Demand for HD sees Pace profits rise 405pc

Pace, based in Saltaire, yesterday revealed a pre-tax profit of 69.9m as revenue grew 52 per cent to 1.13bn.

The news came as the firm revealed plans to buy French company, Bewan Systems, which it said would boost its technological capability to combine internet services with cable television.

Pace, which makes boxes for BSkyB, Comcast Corp and Canal Plus, is expected to pay up to 11.4m for the Paris-based company, whose technology will be combined with Pace's set top box services to allow it to offer more "converged digital entertainment" services.

Neil Gaydon, chief executive of Pace, said: "Pace's vision is to become a world leader in converged digital TV entertainment. As payTV operators develop converged home entertainment services, advanced residential gateways will become increasingly important – both as standalone devices and integrated into set-top box products that drive whole home networks.

"Bewan will further diversify Pace Group's technology and product offering, helping deliver on our convergence vision."

Earlier this week the group was named the world's number two set-top box supplier.

The Americas accounted for 49 per cent of Pace's revenues last year.

Mr Gaydon added that the benefits of its acquisition of Royal Philips Electronics, now Pace France, in 2008, both in terms of the added sale and associated cost savings, has continued and it is now a fully-operational and profitable part of the group.

He said: "The increase in profits is down to a mixture of organic growth in North and South America and the acquisition of Pace France."

The group said it has a strong balance sheet with net cash of 73.5m and is paying a final dividend of 1p to make a total dividend for the year of 1.5p.

Mr Gaydon added: "The underlying trend in all of Pace's geographic markets is one of considerable growth in demand, with HD a key driver."

Pace said it entered 2010 with good demand for its products, particularly high-definition television, which it expects to increase in advance of the World Cup.

"We will see higher volumes of basic HD," Mr Gaydon said. "It seems with the World Cup and other constraints, Pay TV operators are doing more to proliferate HD."

That would mean personal video recorders, which pause, record and rewind live television and sell for 30-40 per cent more than basic HD boxes, would not grow as strongly as the company expected in 2010, he said. He added: "We are now more of a mature business. To get a 400 per cent rise in profits gets harder so I expect to see an increase in revenues in single digits.

"But we will continue to grow. High definition global penetration is only about six per cent so we have a long way to go with that."

Pace's products will also be used as customers start to launch 3D services.

Mr Gaydon said: "3D has just started but there are two issues: the first is that you have got to get yourself a new TV to watch it properly. Secondly, until the technology changes you need to wear glasses. High definition has taken 10 years to become more mainstream. 3D will probably follow the same pattern."

Mr Gaydon said he would remain on the lookout for acquisitions but said there are none currently in the pipeline.

"You can never plan an acquisition. I'm not a big acquirer so it would have to be the right scale and technology for us to take on."

Pace shares finished the day down 11p at 179p.

Moving on to the next phase

Analysts said Pace's strong growth in 2009 and predicted growth in the home entertainment market would lead to a new phase of growth for the company.

Charlie Menegatos, senior trader at Accendo Markets, said: "After a period of consolidation since last summer highs, the solid results and projections for growth in digital home entertainment will we believe lead to a new phase of growth for the company.

"The huge hike in pre tax profits, net cash position and substantial earnings per share increase will lead to a re-evaluation for future multiples and the Pace share price."

Analyst Brian Alexander at Investec said the "impressive" results were driven by good volume growth and new products.

"Pace continues to deliver to plan – a strong 2009 is augmented by a robust 2010 outlook," he said in a note.