When Pace, the television set-top box maker, appointed Allan Leighton as chairman last May, the veteran turnround specialist promised better communication with the City and a strategic review.
Eight months later, that overhaul has claimed the heads of three of its senior management team, including Neil Gaydon as chief executive. Pace, however, has yet to prove to investors that it has turned a corner.
On Tuesday, the Yorkshire-based group has the opportunity to provide evidence of improvement when it presents its results for the 12 months to December 31, a period that was arguably the most tumultuous in its 30-year history.
“Communication with the City is something we have to redress,” Mr Leighton said in May. “I am trying to get the markets to understand UK technology stocks in a different way.”
The group, which issued three profit warnings in 2011, is hoping to convince investors that its products, sold to global pay-TV operators and telecoms groups, have a future as internet-based entertainment expands.
“We look forward to the results as an opportunity for management to provide evidence to us that they have steadied the ship and are pointing in the right direction,” said Ian Robertson at Seymour Pierce.
Mr Leighton previously headed supermarket chain Asda and served as chairman of the Royal Mail and his appointment of Mike Pulli as Pace chief executive was one of the first acts stemming from his three-month strategic review.
The company, which overtook Motorola and France’s Technicolor in 2010 to become the world’s biggest maker of television set-top boxes by shipments, is expanding the “smart-box” side of its business – the more complex, higher-margin products that combine broadband and broadcast content.
Pace is also focusing on software and services, where margins can be up to five times those on basic boxes.
But it has come under intense pricing pressure from rivals such as Samsung, especially in its core North American market. While some cost improvements may be achieved in 2012, it is expected that these will be concentrated in the second half.
Concerns linger 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.
“Pace’s underlying earnings are volatile, in our view,” said Bob Liao at Canaccord Genuity.
The group has faced problems in securing the supply of hard disc drives for its set-top boxes. The problem will knock $9.5m from full year operating profit.
After experiencing supply-chain difficulties following last March’s tsunami in Japan, Pace in October blamed severe flooding in Thailand for a further cut in its full-year forecast. This has slipped back from $190m-$200m early in 2011 to $141m by the end of the year.
“With a multitude of uncertainties – financial, competitive and strategic – facing the business both in the short and particularly long term, we believe a material re-rating is unlikely in the absence of a meaningful change in outlook,” said Jonathan Imlah at Collins Stewart.
“That looks improbable any time soon.”
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