Shares in Pace have fallen sharply after the pay-TV and broadband services provider issued a profit warning for the first quarter of 2011.
In an interim management statement, for the period covering 1 January 2011 to 9 May 2011. The company revealed that Q1 2011 revenues were up 24% on Q1 2010 but that profits will be somewhat below expectation. The company had anticipated margins being in the region 8% but these are now expected to be in the region of 5.5% for the first half of the year.

The company cites a number of reason for falling profits for the Q1 period, notably a build-up of inventory ahead of schedule ,to ensure that it can deliver on customer orders within a tight supply chain environment, has caused a higher than planned cash outflow.

Profitability in the Pace Europe business unit during the period has been below expectations, despite this unit having achieved its revenue and volume targets and it also cites insufficient demand for Pace Networks products, which resulted in the closure of this division as a standalone business unit. Furthermore, Pace says that the Japanese Tsunami has further exacerbated the supply chain environment in the period and increased risk for the year.

Yet attempting to draw on positives for the quarter, the company’s board expects cash to return to prior-year-end levels by the half year and reports satisfaction with the Pace Americas business unit has performed ahead of management plan in the period. The recently acquired 2Wire business is said to have performed well and Pace Europe is noted to have won key deals.

Accepting that the start to the year was indeed a disappointment to the company, CEO Neil Gaydon, CEO, said that the firm would make the necessary changes required to get back on track: “We have taken action and are making changes to improve our second half performance and beyond and to ensure we return to our 8% 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.”