Pace, whose share price took a hit when, despite respectable numbers, it missed forecast because, it said, of a delayed US order, has now issued a downbeat interim statement.
It says that while volume shipments and revenues have continued to meet Pace’s expectations (Q1 2011 revenues up 24 per cent on Q1 2010), profitability has been impacted.
It says the company has built inventory and purchased components ahead of schedule to ensure that it can deliver on customer orders within a tight supply chain environment. This has increased cost and that the Japanese Tsunami has further exacerbated the supply chain environment in the period and increased risk for the year.
However it has no explanation for profitability in the Pace Europe business during the period being below expectations, despite this unit having achieved its revenue and volume targets. And demand for Pace Networks products has been so poor it has closed this division as a standalone business unit.
The Board says it has reviewed the potential impact of the above factors on the rest of the 2011 financial year. In the first half the Board now expects operating margins to be at around 5.5 per cent. In the second half the Board is confident that Pace will return to close to its medium term 8 per cent operating margin target. For the full year the Board expects operating profit to be below management expectations and in the range of $150 million – $170 million.
During this period the build-up of inventory ahead of schedule has caused a higher than planned cash outflow. The Board expects cash to return to prior-year-end levels by the half year.
The Pace Americas business unit has performed ahead of management plan in the period. The 2Wire acquisition integration programme has proceeded as expected with the Americas2Wire business fully integrated into a new Americas Telco customer account team (CAT), which has performed well.
Pace Enterprise has continued to build its businesses in telecom gateways and software and services outside of the Americas. Following the closure of Pace Networks, its existing customers and related opportunities will be managed through Pace Europe.
As previously stated Pace will provide details of its dollar conversion by the end of May.
Neil Gaydon, CEO, said: “It is clear from today’s statement that despite revenues and product shipments being on track, we have made a disappointing start to the financial year with our profitability. We have taken action and are making changes to improve our second half performance and beyond and to ensure we return to our 8 per cent operating margin target.
“Although we will now not be able to make up this first half under-performance in the second half we continue to drive long-term growth and profitability. The demand for our products and technologies continues to grow, ensuring our ongoing market leadership.”