Pace passes on its 2015 interim dividend due to Arris merger

DividendMax Ltd.

Pace passes on its 2015 interim dividend due to Arris merger

Solid H1 2015: Gross margin up 1.6ppt to 23.2%, operating margin up 1.6ppt to 10.9% and adjusted basic EPS up 11.4% to 28.4c. Strong H2 2015 anticipated and the proposed combination with ARRIS Group is progressing in-line with expectations.

Financial highlights

Revenue down 5.3% to $1,078.6m (H1 2014: $1,138.9m), in-line with management expectations.

Gross margin up 1.6ppt to 23.2% (H1 2014: 21.6%), gross profit up 2.0% to $250.7m (H1 2014: $245.8m).

Adjusted EBITA up 11.0% to $118.0m (H1 2014: $106.3m), operating margin up 1.6ppt to 10.9% (H1 2014: 9.3%).

Profit after tax up 54.2% to $85.4m (H1 2014: $55.4m).

Basic Earnings per Share ("EPS") up 52.2% to 27.1c (H1 2014: 17.8c) with adjusted basic EPS up 11.4% to 28.4c (H1 2014: 25.5c).

Free cash flow of $93.9m (H1 2014: $108.9m), free cash flow conversion of adjusted EBITA of 79.6% (H1 2014: 102.4%).

Net debt reduced by 97.5% to $2.3m (net debt as at 31 December 2014: $93.1m).

In view of the proposed combination with ARRIS Group, the Board does not intend to recommend the payment of any further dividends at this time.

Operating highlights

Increased operating profit on lower revenue due to improved product mix, improved supply chain efficiency and increased operational efficiency.

Strong revenue growth anticipated in H2 2015 driven by new product launches and increased demand for existing products from key customers across a number of regions.

Further progress made against the Strategic Plan originally laid out in November 2011:

Continue to transform core economics:

o Underlying operating costs reduced by 11.6% whilst continuing to invest in growth opportunities.

o Net debt was reduced by 97.5% to $2.3m and Pace expects to be in a net cash position in 2015.

Maintain PayTV hardware leadership:

o Strong uplift in Customer Premise Equipment ("CPE") revenue is anticipated in H2 2015 due to new product launches and increased demand for existing products with key customers.

o A number of new wins and deployments have been achieved across all regions with customers including Liberty Global, RCN and Sky Italia / Telecom Italia.

Widening out:

o 34.0% increase in non-CPE revenue (H1 2014: 213.8% increase) to $225.0m (H1 2014: $167.9m) driven by strong demand for Networks products, especially in Latin America.

o Pace achieved a number of key wins across all areas of our Software, Services and Networks offerings with customers including Cincinnati Bell, Emerging Market Communications and Foxtel.

ARRIS combination update

On 22 April 2015 the Board of Pace reached an agreement with ARRIS Group ("ARRIS") regarding the terms of a recommended cash and shares combination of Pace with ARRIS. The transaction is progressing in-line with expectations and, subject to the satisfaction, or where relevant, waiver, of all relevant conditions, the transaction is expected to complete in Q4 2015:

The merger control process is underway in all relevant jurisdictions (Brazil, Colombia, Portugal and the United States), with approval received from the German and South African authorities, and in the United States a second request is being responded to;

The initial filing of the Form S-4 Registration Statement has been made with the United States Securities and Exchange Commission by ARRIS and along with the Scheme Circular is expected to be posted to shareholders in the next few months;

Limited integration planning is underway to enable an effective transition to the combined entity.

Companies mentioned