TIDMPIC
RNS Number : 3251G
Pace PLC
03 March 2015
Pace plc: Preliminary Results for the year ended 31 December
2014
Saltaire, UK, 3 March 2015: Pace plc ("Pace", the "Group"), a
leading global developer of technologies and products for PayTV and
broadband service providers, today announces its results for the
year ended 31 December 2014.
Strong performance in 2014: Adjusted EBITA up 24.5% to $241.1m,
basic adjusted EPS up 43.6% to 63.6c and free cash flow of $204.0m.
Dividend up 27.5% to 7.00c per share.
Financial highlights
-- Revenue up 6.1% to $2,620.0m (2013: $2,469.2m).
-- Adjusted EBITA(1) up 24.5% to $241.1m (2013: $193.6m).
-- Operating margin(2) up 1.4ppt to 9.2% (2013: 7.8%).
-- Profit after tax up 53.1% to $148.0m (2013: $96.7m).
-- Basic EPS up 51.9% to 47.4c (2013: 31.2c) with Adjusted basic
EPS(3) up 43.6% to 63.6c (2013: 44.3c).
-- Proposed final dividend 4.75c per share, resulting in full
year dividend of 7.00c per share, a 27.5% increase on 2013 (2013:
5.49c), reflecting the Board's confidence in the outlook for the
Company.
-- Free cash flow(4) $204.0m (2013: $209.0m), 84.6% of adjusted EBITA (2013: 108.0%).
-- Net debt of $93.1m as at 31 December 2014 (31 December 2013:
$33.0m net cash). Since the completion of the acquisition of Aurora
Networks, Inc. ("Aurora Networks") for a headline consideration of
$310m on 6 January 2014, net debt has been reduced by $186.1m
(66.7%).
Operating highlights
-- Increased operating profit through top-line growth due to the
Aurora Networks acquisition, improved revenue mix, supply chain
efficiency and increased operational efficiency.
o Increased profitability in underlying business (excluding the
Networks business) on lower revenue.
o Strong trading in the Networks business; $264.6m revenue,
$47.4m adjusted EBITA contribution.
-- Further progress made against the Strategic Plan laid out in November 2011:
o Continue to transform core economics:
-- Underlying operating costs(5) reduced by $19.3m (7.4%) whilst
continuing to invest in growth opportunities.
-- Application of Pace efficiency and effectiveness principles
to the Networks business enabled targeted cost and working capital
synergies to be achieved ahead of plan.
-- Third consecutive year of strong free cashflow to EBITA
generation; aggregate free cash flow of $595.7m over last three
years due to continued focus on working capital and cash
management.
o Maintain PayTV hardware leadership:
-- Reconfirmed as the market leader in PayTV hardware; global
number one in Media Servers(6) , Set-top boxes ("STBs")(7) and
Advanced Telco Gateways(8) .
-- Record PayTV Consumer Premise Equipment ("CPE") revenue in H2
2014 only partially offset a weaker H1 2014 resulting in a 4.8%
revenue decline to $2,243.2m (2013: $2,355.4m).
-- Wins achieved and a record number of project launches
delivered across all regions with key customers including AT&T,
BeIn Sports, Comcast, Liberty Global and Net Brazil.
o Widening out:
-- 231.1% increase in non-CPE revenue (2013: 5.4% increase) to
$376.8m (2013: $113.8m) due to the contribution of the Networks
business.
-- Strong year for Networks due to robust customer demand which
is expected to continue into 2015.
-- Built on the momentum of 2013 with a number of key wins
across all areas of our software and services offerings with key
customers including Foxtel, TDS Telecom, Frontier Telecom and Viva
Broadcast.
2015 Outlook
Considerable progress has been made in delivering on our
strategy in 2014 and there remains further opportunity in 2015 to
build on this success to develop and improve the performance of the
Company.
The Board is confident that the Group will make further progress
in 2015:
-- Revenues for 2015 expected to be c. $2.75bn.
-- Adjusted EBITA for 2015 is expected to be c. $255m.
-- Strong cash flow will continue, and Pace expects to generate
in the range of $185m to $195m of free cash flow.
Pace is well positioned to capitalise on major market trends
over the next 3 to 5 years.
Commenting on the results, Mike Pulli, Chief Executive Officer
said:
"I am pleased to report we have had a very successful year
making considerable progress in all areas of the business. Pace is
continuing to evolve into a more profitable, cash generative
business with a broader spread of offerings and customers and
finishes the year in a strong position.
During 2014, we have launched a record number of products across
the globe and continued to lead the market in both product
innovation and the service we deliver to our customers. Demand from
our customers has remained strong and we continue to win new
business.
Aurora Networks has been a great strategic addition to the Pace
Group, enabling Pace to widen out into network infrastructure and
build deeper, more embedded relationships with our customers. The
integration was achieved ahead of plan and the Networks business
achieved a record year due to strong underlying customer
demand.
In delivering a 9.2% operating margin we have achieved our
mid-term target a year ahead of plan. However, despite the good
progress that has been made there remains significant opportunity
for the performance of the Company to continue to improve. The
Board are confident that, through Aurora Networks, potential
additional acquisitions and the ongoing delivery of our Strategic
Plan, Pace will continue to strengthen its position as a market
leading technology solutions provider for the PayTV and broadband
industries and deliver further value to our shareholders.
The strong performance in 2014 and the momentum of the business
going into 2015 give the Board confidence to increase the final
dividend by 29.8%. The Board is recommending a final dividend of
4.75c per share, giving a full year dividend of 7.00c per share, a
27.5% increase.
We are confident about our trajectory and are focused on making
further progress in 2015 and beyond".
For further information please contact:
Charles Chichester Mark Shuttleworth / Chris
Mather
Pendomer Communications Pace plc
+44 (0) 203 6035 220 +44 (0) 1274 538 330
Pace's Full Year Results Presentation to Analysts will be held
at the offices of Jefferies International Ltd at Vintners Place, 68
Upper Thames Street, London EC4V 3BJ, commencing at 08:30am.
This Presentation will also be available via live audio webcast,
commencing at 08:30am. To register for this audio webcast, please
go to: http://www.pace.com/ir
Business Review
2014 has been a year of solid execution and expansion for Pace.
We have delivered a strong set of financial results, made good
progress on our Strategic Plan, and created a platform for further
improvement in 2015 and beyond.
Key highlights of the year
Pace is continuing to become a more profitable, cash generative
business with a broader spread of products and customers and a
better mix of revenue. Revenue in 2014 increased by 6.1% ($2,620.0m
vs $2,469.2m in 2013). Operating margin in the period increased
from 7.8% to 9.2% reflecting a strong contribution from the Aurora
Networks, Inc. acquisition ("Aurora Networks"), better revenue mix,
improving supply chain effectiveness and lower underlying operating
costs. On an underlying basis (excluding Networks), profitability
increased (operating margin 8.2% vs 7.8% in 2013) despite lower
revenue ($2,355.4m vs $2,469.2m in 2013). The cash flow performance
of Pace remains strong with $204.0m of free cash flow generated in
the period, 84.6% of adjusted EBITA.
Strategic plan
The Strategic Review undertaken in 2011 highlighted that Pace
operates in sustainable and profitable markets where we have
differentiated capabilities; however, the Group must continue to
execute on its three primary objectives to take advantage of the
opportunities for improving both the level and quality of its
earnings. We remain focused on these objectives and have made good
progress both in delivering strong results in 2014, and in creating
a platform for further improvement in 2015 and beyond.
In addition to the various organic developments Pace has
undertaken over the past three years, the acquisition of Aurora
Networks is a key step in the evolution of the Group and enhances
our strategy to grow a broader platform across Hardware, Software
and Services.
Continue to transform core economics
Significant progress has been made in improving the efficiency
and effectiveness of the business. As the major initiatives which
commenced in 2012 continue to deliver tangible benefits, a
cost-focused discipline and high level of accountability is now
ingrained across Pace and has been implemented in the newly
acquired Networks business.
-- Underlying operating costs, excluding the Networks SBU and the impact of IAS 38 accounting (capitalisation and amortisation of development expenditure), reduced by $19.3m (7.4%) in 2014 due to further efficiency programmes across the business. Whilst reducing underlying operating expenses, Pace has continued to internally invest in Software and Services and other growth opportunities.
-- Application of Pace efficiency and effectiveness principles
to the Networks business enabled targeted cost and working capital
synergies to be achieved ahead of plan.
-- Cash generation was strong throughout the year; free cash
flow was $204.0m (2013: $209.0m), due to further re-alignment of
working capital and focused cash management. Since the completion
of the acquisition of Aurora Networks for a headline consideration
of $310m on 6 January 2014 (pro forma debt of $279.2m), net debt
has been reduced by $186.1m (66.7%) to achieve a net debt of $93.1m
at 31 December 2014 (Net cash at 31 December 2013: $33.0m).
The various components of the Transform Core Economics stream of
the Strategic Plan are now well embedded across the Company and are
delivering significant financial and operational benefits. However,
the Company believes significant opportunities remain for further
improvement and will pursue areas of inefficiency and relentlessly
strive to continuously improve operating effectiveness across all
areas of the business.
Maintain PayTV hardware leadership
Pace was reconfirmed as the market leader in PayTV hardware;
global number one in Set-top boxes(9) , Media Servers(10) and
Advanced Telco Gateways(11) :
-- Record PayTV Consumer Premise Equipment ("CPE") revenue in H2
2014 only partially offset a weaker H1 2014 resulting in a 4.8%
revenue decline to $2,243.2m (2013: 2.6% growth).
-- STB and Media Server revenues were up 1.2% to $2,003.5m in
2014 (2013: $1,979.6m), driven largely by high demand in H2 2014
following a number of major launches across all regions.
-- The move to Media Servers and whole home solutions is
continuing at speed across the globe with over 27% of Pace's
shipments in the STB and Media Server category being Media Servers
and related client devices. In the year, Pace announced Media
Server wins and deployments with a number of customers including
BeIn Sports, Comcast, Foxtel and Liberty Global. We have a strong
Media Server pipeline and anticipate increased demand across the
globe in 2015 and beyond.
-- Demand for traditional STBs remains strong; in the year, Pace
achieved next generation hardware wins at a number of longstanding
tier one customers including AT&T, Net Brazil, Oi, Sky Italia,
Tata Sky and Zon Optimus.
-- Gateway revenues were down 36.2% to $239.7m in 2014 (2013:
$375.8m) due to reduced demand for legacy products in H1 2014.
However, the launch of a number of new products enabled a 110.9%
increase in revenue in H2 2014 compared to H1 2014. Wins were
achieved with customers including AT&T, GVT and a number of
Independent Operating Companies ("IOCs") in North America. In
addition, Pace launched a range of DOCSIS 3.0 Cable Gateways in the
North American market, our first development in this growing
market. The Company believes the overall market demand remains
strong for high performance Residential Gateways from Service
Providers to effectively deliver high quality double and
triple-play services.
Widening out
Pace has built on the momentum of 2013 with wins across all
areas of our software and services offerings and good progress on
product and customer project launches.
-- Pace achieved a 231.1% increase in non-CPE revenue to (2013:
5.4% increase) to $376.8m (2013: $113.8m) due to the acquisition of
Aurora Networks.
-- Revenues in the Networks Strategic Business Unit ("SBU") have
been strong reflecting cable operators' need for increased
bandwidth and Pace's networks product set being an efficient way to
upgrade network infrastructure. Networks delivered a strong
performance in 2014 and further progress is expected in 2015.
-- Software and Services revenues were down 1.4% to $112.2m
(2013: $113.8m) as an increase in revenue from Pace's Elements and
ECO software products and the Customer Care business were offset by
declines in legacy software and service contracts.
-- The Pace Elements software platform continues to gain
traction as part of an advanced integrated solution with a number
of wins for deployment in 2015 and the whole home iQ3 solution at
Foxtel, Pace's first integrated solution with a tier one Service
Provider, approved for trial ahead of launch in early 2015. The
Elements software platform (including Titanium Conditional Access)
is currently being used by over 9.3m subscribers (2013: 6.9m), a
34.8% increase in the last twelve months. In addition to shipping
over 5m RDK ("Reference Design Kit") compliant devices, Pace's role
at the forefront of the RDK initiative was reaffirmed with the
announcement that the Elements Software Platform now has full RDK
compatibility.
-- The ECO Service Management Platform is now managing over
34.0m devices (2013: 29.8m), a 14.1% increase in the last twelve
months. New wins include Foxtel, Frontier Communications and Logic
Communications. These wins build on a strong global customer
footprint that includes AT&T, BSkyB, Telmex and Telstra.
Aurora Networks - One year in
The acquisition of Aurora Networks, Inc. was announced on 23
October 2013 and completed on 6 January 2014.
Aurora Networks is a leading developer and manufacturer of
advanced, next-generation Optical Transport and Access Network
solutions for broadband networks that support the convergence of
video, data and voice applications. A leading presence in these
solutions, that are increasingly important for cable operators as
they continue to fulfil consumers' constant demand for ever
increasing bandwidth, ensures the acquisition has further
strengthened Pace's relationships with its customers.
Aurora Networks has strengthened our offering and footprint:
-- Positions Pace to enable operators to cost effectively
support their consumers' constant demand for ever increasing
bandwidth.
-- Highly profitable and growing business with blue chip
customer base and market leading positions, serving over 200
customers in 50 countries, including all of the top 10 cable
operators in the US.
-- Strong, highly experienced management team.
-- Creates deeper and more embedded relationships with key customers.
-- Cross-sell opportunity across customer footprints.
-- Further widens Pace out beyond PayTV Customer Premise Equipment ("CPE").
Aurora Networks has progressed beyond expectations in the first
12 months:
-- Integration - The integration of Aurora into Pace was
completed ahead of plan by the end of H1 2014, following which,
significant progress has been made in ramping up the supply chain
to meet the growing customer demand. Aurora is now a fully
integrated SBU within Pace, "Pace Networks", with its own focused
sales and engineering teams whilst leveraging the scale and
expertise of the wider Group's shared services. The targeted
end-state run-rate synergies of $8m per annum were achieved in
2014, a year ahead of plan whilst further investing in supporting
customers and new product development.
-- Trading - Networks has had a very strong first year as part
of Pace. Trading has been above expectations with revenue of
$264.6m due to strong underlying customer demand which is expected
to continue into 2015. Networks delivered an adjusted EBITA
contribution of $47.4m, an operating margin of 17.9%.
-- Innovation - Networks has a track record of innovation and
this has continued in 2014 with a number of new product and
technology launches:
o DOCSIS 3.1 compatibility across the Networks product range -
Supporting the next generation of Hybrid Fibre Co-axial ("HFC")
access technologies.
o Fifth generation Universal Digital Return solution - the
industry's only upgradeable digital return solution and a key
component to supporting the transition to DOCSIS 3.1.
o UniPHY Converged Services Platform - high performance
aggregation solution for advanced services across high speed fibre
and Co-axial networks.
o Distributed Broadband Access Architecture ("DBAA") - Pace's
distributed, iterative and modular approach to enabling greater
network capacity that leverages operators existing infrastructure
investments.
We are confident that Networks will make further progress in
2015 and beyond.
Business performance
Pace has a broad global footprint within which individual
markets are at varying stages of development. Overall, these
markets have remained strong during the year, with PayTV continuing
to show varying levels of subscriber and Average Revenue per User
("ARPU") growth despite perceived disruptive threats from new
Over-the-Top ("OTT") market entrants and economic uncertainty in
emerging markets. On a global basis, digital PayTV subscribers are
expected to grow at 7% Compound Annual Growth Rate ("CAGR") between
2014 and 2018(12) .
Product revenue split
FY 2014 FY 2013
$m $m
STB and Media Servers 2,003.5 1,979.6
Gateways 239.7 375.8
======================= ======== ========
Software and Services 112.2 113.8
======================= ======== ========
Networks 264.6 -
Total 2,620.0 2,469.2
======================= ======== ========
Regional revenue split
FY 2014 FY 2013
$m $m
North America 1,635.6 1,540.5
Latin America 373.2 358.4
=============== ======== ========
Europe 291.2 323.9
=============== ======== ========
Rest of World 320.0 246.4
Total 2,620.0 2,469.2
=============== ======== ========
North America
North America is the largest, most advanced and most profitable
market for digital PayTV and broadband technology in the world,
with over 112m PayTV subscribers and close to 104m fixed broadband
connections(13) . Given the already high penetration levels, we
believe the digital PayTV market in North America will remain flat
in terms of the number of subscribers for the foreseeable future
with subscriber acquisition being offset by customer churn between
the various PayTV offerings. However, ARPU will continue to grow on
an annual basis as service providers deliver an increased range of
revenue generating services to their customers.
Pace is the only vendor to all of the largest operators in each
of the Cable, Satellite and Telco markets; serving Comcast, DIRECTV
and AT&T respectively. In each case Pace supplies the
operators' most advanced in-home technology. In addition, Pace also
serves a large number of other Cable and Telco operators in both
the USA and Canada.
Total revenues in North America increased by 6.2% to $1,635.6m
in 2014 (2013: $1,540.5m), driven by strong demand for Aurora
products and new launches with major customers in H2 2014. This
confirmed Pace's continued position of technological leadership in
our sector and we remain confident about the long-term strength of
the market for our products in North America.
Latin America ("Latam")
The Latam market is a large, diverse and fast growing market,
within which Pace serves Satellite, Cable, IPTV and hybrid
operators across the region, with Brazil and Mexico the key
markets.
The overall PayTV market has expanded significantly over the
last few years and continues to display strong digital subscriber
growth with 6% CAGR predicted from 2014 to 2018(14) . This growth
is led by a number of factors including greenfield markets,
deregulation, the 2016 Olympics in Brazil and growing competition
between operators in the region. Demand for PayTV is strong at all
levels of technology; Standard Definition ("SD") continues to
support analogue to digital transition, High Definition ("HD") and
high-end Personal Video Recorders ("PVRs") to meet growing consumer
expectations and Pace deployed Media Servers with operators in the
region during 2014.
Revenue in Latam increased by 4.1% to $373.2m (2013: $358.4m).
Pace continues to have a diverse business in Latam, providing
products to eight of the ten largest PayTV providers in the region
and has made good progress in widening out the solutions delivered
to this market. The Company is strategically well positioned with
key customers in the region and remains confident that strong
revenues and profitability will continue.
Europe
Europe remains a fragmented and highly customer specific
territory for Pace. Revenues in Europe were down by 10.1% to
$291.2m (2013: $323.9m), primarily due to a reduced win rate of new
products in prior years, which adversely affected revenue up to H1
2014. Sales performance has improved and key wins in new and
existing customers delivered a 48.7% growth in H2 2014 compared to
H1 2014.
Single-digit digital subscriber growth is predicted in the
underlying European PayTV market(15) . We expect significant growth
in the Media Server segment of the market as operators in Europe
follow the innovation of North American operators and in 2014 Pace
shipped Media Servers to two European operators; Liberty Global and
Get.
In addition, the Group is seeing increasing demand from
operators for integrated solutions, incorporating Pace hardware and
software assets, that can be quickly deployed and that enable the
operator to innovate and differentiate in highly competitive
markets. Pace is focused on developing opportunities in this area
of the market, and has a number of projects underway.
Rest of World
Rest of World covers a diverse range of markets which are
developing at different rates: the highly developed markets in
Australia, New Zealand and South East Asia, the "fast following"
markets in Middle East and Africa, and the fast growing Indian
market. Revenues in Rest of World are up 29.9% to $320.0m (2013:
$246.4m). This increase was due to strong demand for new products
launched in H2 2013 and 2014.
The Company remains confident that these markets will provide
significant growth opportunities both at the high end of the market
with HD, PVR and Media Server products, and also as the uptake of
PayTV and digitisation continues in emerging greenfield markets
allowing Pace to increase its footprint with new customers through
Software and Integrated Solutions.
Board changes
Mike Inglis was reappointed as a Non-executive Director on the
Board on 13 March 2014.
The Board accepted Roddy Murray's resignation as Chief Financial
Officer and Director on 27 July 2014.
In line with best practice corporate governance, the Company
rotated a number of roles within the Board on 18 November 2014.
John Grant was appointed Senior Independent Director and remains
Chairman of the Audit Committee, and Mike Inglis was appointed
Chairman of the Remuneration Committee. Pat Chapman-Pincher remains
as an Independent Non-Executive Director.
Mark Shuttleworth joined the Board and was appointed as Chief
Financial Officer on 12 January 2015.
2015 outlook
Considerable progress has been made in delivering on our
strategy in 2014 and there remains further opportunity in 2015 to
build on this success to develop and improve the performance of the
Company.
The Board is confident that the Group will make further progress
in 2015:
-- Revenues for 2015 expected to be c. $2.75bn.
-- Adjusted EBITA for 2015 is expected to be c. $255m.
-- Strong cash flow will continue, and Pace expects to generate
in the range of $185m to $195m of free cash flow.
Pace is well positioned to capitalise on major market trends
over the next 3 to 5 years.
Financial Review
The financial position of Pace improved significantly in 2014.
This improvement is reflected in the 6.1% increase in revenue (to
$2,620.0m), a 24.5% increase in adjusted EBITA (to $241.1m) and a
66.7% reduction in pro forma net debt since the acquisition of
Aurora Networks.
Pace has become a more profitable Company with operating margin
increasing from 7.8% to 9.2%. In addition, free cash flow has
remained strong at $204.0m (84.6% of adjusted EBITA), due to the
continued benefits of robust cash management and working capital
in-flows. As a result of the strong cash flow, the net debt has
been reduced by $186.1m (66.7%) since the completion of the
acquisition of Aurora Networks on 6 January 2014.
Group trading results
FY 2014 FY 2013
$m $m
Revenue 2,620.0 2,469.2
======================= ======== ========
Gross profit 532.5 448.2
Gross margin % 20.3% 18.2%
======================= ======== ========
Adjusted operating
costs* (291.4) (254.6)
Adjusted EBITDA(16)
* 270.1 218.6
======================= ======== ========
Adjusted EBITA* 241.1 193.6
======================= ======== ========
Operating margin 9.2% 7.8%
======================= ======== ========
Exceptional costs (7.3) (12.2)
======================= ======== ========
Amortisation of other
intangibles (52.9) (42.6)
======================= ======== ========
Net finance expense (5.2) (8.0)
======================= ======== ========
Profit before tax 175.7 130.8
======================= ======== ========
Tax charge (27.7) (34.1)
======================= ======== ========
Profit after tax 148.0 96.7
======================= ======== ========
*Pre-exceptional costs and amortisation of other intangibles
Group Revenue of $2,620.0m (2013: $2,469.2m) increased by 6.1%,
driven by the Networks business and strong demand for STBs and
Media Servers partly offset by lower revenue from Gateways and flat
revenue from Software and Services. Underlying revenue (excluding
Networks) decreased by 4.6% to $2,355.4m (2013: $2,469.2m). In the
year, 47% of revenue was generated by the top 3 customers (2013:
57%).
Gross profit of $532.5m (2013: $448.2m) is up 18.8%. Gross
margin percentage in 2014 was 20.3%, an increase of 2.1ppt on 2013,
reflecting the higher margin contribution from Networks.
Operating costs pre-exceptional charges and amortisation of
other intangibles increased by $36.8m (14.5%) to $291.4m (2013:
$254.6m) reflecting the inclusion of the Networks cost base.
Further progress has been made in improving operating efficiency
across the Company during the year, both in the core Pace business
and Pace Networks.
The IAS 38 net credit (capitalisation and amortisation of
development expenditure) was $20.8m reflecting an intense period of
development activity ahead of product launches throughout the year
and the first year of capitalisation of Networks product
development.
Adjusted EBITA was $241.1m (2013: $193.6m); an operating margin
of 9.2% against 7.8% in 2013. Underlying adjusted EBITA (excluding
Networks) was $193.7m with operating margin increasing 0.4ppt to
8.2%.
Exceptional costs of $7.3m (2013: $12.2m) relate to the Aurora
Networks acquisition and integration costs ($5.8m) and
restructuring and reorganisation costs across the business
($1.5m).
Amortisation of other intangibles, primarily reflecting the
charge for intangible assets related to acquisitions made in 2010
and 2014, was $52.9m (2013: $42.6m). The increase was due to the
Aurora Networks acquisition.
Segmental analysis
The Group operates through SBUs. Pace Americas, Pace
International and Pace Networks are deemed by the Board to
represent operating segments under IFRS 8, with revenues and EBITA
as follows:
FY 2014 FY 2013
$m $m
(restated(17) )
Revenue
====================== ======== =================
Pace Americas 1,561.6 1,680.2
Pace International 793.8 789.0
====================== ======== =================
Pace Networks 264.6 -
====================== ======== =================
Other - -
Total Revenue 2,620.0 2,469.2
====================== ======== =================
Adjusted EBITA
Pace Americas 150.2 152.7
====================== ======== =================
Pace International 88.3 82.8
Pace Networks 47.4 -
====================== ======== =================
Other (44.8) (41.9)
====================== ======== =================
Total Adjusted EBITA 241.1 193.6
====================== ======== =================
Movements in revenue are described below. Although not wholly
consistent, revenues from STB and Media Servers, Gateways and
Software and Services in North America belong primarily to the
Americas SBU, in Europe and Rest of World belong largely to the
International SBU, and in Latin America belong to both the Americas
and International SBUs. All revenue from Network products across
all regions belong to the Networks SBU, which is the new operating
segment for the Aurora Networks acquisition.
Pace Americas' revenue decreased by $118.6m (7.1%) in 2014 with
a strong H2 2014 only partially offsetting a weaker H1 2014,
operating margin increased to 9.6% (2013: 9.1%). The performance of
Pace International improved as revenue increased by $4.8m (0.6%)
and operating margin increased to 11.1% (2013: 10.5%). Pace
Networks had a strong first year with revenue of $264.6m and an
operating margin of 17.9%.
Other amounts include unallocated central costs that are not
classified as reportable segments under IFRS 8. The loss in Other,
primarily Corporate costs, increased by 6.9% to ($44.8)m (2013:
$(41.9)m).
Finance costs
Net financing costs of $5.2m (2013: $8.0m) reflect the improved
terms of the new borrowing facilities despite an increase in
average net debt during the period. Finance costs include $1.6m
(2013: $2.1m) for amortisation of facility arrangement and
associated fees.
Profit before tax
Profit before tax was $175.7m (2013: $130.8m); an increase of
$44.9m (34.3%) on 2013.
Taxation
The tax charge of $27.7m (2013: charge $34.1m) equates to a full
year effective tax rate of 15.8% (2013: 26.1%). The rate reduction
reflects a mix of expected recurring items, including lower
corporate tax rates in the UK and the impact of the Aurora Networks
acquisition, and non-recurring items. Based on the current expected
regional mix of trading, the effective tax rate for 2015 is
expected to be in the range of 19% to 21%. The cash cost of
corporate tax was $11.5m (2013: $23.8m).
Profit after tax
Profit after tax was $148.0m (2013: $96.7m); an increase of
$51.3m (53.1%) on 2013.
Earnings per share
Basic earnings per share ("EPS") was 47.4c (2013: 31.2c), an
increase of 51.9%. Adjusted basic EPS, which removes the tax
affected impact of the exceptional costs and amortisation of other
intangibles to reflect underlying performance, is 63.6c (2013:
44.3c), an increase of 43.6%.
Balance sheet
Intangible development expenditure assets increased by $20.6m
(2013: $8.1m increase) due to an increased number of development
projects and the first year of capitalisation of Networks product
development under IAS 38.
Tangible fixed assets increased in the period primarily due to
the inclusion of Aurora Networks ($6.9m). Capital expenditure of
$26.0m (2013: $21.6m) was offset by the depreciation charge of
$29.0m (2013: $25.0m). The $26.0m capital expenditure reflected an
increase of $4.4m from 2013 due to the inclusion of Networks and is
in-line with the expected ongoing level for the Group.
Working capital
In the period following the acquisition of Aurora Networks, the
pro forma working capital increased by $16.5m (13.1%) to $142.5m,
as the increase in core Pace, due to the phasing of revenue in the
year, offset the reduction in the Networks SBU.
Inventory increased by $11.2m (7.1%) to $168.0m during the
period reflecting the inclusion of Aurora Networks inventory.
Average stock turn in the period was 8.2 times against 8.4 times in
2013.
Debtor days increased by 6 days to 66 days at December 2014
reflecting a change in sales mix.
Creditor days at 31 December 2014 remained at 90 days.
Debt
In the period following the acquisition of Aurora Networks, the
pro forma net debt reduced by $186.1m (66.7%) from $279.2m to
$93.1m. During the year, two scheduled facility re-payment
instalments were paid of $15.5m each in June and December 2014.
A key target for the Group is to reduce the balance sheet
leverage (calculated as net debt divided by adjusted EBITDA over
the preceding 12 months). At 31 December 2014, the net debt / Last
Twelve Months ("LTM") adjusted EBITDA ratio was 0.34x, well within
the 2x net debt to EBITDA ratio target.
Liquidity and cash flows
A key performance measure for the Group is free cash flow, which
was $204.0m (2013: $209.0m) and represented 84.6% of adjusted EBITA
(2013: 108.0%). Cash outflows from interest payable net of interest
received were $3.6m (2013: $5.9m). Cash spent on exceptional costs
was $8.0m (2013: $10.4m).
The Board is confident that the Group will continue to be
strongly cash flow positive in 2015 and that the Group's committed
bank facilities are more than sufficient to meet its short to
medium term funding needs.
Foreign currency
In the period, approximately 81.7% of the Group's revenues were
denominated in US Dollars (2013: 81.2%), 10.9% in Brazilian Real
(2013: 10.7%), 4.3% in Euro (2013: 7.7%), 2.5% South African Rand
(2013: 0%), 0.4% in Sterling (2013: 0.4%) and 0.2% Australian
Dollar (2013: 0%).
The impact of non-US Dollar revenues, costs and overheads
continues to be addressed through Pace's foreign exchange hedging
strategy.
Critical accounting policies
The Directors consider that the Group has the following critical
accounting policies, as they require the use of estimates and are
subjective in their nature:
- Impairment
- Royalty and warranty provisions
- Intangible assets - capitalised development costs
- Acquisition accounting
Dividend
The Board has recommended a final dividend of 4.75 c per share
(2013: 3.66c per share). The full year proposed dividend increases
27.5% to 7.00c per share (2013: 5.49c per share). The increase
reflects the Board's confidence in the outlook for the Company, its
improving financial position and is in line with the progressive
dividend policy introduced in 2009.
Dividends will be paid in sterling, equivalent to 3.093 pence
per share. This is based on an exchange rate of GBP = $1.5358,
being the closing rate applicable on 2 March 2015, the date on
which the Board resolved to recommend the final dividend. The
proposed dividend will be payable on 3 July 2015 to shareholders on
the register on 5 June 2015.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
Notes $m $m
--------------------------------------- ------ ---------- ----------
Revenue 2 2,620.0 2,469.2
Cost of sales (2,087.5) (2,021.0)
--------------------------------------- ------ ---------- ----------
Gross profit 532.5 448.2
--------------------------------------- ------ ---------- ----------
Administrative expenses:
Research and development expenditure (83.7) (87.0)
Amortisation of development
expenditure 7 (45.4) (45.6)
Other administrative expenses
Before exceptional costs (162.3) (122.0)
Exceptional costs 3 (7.3) (12.2)
Amortisation of other intangibles 7 (52.9) (42.6)
--------------------------------------- ------ ---------- ----------
Total administrative expenses (351.6) (309.4)
Operating profit 180.9 138.8
Finance income - interest receivable 2.5 1.8
Finance expenses - interest
payable (7.7) (9.8)
--------------------------------------- ------ ---------- ----------
Profit before tax 175.7 130.8
Tax charge 4 (27.7) (34.1)
--------------------------------------- ------ ----------
Profit for the year 148.0 96.7
--------------------------------------- ------ ---------- ----------
Profit attributable to:
Equity holders of the Company 148.0 96.7
Earnings per ordinary share
Basic earnings per ordinary
share (cents) 5 47.4 31.2
Diluted earnings per ordinary
share (cents) 5 45.6 29.8
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
$m $m
--------------------------------------- ------- -------
Profit for the year 148.0 96.7
Other comprehensive income:
Items that are or may be subsequently
reclassified to profit and loss:
Exchange differences on translation
of foreign operations (19.7) (4.8)
Net change in fair value of cash
flow hedges transferred to profit
or loss gross of tax 2.3 (2.7)
Deferred tax adjustment on above (0.4) 0.7
Effective portion of changes in
fair value of cash flow hedges gross
of tax 2.7 4.7
Deferred tax adjustment on above (0.4) (1.2)
--------------------------------------- ------- -------
Other comprehensive income for the
year, net of tax (15.5) (3.3)
--------------------------------------- ------- -------
Total comprehensive income for the
year 132.5 93.4
--------------------------------------- ------- -------
Attributable to:
Equity holders of the Company 132.5 93.4
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER 2014
2014 2013
Notes $m $m
----- ------------- -------
ASSETS
Non-Current Assets
Property, plant and equipment 63.2 60.0
Intangible assets - goodwill 7 471.1 342.6
Intangible assets - other intangibles 7 208.2 123.1
Intangible assets - development
expenditure 7 85.0 64.4
Deferred tax assets 31.2 21.2
Total Non-Current Assets 858.7 611.3
-------------------------------------- ----- ------------- -------
Current Assets
Inventories 168.0 156.8
Trade and other receivables 909.1 468.7
Cash and cash equivalents 182.1 33.0
Current tax assets 4.3 1.3
-------
Total Current Assets 1,263.5 659.8
-------------------------------------- ----- ------------- -------
Total Assets 2,122.2 1,271.1
-------------------------------------- ----- ------------- -------
EQUITY
Issued capital 29.1 29.0
Share premium 85.1 83.7
Merger reserve 109.9 109.9
Hedging reserve 4.0 (0.2)
Translation reserve (79.3) (59.6)
Retained earnings 518.3 384.2
Total Equity 667.1 547.0
-------------------------------------- ----- ------------- -------
LIABILITIES
Non-Current Liabilities
Deferred tax liabilities 89.7 56.3
Provisions 8 100.6 60.3
Borrowings 237.8 -
-------
Total Non-Current Liabilities 428.1 116.6
-------------------------------------- ----- ------------- -------
Current Liabilities
Trade and other payables 934.6 567.1
Current tax liabilities 23.5 8.5
Provisions 8 31.5 31.9
Borrowings 37.4 -
Total Current Liabilities 1,027.0 607.5
-------------------------------------- ----- ------------- -------
Total Liabilities 1,455.1 724.1
-------------------------------------- ----- ------------- -------
Total Equity and Liabilities 2,122.2 1,271.1
-------------------------------------- ----- ------------- -------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Merger Hedging Translation Retained Total
capital premium reserve reserve reserve earnings equity
Group $m $m $m $m $m $m $m
------
Balance at January 2013 28.7 79.0 109.9 (1.7) (54.8) 299.0 460.1
Profit for the year - - - - - 96.7 96.7
Other comprehensive
income - - - 1.5 (4.8) - (3.3)
Total comprehensive
income for the year - - - 1.5 (4.8) 96.7 93.4
Transactions with owners:
Dividends to equity
shareholders - - - - - (15.6) (15.6)
Employee share incentive
charges - - - - - 4.1 4.1
Issue of shares 0.3 4.7 - - - - 5.0
Balance at December
2013 29.0 83.7 109.9 (0.2) (59.6) 384.2 547.0
Profit for the year - - - - - 148.0 148.0
Other comprehensive
income - - - 4.2 (19.7) - (15.5)
Total comprehensive
income for the year - - - 4.2 (19.7) 148.0 132.5
Transactions with owners:
Dividends to equity
shareholders - - - - - (18.7) (18.7)
Employee share incentive
charges - - - - - 6.5 6.5
Issue of shares 0.1 1.4 - - - - 1.5
Purchase of own shares
by employee benefit
trust - - - - - (1.7) (1.7)
Balance at December
2014 29.1 85.1 109.9 4.0 (79.3) 518.3 667.1
---------------------------- ------- ------- ------- ------- ----------- -------- ------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
$m $m
--------------------------------------------- ------- -------
Cash flows from operating activities
Profit before tax 175.7 130.8
Adjustments for:
Share based payments charge 6.5 4.1
Depreciation of property, plant and
equipment 29.0 25.0
Amortisation of development expenditure 45.4 45.6
Amortisation of other intangibles 52.9 42.6
Loss on sale of property, plant and
equipment 0.1 0.2
Net finance expense 5.2 8.0
Movement in trade and other receivables (383.4) 85.5
Movement in trade and other payables 329.2 (67.2)
Movement in inventories 31.7 24.2
Movement in provisions (0.7) 14.4
--------------------------------------------- ------- -------
Cash generated from operations 291.6 313.2
Interest paid (6.1) (7.7)
Tax paid (11.5) (23.8)
------- -------
Net cash generated from operating activities 274.0 281.7
--------------------------------------------- ------- -------
Cash flows from investing activities
Acquisition of subsidiaries, net of
cash acquired (295.3) -
Purchase of property, plant and equipment (26.0) (21.6)
Development expenditure (66.2) (52.9)
Interest received 2.5 1.8
------- -------
Net cash used in investing activities (385.0) (72.7)
--------------------------------------------- ------- -------
Cash flows from financing activities
Proceeds from external borrowings 310.0 -
Repayment of external borrowings (31.0) (240.1)
Proceeds from issue of share capital 1.5 5.0
Dividend paid (18.7) (15.6)
Purchase of own shares by employee benefit
trust (1.7) -
Net cash generated from / (used in)
financing activities 260.1 (250.7)
--------------------------------------------- ------- -------
Net change in cash and cash equivalents 149.1 (41.7)
Cash and cash equivalents at the start
of the year 33.0 74.7
Cash and cash equivalents at the end
of the year 182.1 33.0
--------------------------------------------- ------- -------
NOTES
1 Basis of preparation and business environment
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the financial statements.
Basis of preparation
The financial statements have been prepared in accordance with
applicable accounting standards and under the historical cost
convention as modified by the revaluation of derivative
instruments.
Functional and presentational currency
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ('the functional
currency'). The consolidated financial statements are presented in
US dollars which is the Company's functional and presentational
currency.
The US Dollar/Pound Sterling exchange rate at 31 December 2014
was 1.56 (2013: 1.64).
Going concern
The Group has borrowing facilities in place until January 2019.
At 31 December 2014 these are in the form of a $310 million term
loan, which is subject to repayment through instalments every six
months plus a final payment, and a $150 million revolving credit
facility. These facilities are subject to financial performance
covenants which the Group currently complies with.
The Group has prepared a financial and working capital forecast
based upon trading assumptions and other short-term and medium-term
plans. The Group has sensitised these plans for a number of
potential scenarios, including working capital management and
revenue reduction, and has concluded that the Group will continue
to meet its financial performance covenants and will have adequate
working capital available to continue in operational existence for
the foreseeable future.
Significant judgements, key assumptions and estimation
uncertainty
The Group's main accounting policies affecting its results of
operations and financial condition are set out in the Group's
financial statements. Judgements and assumptions have been required
by management in applying the Group's accounting policies in many
areas. Actual results may differ from the estimates calculated
using these judgements and assumptions. Key areas of estimation
uncertainty and critical accounting judgements are as follows:
Warranty provisions
Pace provides product warranties for its products. Although it
is difficult to make accurate predictions of potential failure
rates or the possibility of an epidemic failure, as a warranty
estimate must be calculated at the outset of a product before field
deployment data is available, these estimates improve during the
lifetime of the product in the field.
A provision for warranties is recognised when the underlying
products are sold. The provision is based on historical warranty
data and a weighting of all possible outcomes against their
associated probabilities. The level of warranty provision required
is reviewed on a product by product basis and provisions are
adjusted accordingly in the light of actual performance.
Royalty provisions
Pace's products incorporate third party technology, usually
under licence. Inadvertent actions may expose Pace to the risk of
infringing third party intellectual property rights. Potential
claims can still be submitted many years after a product has been
deployed. Any such claims are always vigorously defended.
Provisions for royalty claims are recognised when it is
considered more likely than not that an outflow of economic
resources will be required to settle a claim that has resulted from
the sale of a product allegedly using technology of a patent owner,
and the amount of the outflow can be reliably measured. The
directors have made provision for the potential outflow based on
the latest information available, which represents the best
estimate of the expenditure required to settle the present
obligation. 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.
Impairment Reviews
As is required by International Accounting Standards, the Group
carries out impairment reviews of its non-financial assets on an
annual basis, or when indicators of impairment exist. Such reviews
involve assessing the value in use of an asset or cash generating
unit ("CGU") by reference to its estimated future cash flows,
discounted to their present value. The judgements in relation to
impairment reviews relate to the assumptions applied in calculating
the value in use, and the future performance expectations.
Intangible assets - Capitalised Development Costs
The Group business includes a significant element of research
and development activity. Under accounting standards, principally
IAS 38 'Intangible Assets', there is a requirement to capitalise
and amortise development spend to match costs to expected benefits
from projects deemed to be commercially viable. The application of
this policy involves the on-going consideration by management of
the forecasted economic benefit from such projects compared to the
level of capitalised costs, together with the selection of
amortisation periods appropriate to the life of the associated
revenues from the product.
Acquisition Accounting
As part of the accounting for business combinations it is
necessary to perform a purchase price allocation exercise to
identify appropriate categories of intangible assets that have been
purchased. Such an exercise involves judgement with regard to the
types of assets identified, the value of those assets and the
useful economic lives applied with regard to amortisation rates.
The amounts recognised are calculated by reference to management
forecasts and assumed discount rates, obsolescence curves and
attrition rates.
For significant acquisitions, whilst the Directors use
appropriate qualified independent valuation advisors to assist in
the purchase price allocation work, the exercise inherently
requires significant judgement and estimation to be taken.
Financial information
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2014
or 2013. Statutory accounts for 2013 have been delivered to the
registrar of companies, and those for 2014 will be delivered in due
course. The auditors have reported on those accounts; their reports
were (i) unqualified, (ii) did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
2 Segmental analysis
In accordance with IFRS 8 "Operating Segments", the chief
operating decision-maker ("CODM") has been identified as the Board
of Directors which reviews internal monthly management reports,
budget and forecast information to evaluate the performance of the
business and make decisions.
The Group determines operating segments on the basis of SBU
areas, being the basis of which the Group manages its worldwide
interests.
During the period the Group created a new SBU named Pace
Networks, which contains the Aurora Networks, Inc. business
acquired in 2014. In addition, certain other activities were
restructured and split out across the Pace International and Pace
Americas SBUs.
The Group has the following operating segments which are also
reportable segments for the purpose of IFRS 8:
-- Pace Americas;
-- Pace International;
-- Pace Networks.
Other amounts include unallocated central costs that are not
classified as reportable segments under IFRS 8.
Performance is measured based on segmental adjusted EBITA, as
included in the internal management information which is reviewed
by the CODM. Adjusted EBITA is used to measure performance as
management believes that such information is the most relevant in
evaluating the results of certain segments, relative to other
entities that operate within these industries.
Revenues disclosed on the following page materially represent
revenues to external customers and where appropriate, pricing is
determined on an arm's length basis. There are no material
inter-segment transactions.
The tables below present the segmental information on the
revised basis, with prior periods amended to conform to the current
period presentation.
Year ended 31 Pace Pace Pace
December 2014 Americas International Networks Other Total
$m $m $m $m $m
---------------------- ---------- --------------- ---------- -------- --------
Segmental income
statement
Revenue 1,561.6 793.8 264.6 - 2,620.0
Adjusted EBITA 150.2 88.3 47.4 (44.8) 241.1
----------------------- ---------- --------------- ---------- -------- --------
Exceptional costs (7.3)
Amortisation of
other intangibles (52.9)
Net interest payable (5.2)
Tax charge (27.7)
----------------------- ---------- --------------- ---------- -------- --------
Profit for the
year 148.0
----------------------- ---------- --------------- ---------- -------- --------
Year ended 31 Pace Pace Pace
December 2013 Americas International Networks Other Total
(restated)
$m $m $m $m $m
---------------------- ---------- --------------- ---------- -------- --------
Segmental income
statement
Revenue 1,680.2 789.0 - - 2,469.2
Adjusted EBITA 152.7 82.8 - (41.9) 193.6
----------------------- ---------- --------------- ---------- -------- --------
Exceptional costs (12.2)
Amortisation of
other intangibles (42.6)
Net interest payable (8.0)
Tax charge (34.1)
----------------------- ---------- --------------- ---------- -------- --------
Profit for the
year 96.7
----------------------- ---------- --------------- ---------- -------- --------
Major customers
In 2014 the Group has three customers which individually account
for more than 10% of the Group's total revenue, being 24%, 13% and
10%. In the prior year the Group also had three customers which
accounted for 24%, 17% and 16% of the Group's total revenue. All of
the revenue from these customers is within the Pace Americas and
Pace Networks reporting segments in 2014, and within the Pace
Americas reporting segment in 2013.
Geographical analysis
In presenting information on the basis of geographical segments,
segment revenue is based on the geographical location of
customers.
Revenue by destination 2014 2013
$m $m
------------------------ -------- --------
Europe 291.2 323.9
North America 1,635.6 1,540.5
- of which USA 1,536.6 1,524.4
Latin America 373.2 358.4
- of which Brazil 287.8 277.8
Rest of World 320.0 246.4
------------------------ -------- --------
2,620.0 2,469.2
------------------------ -------- --------
Segment assets are based on the geographical location of the
assets. The split of non-current assets by location is as
follows:
Non-current assets 2014 2013
$m $m
------------------------- ----------------------------------------------------- -------
UK 124.9 136.5
Europe - all France 117.1 127.5
Latin America 5.3 2.7
North America - all USA 558.3 321.8
Rest of World 21.9 1.6
------------------------- ----------------------------------------------------- -------
827.5 590.1
------------------------- ----------------------------------------------------- -------
Non-current assets relate to property, plant and equipment and
intangible assets, and, as required under IFRS 8, exclude deferred
tax assets, financial instruments and post-employment benefit
assets.
The Group has four main revenue streams, being Set-top boxes
("STB") and Media Servers, Gateways, Software & Services, and
Networks. These revenue streams arise in each operating segment and
are not defined by geographical location.
The following table provides an analysis of the Group's revenue
streams according to those classifications:
2014 2013
$m $m
--------------------- -------- --------
Set-top boxes &
Media Servers 2,003.5 1,979.6
Gateways 239.7 375.8
Software & Services 112.2 113.8
Networks 264.6 -
--------------------- -------- --------
2,620.0 2,469.2
--------------------- -------- --------
3 Exceptional costs
2014 2013
$m $m
--------------------------------------- ---- ----
Acquisition and integration costs 5.8 6.9
Restructuring and reorganisation costs 1.5 4.2
Aborted acquisition costs - 1.1
Directors' loss of office - -
7.3 12.2
--------------------------------------- ---- ----
Acquisition costs in 2014 and 2013 relate to integration costs
and professional service fees in respect of the acquisition of
Aurora Networks, Inc on 6 January 2014. Restructuring and
reorganisation costs in 2014 and 2013 relate to different
restructuring programmes within the Group and represent the costs
of redundancy and restructuring. Aborted acquisition costs in 2013
relate to professional service fees in respect of aborted
acquisitions.
4 Taxation
2014 2013
$m $m
-------------------------------------- ----- -----
Current tax charge:
Charge for the year 31.9 29.7
Adjustments in respect of prior years (4.1) 2.7
-------------------------------------- ----- -----
Total current tax charge 27.8 32.4
-------------------------------------- ----- -----
Deferred tax charge/(credit):
Origination and reversal of timing
differences in the current year (1.9) 2.7
Impact of change in tax rate - (1.0)
Adjustment in respect of prior years 1.8 -
-------------------------------------- ----- -----
Total deferred tax charge/(credit) (0.1) 1.7
-------------------------------------- ----- -----
Total tax charge 27.7 34.1
-------------------------------------- ----- -----
5 Earnings per ordinary share
2014 2013
Basic earnings per ordinary share 47.4c 31.2c
Diluted earnings per ordinary share 45.6c 29.8c
Adjusted basic earnings per ordinary
share 63.6c 44.3c
Adjusted diluted earnings per ordinary
share 61.2c 42.2c
--------------------------------------- ----- -----
The calculation of basic earnings per share is based on a profit
after tax of $148.0m (2013: $96.7m) divided by the weighted average
number of ordinary shares in issue of 312,334,970 (2013:
309,740,316), excluding shares held by the Employee Benefits
Trust.
2014 2013
Number of shares
Weighted average number of ordinary
shares in issue during the year 312,334,970 309,740,316
Dilutive effect of options outstanding 12,139,887 15,296,522
--------------------------------------- ----------- -----------
Diluted weighted average number of
ordinary shares in issue during the
year 324,474,857 325,036,838
--------------------------------------- ----------- -----------
Diluted earnings per ordinary share varies from basic earnings
per ordinary share due to the effect of the notional exercise of
outstanding share options.
To better reflect underlying performance, adjusted earnings per
share is also calculated (adjusting profit after tax to remove
amortisation of other intangibles and exceptional items, post tax).
The earnings amount is calculated as follows:
2014 2013
$m $m
---------------------------------- ----- ------
Profit after tax 148.0 96.7
Amortisation of other intangibles 52.9 42.6
Tax effect of above (8.4) (11.1)
Exceptional costs 7.3 12.2
Tax effect of above (1.2) (3.2)
---------------------------------- ----- ------
Adjusted profit after tax 198.6 137.2
---------------------------------- ----- ------
The Group's effective tax rate of 15.8% (2013: 26.1%) has been
used to calculate the tax effect of adjusted items.
6 Dividend per ordinary share
2014 2013
Per share $m Per share $m
-------------------- ---------- ----- ---------- -----
2013 Final: paid
4 July 2014 3.66c 11.7 3.06c 9.5
2014 Interim: paid
6 December 2014 2.25c 7.0 1.83c 6.1
-------------------- ---------- ----- ---------- -----
5.91c 18.7 4.89c 15.6
-------------------- ---------- ----- ---------- -----
In addition, the directors are proposing a final dividend for
2014 of 4.75 cents per ordinary share, which amounts to $14.9m
(2013: $11.4m) based on the ordinary shares as at the year end.
This will be payable on 3 July 2015 to shareholders on the register
at 5 June 2015, subject to approval by shareholders at the
forthcoming Annual General Meeting, and has not been included as a
liability in these Financial Statements.
7 Intangible assets
Customer
contracts Technology
Development and and Other
Goodwill expenditure relationships patents Other intangibles
Group $m $m $m $m $m $m
---------------------- --------- ------------ -------------- ----------- ------ ------------
Cost
At 31 December 2012 337.9 266.9 164.3 131.8 10.9 307.0
Exchange adjustments 4.7 0.5 - - - -
Additions - 52.9 - - - -
---------------------- --------- ------------ -------------- ----------- ------ ------------
At 31 December 2013 342.6 320.3 164.3 131.8 10.9 307.0
---------------------- --------- ------------ -------------- ----------- ------ ------------
Exchange adjustments (13.2) 0.2 - - - -
Acquisitions 141.7 - 30.0 108.0 - 138.0
Additions - 66.2 - - - -
Disposals - (218.9) - - - -
---------------------- --------- ------------ -------------- ----------- ------ ------------
At 31 December 2014 471.1 167.8 194.3 239.8 10.9 445.0
---------------------- --------- ------------ -------------- ----------- ------ ------------
Amortisation
At 31 December 2012 - 210.6 60.9 73.3 6.6 140.8
Exchange adjustments - (0.3) 0.2 0.3 - 0.5
Provided in the year - 45.6 19.8 21.7 1.1 42.6
---------------------- --------- ------------ -------------- ----------- ------ ------------
At 31 December 2013 - 255.9 80.9 95.3 7.7 183.9
---------------------- --------- ------------ -------------- ----------- ------ ------------
Exchange adjustments - 0.4 - - - -
Provided in the year - 45.4 14.9 37.9 0.1 52.9
Disposals - (218.9) - - - -
---------------------- --------- ------------ -------------- ----------- ------ ------------
At 31 December 2014 - 82.8 95.8 133.2 7.8 236.8
---------------------- --------- ------------ -------------- ----------- ------ ------------
Net book value at
31 December 2013 342.6 64.4 83.4 36.5 3.2 123.1
---------------------- --------- ------------ -------------- ----------- ------ ------------
Net book value at
31 December 2014 471.1 85.0 98.5 106.6 3.1 208.2
---------------------- --------- ------------ -------------- ----------- ------ ------------
8 Provisions
Royalties Warranties Other Total
under
negotiation
$m $m $m $m
------------------------ ------------ ---------- ------ ------
At 31 December 2012 27.5 40.0 9.7 77.2
Charge for the year 9.8 24.7 14.4 48.9
Utilised (1.4) (24.9) (10.5) (36.8)
Transfer - 0.1 - 0.1
Exchange adjustments 1.0 0.2 1.6 2.8
------------------------ ------------ ---------- ------ ------
At 31 December 2013 36.9 40.1 15.2 92.2
------------------------ ------------ ---------- ------ ------
Acquisitions - 4.7 35.9 40.6
Charge for the year 15.7 34.5 6.4 56.6
Utilised (7.1) (15.2) (33.8) (56.1)
Transfer 4.7 (3.5) - 1.2
Unused amounts reversed - - (0.7) (0.7)
Exchange adjustments (0.3) (1.1) (0.3) (1.7)
At 31 December 2014 49.9 59.5 22.7 132.1
------------------------ ------------ ---------- ------ ------
Due within one year - 21.7 9.8 31.5
Due after one year 49.9 37.8 12.9 100.6
Other provisions mainly relate to retirement and exceptional
restructuring provisions within the Group, along with professional
fees to be incurred in relation to the Aurora acquisition and
certain other provisions.
9 Free cash flow
2014 2013
$m $m
--------------------------------- ------- -------
Free cash flow
Cash generated from operations 291.6 313.2
Tax paid (11.5) (23.8)
Purchase of property, plant and
equipment (26.0) (21.6)
Development expenditure (66.2) (52.9)
Net interest paid (3.6) (5.9)
Other acquisition related cash 19.7 -
flows
Free cash flow 204.0 209.0
--------------------------------- ------- -------
10 Business combinations
On 6 January 2014 the Group acquired 100% of the share capital
of Aurora Networks Inc, a group of companies leading the
development and manufacture of advanced, next-generation Optical
Transport and Access Network solutions for broadband networks that
support the convergence of video, data and voice applications, for
a cash consideration of $323.5m. Prior to the acquisition the Group
had no interest in the acquiree, and an explanation of the
rationale for the acquisition is set out in the 2013 Annual Report
and Accounts.
In the period from the acquisition date to 31 December 2014,
Aurora Networks Inc contributed revenue of $264.6m and adjusted
EBITA of $47.4m. If the acquisition had occurred on 1 January 2014,
the consolidated results would not be materially different.
Details of the net assets acquired and goodwill are as
follows:
On
Acquisition
$m
---------------------------------------- ------------
Purchase consideration:
Headline consideration 310.0
Cash paid for tax benefits 13.0
Working capital and net cash adjustment 0.5
----------------------------------------- ------------
Total Cash Consideration 323.5
Fair value of assets acquired (see
below) (181.8)
----------------------------------------- ------------
Goodwill 141.7
----------------------------------------- ------------
Other intangible assets:
Current and Next Generation Technology 108.0
Customer Relationships 30.0
---------------------------------------- -----
138.0
--------------------------------------- -----
There was no contingent consideration as part of the
acquisition.
Goodwill relates to the assembled workforce and expected
synergies with the wider Pace Group.
The assets and liabilities arising from the acquisition are as
follows:
Book Value Fair Value Fair Value
Adjustment
$m $m $m
------------------------------ ---------- ----------- ----------
Property, plant and equipment 6.9 - 6.9
Other intangible assets - 138.0 138.0
Deferred tax assets 19.7 7.5 27.2
Inventories 62.9 (20.0) 42.9
Trade and other receivables 55.7 - 55.7
Cash and cash equivalents 32.6 - 32.6
Deferred tax liabilities (1.6) (48.3) (49.9)
Trade and other payables (31.0) - (31.0)
Provisions (40.6) - (40.6)
------------------------------ ---------- ----------- ----------
Net assets acquired 104.6 77.2 181.8
------------------------------ ---------- ----------- ----------
Inventories of $62.9m at 6 January 2014 have been reduced by
$20.0m as a fair value adjustment was made within the measurement
period, to write down inventories to their recoverable amount.
11 Post balance sheet events
There are no significant or disclosable post balance sheet
events.
Circulation to shareholders
The Annual Report and Accounts will be made available in due
course to Pace shareholders via Pace's website (www.pace.com)
unless a shareholder has requested to receive a printed copy. The
Annual Report and Accounts will be available to the public from the
Company's registered office at Pace plc, Victoria Road, Saltaire,
West Yorkshire, BD18 3LF.
(1) Adjusted EBITA is operating profit before exceptional costs
and amortisation of other intangibles.
(2) Operating margin is adjusted EBITA as a percentage of
revenue.
(3) Adjusted basic EPS is based on earnings before the post-tax
value of exceptional costs and the amortisation of other
intangibles.
(4) Free cash flow is calculated as cash flow before proceeds
from issue of shares, dividends, acquisition cash flows and debt
repayment / draw down.
(5) Underlying operating costs are adjusted operating costs
excluding Networks and IAS 38 accounting.
(6) By volume (2013) - IHS Set-Top Box Market Monitor Q1/Q2
2014.
(7) By volume (2013) - IHS Set-Top Box Market Monitor Q1/Q2
2014.
(8) By value (2013) - Infonetics-4Q13-BB-CPE-Subs-Mkt-Fcst.
(9) By volume (2013) - IHS Set-Top Box Market Monitor Q1/Q2
2014.
(10) By volume (2013) - IHS Set-Top Box Market Monitor Q1/Q2
2014.
(11) By value (2013) - Infonetics-4Q13-BB-CPE-Subs-Mkt-Fcst.
(12) IHS Television Intelligence Service 2014.
(13, 14 and) (15) IHS Television Intelligence Service 2014.
(16) Operating profit before exceptional costs, amortisation of
other intangibles and depreciation.
(17) The restatement reflects the restructuring of certain
activities in the period. As such some items previously classified
as "Other" are now split between the Americas and International
SBU.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UURURVNAORUR
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