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March 6, 2012 10:05 am

Pace upbeat despite difficult year

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Mike Pulli, the new chief executive of Pace, insisted on Tuesday the troubled set-top box manufacturer had a bright future as he sought to put a difficult year for the company behind him.

The former head of Pace’s Americas operations who took over as chief executive in December, expressed confidence in the group’s products, which are sold to global pay-television operators and telecoms groups, despite the threat of internet-based entertainment to its traditional business.

“We see [internet TV] as a complementary service rather than a replacement service,” Mr Pulli said.

“We have maintained our position at the forefront of the technological development in the pay-TV market as advanced solutions are deployed to key customers.”

Mr Pulli was speaking as the company reported that annual pre-tax profits had halved from $110.2m to $54.7m on revenues that rose from $2bn to $2.3bn.

Last year Pace issued three profit warnings and has axed its senior executive team as the combination of supply chain problems caused by the floods in Thailand and the tsunami in Japan, the eurozone crisis and intense competition from internet television providers damaged profits.

Like-for-like revenues fell 7 per cent for 2011 and European sales contracted 19 per cent. Adjusted earnings before interest, tax and amortisation fell from $160.6m to $141.4m.

“Last year was a challenging year operationally for Pace, with the company addressing inventory management issues and reduced profitability in Pace Europe as well as the impact of two major natural disasters,” Mr Pulli said.

Including the impact of acquisitions such as 2Wire and Bewan, total revenues rose 11.9 per cent to $2.3bn over the year.

Pace said the effects of the floods in Thailand would “continue to impact results during 2012, with the impact to be predominantly felt during the first half of the year”.

Analysts have expressed concerns that Pace’s customers in the pay-TV market will be squeezed as consumers migrate to downloading TV programmes and videos over the internet from companies such as Google and Netflix.

But the Yorkshire-based group, which overtook Motorola and France’s Technicolor in 2010 to become the world’s biggest maker of TV set-top boxes by shipments, is expanding the “smart-box” side of its business – more complex, higher-margin products that combine broadband and broadcast content.

It is also focusing on software and services, where margins can be up to five times those on basic boxes. But it is facing intense pricing pressure from rivals such as Samsung, especially in its core North American market.

“Looking at geographic performance, the Latin Americas were once again strong performers, with decent performance from North America, but with the 19 per cent decline in European sales being the clear problem,” said Ian Robertson at Seymour Pierce. “From the commentary, it appears that the issues are being addressed.”

Diluted earnings per share halved from 25 cents to 12.5 cents, and the board proposed a final dividend of 2.50 cents per share, bringing the full-year payout to 3.75 cents from 3.37 cents the year before.

Shares in Pace, which have fallen by two-thirds in the past year, rose 11 per cent, or 8¾p, to 89¾p in early London trading.

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