We’re sorry, says Pace chief after group ‘dropped the ball’

Chief executive Neil Gaydon said the Saltaire firm had lost discipline but, after seeing management credibility questioned by analysts this week, insisted its foundations and market position were the right ones.

Shares in Pace plunged 40 per cent on Tuesday after it made a shock profits warning after a disappointing start to the year.

Yesterday Mr Gaydon said: “Clearly the first half has not been good enough and I apologise and take responsibility.

“We have a good company but have faltered at a bad time to do so...

“Some of it is a dropped ball by management and we tried to make that clear. The discipline has been in the company for years and we lost some of that as we have grown.”

Mr Gaydon has been credited for leading Pace’s turnaround from basket case to the world’s largest producer of set-top boxes and his total pay and benefits package rose by more than 12 per cent to £1.05m last year.

On Tuesday, however, he blamed its recent performance on a combination of inventory build-up, the Japanese tsunami, lower profits at Pace Europe and the surprise closure of the MultiDweller Pace Networks business.

Mr Gaydon told yesterday’s annual general meeting that mistakes had been made but these were being tackled after five years of growth and some decentralisa- tion.

“In accelerating that some of those things went wrong and we have to take responsibility for that...

“A number of things went wrong which unfortunately mean we are adrift from where we should be. If there is any good news (it is) we have arrested those issues where they happened.”

He told investors the firm’s foundations, position and strategic decisions are right but faced tough questions over the performance of Pace Europe, whose president Mathias Hautefort left earlier this year.

Mr Hautefort joined Pace after its acquisition of Philips’ set-top box business in 2008 and at the time won praise from Mr Gaydon for his “inherent understanding of the business”.

It is understood the Frenchman later left by mutual consent but Pace refused to confirm or deny whether Mr Gaydon was referring to him yesterday when he spoke of performance and leadership issues at Pace Europe.

The group has been hit by doubts over its future performance, especially in the light of the surprise announcement in March that a key US order would be delayed until 2012.

It expects 2011’s first half operating margins to be at around 5.5 per cent but it is confident it will return to its medium term eight per cent operating margin target in the second half.

Mr Gaydon added: “We have got off to a bit of a faltering start (this year). These things have been fixed and are in the process of being fixed.

“We are very proud of our customer base and it is the envy of the set top box world.”

Chairman Mike McTighe said in his formal statement: “Since the start of 2011, volume shipments and revenues have continued to meet Pace’s expectations.

“Due to a number of factors detailed in that (interim) statement the board now expects full year operating profit to be in the range of $150m-$170m (£97m- £110m).

“The board is disappointed in this expected outcome for 2011 and will be looking at lessons that need to be learned, and ensuring they are implemented.

“At the same time the board continues to be confident in the fundamentals of the business, the management team’s ability to deliver against the group’s business objectives and the ongoing opportunities within our global markets for digital and broadband technology and services.”

All the resolutions were passed but 36.5 per cent of shareholders’ votes went against approving the directors’ remuneration report.

Mr Gaydon and the top management team met investors this week in a bid to convince them the group is on the right track.

Yesterday he said chief executives could not control a company’s share price but said the market had “over-reacted” to Pace’s recent announcements.

“It is human nature to point at any one thing and to try to look for some Machiavellian thing that has gone on.

“We don’t like the fact that we have messed up in the first quarter.”

Shares in Pace closed last night down 3.7p (3.78 per cent) at 94.3p.

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Global markets key to future

Pace, which overtook Motorola to claim the top slot in the set-top box market last year, has seen costs rise because it bought extra components to counter tight supply chains, a situation exacerbated by Japan’s earthquake.

The firm, visited yesterday by the Duke of Kent, remains upbeat about its future however and has the advantage of supplying a range of global markets.

It also has strong partnerships in cable, satellite and telecommunications with Comcast, DirecTV and AT&T respectively.