Pace, which is the world’s biggest maker of set-top boxes, surprised the City on May 10 when it reported that profits would be hit by a poor performance in Europe and higher supply chain costs as a result of the Japanese earthquake and tsunami, 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.
For the six months ended June 30 2011, the company’s profit before interest, tax, and amortisation (EBITA) was $68.4 million giving return on sales of 5.8 per cent. In the six months ended June 30 2010, EBITA was $73.3 million, with a return on sales of 7.5 per cent.
Announcing its interim 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 $150 million to $170 million.”
According to Pace, 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.”
Neil Gaydon, Pace’s CEO, said that progress was being made on each of the issues identified in May, and that the company continued 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 $293.2 million. 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.”
He said the first half results put Pace on track to meet its revised May 2011 profit guidance of $150-170m for FY 2011.