Pace Micro Results for the 26 weeks ended 2 December 2006

Monday, February 5th, 2007 
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Performance demonstrates Pace has turned the corner, benefiting from improved financial performance and successful new product shipments worldwide. As a result revenues have more than doubled and the Company has returned to profit.

Operating Review

The first half of the 2006/07 financial year saw Pace work through the challenges that had been holding back deliveries on a number of new and highly complex set-top box products. These challenges were the result of delays in Pace’s and third parties’ software development, coupled with industry-wide difficulties in the development of silicon and software for the new MPEG-4/H.264 compression standard. The resolution of these issues has enabled the business to move forward.

EMEA

Pace shipped 1.0m set-top boxes into the EMEA region (2005: 0.9m), an increase of over 10% on the comparative period. Pace has continued to work with BSkyB, recently winning new business for Digibox and the Sky+ PVR for shipment later this calendar year. In Italy, shipments of a standard definition PVR commenced to Sky Italia, alongside ongoing shipments of both high and standard definition set-top boxes.

A new contract was signed with Digitürk, a major Turkish operator, for a high definition PVR and basic set-top box. The Digiturk product now in development uses a new combination of Irdeto conditional access and OpenTV middleware. These products are expected to create a series of new business opportunities for the Group, as a number of other payTV operators will require similar solutions.

In Germany Pace’s performance has been less successful following Premiere’s loss of Bundesliga football rights, which has had a direct impact on the demand. Amongst the Group’s European cable customers a new box for the UK market is now in testing and a new box for KDG in Germany is expected to ship later in 2007. Shipments to UPC in The Netherlands have been at a good level during the period.

Pace, along with other set top box manufacturers and broadcasters, continues to monitor the potential re-interpretation by European Union customs authorities of customs regulations that could result in the extension of import duties to interactive set-top boxes manufactured outside, but imported into, the EU. No final decision has been made so it remains impossible to quantify any potential impact. However, Pace has analysed its options against the range of possible outcomes and has plans in place to manage those outcomes.

Americas

Shipments into the Americas increased significantly to 0.6m (2005: 0.1m) as Pace commenced deliveries to DirecTV and Comcast, two of the world’s largest payTV operators. At the same time Pace’s US customer base has expanded, with over 20 further cable operators. This is in addition to ongoing business with Rogers and Vidéotron in Canada.

Pace is also working with its US cable customers to meet a new Federal Communications Commission (FCC) regulation, requiring all cable set-top boxes to incorporate ‘separable security’, similar to the card-based conditional access systems used by many European payTV operators. This regulation comes into place on 1 July 2007 and Pace is on track to introduce its own range of CableCARD set-top box products.

Asia Pacific

Shipments to Pace’s customers in the Asia Pacific region increased to 265,000 (2005: 66,000). In Australia Pace has two customers, Foxtel and Optus. Pace remains Foxtel’s lead supplier shipping both standard definition set-top boxes and the iQ PVR and has recently celebrated its one millionth box shipment. PVR shipments continue to Optus, which offers the Foxtel digital service to its customers. At Sky New Zealand, Pace has continued to ship this customer’s standard box and shipments of the PVR have grown, following its launch last year.

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