Full-year earnings forecast increased at Pace

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PACE chief executive Mike Pulli said he wanted the set-top box manufacturer to be quicker out of the gate with new products, as the company’s shares rose following an upbeat trading update.

Pace, which is based in Saltaire, near Bradford, cheered investors by raising its full-year earnings forecasts as margins improved and supply disruptions eased.

Mr Pulli said he wanted to make the company more efficient, adding: “I don’t like debt in the company that I’m running. The faster you pay down debt the better.”

He added: “When I see a development cycle that takes a year, I’m saying, ‘Like, why?’”

Pace, which supplies set-top boxes to broadcasters, said full-year operating margin would be greater than its previous forecast of seven per cent.

Pace had faced supply constraints following flooding at the Thai operations of its hard drive supplier, Western Digital Corp, but the worst seems to be over. The company said it expects the supply disruptions to affect its full-year earnings before interest, tax, depreciation and amortisation for the year by $27 million (£17m). It had earlier forecast an impact of between $25m and $35m.

Pace, which reported revenue of $2.31bn last year, expects revenue to be flat this year. With revenue having fallen 15 per cent to $1.01bn in the first half, the company’s outlook implies strong revenue growth in the second half.

Much of that revenue growth will be driven by next-generation media servers the company launched in the United States this year, according to Leeds-based WH Ireland analyst Eric Burns.

Media servers connect TV and internet broadband content with any screen at customers’ homes, including smartphones, laptops, set-top boxes and tablets.

For the first half, the company’s pre-tax profit fell 27 percent to $21.4m as the company lost revenue as a result of the supply disruption. However, operating margins improved to 7.8 per cent, excluding the hit from the supply issues, from 5.8 per cent last year.

Mr Pulli added: “Pace has had an encouraging start to 2012; recovery is underway and we are becoming a more profitable, cash generative company.

“We have clear visibility on revenues in H2 and remain firmly focused on execution and continuing to create a leaner, more profitable business.”

Jefferies analyst Roosmarijn Cornelissen said. “The main story here is the new management proved itself in the first half, managed to get the operating expenses reduction that they set as a target and became very cash generative.”

PACE has undergone significant change over the past year as chairman Allan Leighton and Mr Pulli overhaul the set-top box maker.

Mr Leighton, the former Asda chief executive, was called in to conduct a strategic review of Pace in June last year after a series of profits warnings.

Chief executive Neil Gaydon and finance director Stuart Hall were the highest- profile casualties of the revamp.

The review has focused on improving profits.

The shares closed the day at 134p, a rise of 19.5p.