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DEVELOPMENT STRATEGY

• Engineering efficiencies significantly improved
  delivering more projects, to shorter timescales
• A new phase of engineering enhancements underway
• Improvements to software organisation
• Expanding use of outsourcing
• Plan to double number of outsourced software
  engineers
• Introducing hardware outsourcing for low-cost
  range

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PVR AND HIGH DEFINITION

• PVR and High Definition - the future of digital
  TV
• Reduces churn increases spend
• Competitive differentiator
• Personal Video Recorders
• Today enhance the viewing experience
• Future basis for new strategies e.g. multiroom
• Pace delivered first payTV PVR
• High Definition
• Superior picture quality
• Possibly the most significant leap forward in
  CE technology in more than a century!
• Pace one of the HD pioneers in the US

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BROADBAND VIDEO

• Pace is at forefront of Broadband Video
  technology
• But market has been slow to develop
• Increasing number of broadcasters and
  telecommunications operators adopting technology
• New streaming protocols codecs aiding
  development
• Low bit rate codecs extending content reach
• WM9
• MPEG4
• Costs now tangible
• Pace has family of Digital Broadband Media
  products

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PRODUCT DELIVERY STRATEGY

• Continuing to see marked increase in volumes
• Building outsourced manufacturing
• Brought on new facility in China
• Adding lines to Romanian facility
• Manufacturing strategy delivering benefits
• Saving in working capital and fixed asset
  investments
• Some component shortages/price increases
• Flash, SD-RAM and core silicon
• Well advanced in lead-free manufacturing
  techniques

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IN SUMMARY

• Marked improvement in performance
• Turnover shipments up
• New customer wins
• Demand for new technologies growing
• Strong cost management
• Against background of
• Lower average selling prices
• Tight supply chain
• Competitive margin pressure

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OUTLOOK

• Overall we expect
• Gross margins to be lower
• Total turnover to increase
• Positive cash generation
• In our markets we expect
• UK turnover to reduce
• European and Asia Pacific business to grow
• Improvements to US position