Supply issues burn $9.5m hole in Pace profits

Editor ©RapidTVNews | 17-11-2011

HDD supply issues in 2011 have cost broadcast technology and services firm Pace $9.5 million according to an interim management statement for the period covering 1 July 2011 to 16 November 2011.
The company revealed that including the hit caused by flooding to HDD factories in Thailandwill mean that full year group operating profit will likely be $141 million on thee back of revenues of $2.3 billion. Furthermore, the cash hit will have a consequent impact to cash through lost profit and increased working capital, with net debt at year end now expected to be somewhere between $320 million and $330 million. It’s the second time in a year that supply issues have dogged Pace, although in the former case the issues were internally sourced.

Yet supply issues—such as suppliers being uncertain on capacity and pricing resulting in uncertain impact on 2012 revenue, profit and cash flow—notwithstanding, the company conceded that there were a number of other issues to address on the horizon such as increased pricing pressure, particularly in the North American cable TV industry, impacting group operating margins by around 1%.
In its statement, Pace offered assurances that based on dialogue with suppliers and customers, and detailed analysis, its current working assumption of operating profit impact in 2012 is $35 million-$50 million, most of which will fall in the first half of the year.
Reacting to this latest blow, Pace has embarked upon a consultation exercise which is expected to conclude before the end of H1 2012 which will look at options including a proposed reorganisation of the Pace Europe business, the details of which are subject to finalisation. In real terms a corresponding exceptional charge of around $12 million will be taken in 2011 and the proposal is targeted at making annualised savings of $7 million, half of which are expected to be realised in 2012.
Commented Pace Neil Gaydon, CEO, said: “In common with the broader consumer electronics industry, the immediate impact to our business of the Thailand flooding is significant, requiring diligent management. Looking beyond this short term supply chain issue, the strategic review gives us a clear roadmap to increased operating profit and enhanced quality of earnings.”