The Investment Column: Patent problems at Pace

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The Independent Online
Two profit warnings, the departure of a chief executive, and shares worth just a third of their flotation price: you would have thought things couldn't get any worse for Pace Micro Technology. But they just did. Already the most disastrous new issue of recent years, the satellite-TV decoder maker yesterday reported worse-than-expected losses and set aside pounds 10m in provisions. The shares slipped 8p to a new low of 37.5p.

Malcolm Miller, the newly installed chief executive, must have expected more. But rather than proclaim the brave new dawn of digital television he first had to clear up the mess his predecessors had left. It seems the previous management decided not to set aside any cash for royalty payments on intellectual property used in digital satellite decoders. Now the owners of said patents are asking for their money, and the company has had to put away pounds 5m to cover the liability. Even though the final settlement should be a lower figure, this does not bode well.

Other nasties included a pounds 4m write-off after CanalPlus, the French media group, took over one of Pace's customers in continental Europe and rendered Pace's stock worthless. There will be more to come in the second half once the group decides how many jobs and offices it has to cut to reduce costs.

A final worry is Pace's balance sheet. The group claims to have over pounds 10m in the bank, but this was largely achieved by calling in debtors and not paying creditors - the pounds 581,000 interest charge for the half suggests the group is still carrying some borrowings.

With all the bad news now hopefully out of the way, Pace may eventually stage a recovery when it gets the benefit of the BSkyB set-top box order next year. Long term, however, it's still possible that larger competitors will obliterate Pace altogether. Still one to avoid.