Pace reports progress after profit warning

Pace, which is the world’s biggest maker of set-top boxes, shocked the City on May 10 with the news that profits would be hit by a poor performance in Europe and higher supply chain costs due to Japan’s earthquake, sending its shares down to a two-year low. The company also blamed inventory issues and the surprise closure of the MultiDweller Pace Networks business.

City heavyweight Allan Leighton was recently appointed as non-executive chairman of Saltaire-based Pace as part of a strategy to improve its performance.

For the six months ended June 30 2011, the company’s profit before interest, tax, and amortisation (EBITA) was $68.4m, (£41.86m) giving return on sales of 5.8 per cent.

In the six months ended June 30 2010:, EBITA was $73.3m, with a return on sales of 7.5 per cent.

In a statement to accompany the results, Pace said: “In May 2011 Pace announced that while volume shipments and revenues were on track, group profitability had been impacted by four factors that resulted in the board revising down its full year profit guidance to the range of $150m to $170m.

“Two of these issues operationally have been resolved. Inventory management has been normalised, and our networks business has been re-sized and is now no longer loss-making. The other two issues require continuing management. The impact of the Japanese Tsunami on supply chain has been largely mitigated, however a small number of at-risk components remain, and Pace continues to address issues related to the reduced profitability levels in Pace Europe.

“The expected acquisition-related synergies, primarily resulting from the acquisition of 2Wire, have been achieved ahead of expectations, both on a gross profit as well as on an operating cost basis. The $30m of targeted synergies have now all been achieved on a current run-rate basis. Additionally the operating cost synergies are larger than expected.”

Neil Gaydon, the chief executive said: “Progress is being made on each of the issues identified in May, and we continue to address those issues not fully resolved, particularly in Pace Europe. Acquisition-related synergies have been achieved ahead of plan. Additionally, this period has seen continued free cash flow generation, leading to a reduced net debt position of $293.2m. The strategic review announced last month is underway, with focus on Pace’s strategy and opportunities for business improvements, aiming to conclude around the time of the Group’s Q3 IMS.”