Pace’s run of form continues as profits treble

SHARES in set-top box maker Pace leapt x per cent yesterday after the firm said first-half profits more than trebled and full-year profits will beat expectations.

Mike Pulli, Pace chief executive

The Saltaire-based company is enjoying a renaissance under new chief executive Mike Pulli and the shares rose xp to xp last night, one of the top gainers in the FTSE 250 mid-cap index.

The world’s biggest maker of TV set-top boxes has been boosted by strong US sales of its media servers – the next generation of boxes that link together all the devices in the home such as the TV, iPad, smartphones with a broadband connection.

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Pace has shipped over two million Genie Advanced Whole-Home HD DVRs for DIRECTV in the past year and the next generation HR44 Genie Media Server and C41 mini Genie client devices are now in production.

Pace has been chosen by GCI, a cable operator in North America, to provide media servers running TiVo software and reported a strong pipeline of future work.

Mr Pulli said that demand for media servers is now picking up outside the North American market.

Get TV in Norway has launched a whole home solution supported by a Pace media server, Pace’s first media server outside North America.

More recently Liberty Global, an international cable operator, awarded Pace a contract to provide media servers to a number of operations in Europe.

“Media servers are taking off in Europe,” said Mr Pulli. “We’ve already shipped to Get TV in Europe and Liberty Global will start rolling out this year.

“In Latin America media servers haven’t taken off yet, but we think they will in the next six to nine months. It’s all about disposable income.”

Pace has been chosen by Telefonica as the major supplier of High Definition Zapper and PVR devices for their IPTV operations in Latin America as part of their roll out of the Telefonica Global Service Platform. Shipments will take place in Brazil and Chile later this year.

Despite the ongoing economic hardship in Europe, cable operators are keen to roll out media servers in order to keep up with rivals.

“In Europe the big thing is competition. Our operators have to make sure they don’t fall behind,” said Mr Pulli.

In Asia the group is seeing pockets of growth in countries like Australia and New Zealand whereas countries like India are expected to take more time.

Jefferies analyst Lee Simpson said: “Pace is doing what it said it would – margin expansion, strong first half sales, cash generation – and has a clear line of sight in the future on second half deliverables and operational efficiency gains.

“Although the top-line will ebb in the second half, which was well flagged, the firm continues to be focused on cash generation. Operationally, the firm is in a far healthier position than 12 to 18 months back.”

Pace’s first half last year was hit by flooding at a supplier’s plant in Thailand in late 2011, which disrupted deliveries of hard disk drives.

Pre-tax profit for the first half of this year rose to £45m from £14m and revenue rose 31 per cent to £861m.

Revenue from North America rose 62 per cent to £547m, driven by strong demand from DIRECTV and Comcast Corp for its media servers.

Pace’s three biggest customers – AT&T, DIRECTV and Comcast – accounted for 59 per cent of total revenue, up from 44 per cent a year earlier.

The TV decoder maker, which made an unsuccessful attempt to buy Google Inc’s set-top box maker late last year, said Europe accounted for 12 per cent of revenue in the first half, down from 18.8 per cent a year earlier, but this is expected to pick up as new contracts come on stream.

Net debt fell to £44m, down from £107m at the end of last year.

The group announced a 27 per cent increase in the interim dividend.

Mr Pulli said the hike reflected the solid cash flow performance as well as the board’s confidence in the outlook and future prospects for Pace.

“We’re confident in what we’re doing and where the company is going,” he said.

Following the disruption in Thailand, Pace is switching over to two core manufacturers, a process it expects to complete later this year.

“We have done a really big scrub of our supply chain,” said Mr Pulli. “We’ve done a lot of work although there is still work to be done. We’re feeling happy with dual sourcing.”