North America demand sees Pace earnings surpass expectations

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SET-top box maker Pace said full-year earnings will jump by at least 20 per cent, beating previous expectations thanks to strong demand from North America, its largest market.

The Saltaire-based company’s shares shot up in early trading yesterday, making it the biggest percentage gainer on the FTSE-250 index.

Pace, whose three major customers are Comcast, AT&T and DIRECTV, said operating margin for the year to December 31 would be no less than 7.7 per cent.

The TV decoder maker said it expects adjusted earnings before interest, tax and amortisation to rise to at least £115m, compared with £96m a year earlier.

The company had raised its full-year forecast in July after first-half profit more than tripled.

Pace, which develops technology for pay TV and broadband service providers, also said it expects full-year revenue to rise 2.4 per cent to £1.5bn.

Analysts had expected the company to report pre-tax profits of £103m.

Pace’s shares have risen by 9.9 per cent since the company raised its profit forecast in July.

The group said its trading outlook, operational efficiency savings and an expected modest net benefit from its strategic initiatives gave it confidence it will achieve good progress in 2014.

Analyst Lee Simpson, at Jefferies, said: “2013 will go down as a strong recovery year for the firm.

“Having completed their strategic review the firm’s holding in hardware is strong with a wide portfolio, good customer engagement and strength in key markets.

“There is still more to do with the development in software and services but we believe Pace has made good progress.”

Pace is confident about its future in a rapidly-changing home entertainment market, after putting a turbulent spell in 2011 behind it.

The company is enjoying a renaissance under chief executive Mike Pulli.

Pace’s troubles began in 2011, when flooding in Thailand disrupted the supply chain and prompted a boardroom overhaul, with former Asda chief executive Allan Leighton taking over as chairman and Mr Pulli stepping up from his role as head of Pace’s US arm to become CEO.

A strategic review prioritised cutting costs, improving efficiency and transforming the company’s supply chain.

It also emphasised the need for an expansion into software and integrated services.

Last year, analysts welcomed Pace’s decision to buy US networking specialist Aurora Networks.

Aurora manufactures optical systems used by cable companies to build fibre-optic networks. The company, whose products include equipment such as amplifiers, transmitters, receivers and switches, reported revenue of $217m in the year ended March 31, 2013.

Aurora is based in Santa Clara, California. It employs more than 300 people, a third of whom are involved in design and technology.

Last year, Mr Leighton said the acquisition of Aurora provided a boost for Pace’s strategy to grow a broader platform across hardware, software and services.

Speaking in October last year, Mr Leighton said: “Acquiring Aurora will allow Pace to expand beyond our core business and build deeper and more embedded relationships with our customers, which the company believes will strengthen Pace’s position as a market leading solutions provider for the PayTV and broadband industries.”