Pace Profit Projections Down

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Pace Plc (LSE:PIC) shares dropped 15% in mid-morning trading after an Interim Management Statement and Strategic Update was released by the company on Thursday.

The statement released pertained to the period from 1 July 2011 until 16 November 2011.

Trading Update and 2011 Outlook

The company stated projected profits for the year to be $141 million on revenues of $2.3 billion, including the impact of Hard Disk Drive supply issues in the wake of flooding in Thailand. The hold up in supply is estimated to have a $9.5 million effect on profits for the year, causing the firm to reassess their earlier profit projections of $150-170 million.  The loss in profit from the flood delays had an impact on cash and increased working capital, resulting in net debt estimates of $320-330 million for the year.

The company also announced that a consultation has been initialised pertaining to a proposed reorganisation of Pace Europe, costing $12 million. The planned changes are targeting an annual savings of $7 million.

Outlook For 2012

According to the statement, the board now expects an operating margin of 7% before the impact of HDD supply issues. This number takes into consideration increased pricing pressure on North American Cable, pushing down margins, as well as measures taken to improve operational efficiency, which pushed them back up.

HDD supply issues are projected to impact the business greatly during 2012. Western Digital Corporation, a major supplier of hard disk drives to Pace halted production due to the floods in Thailand and have estimated that the issues will remain for several quarters.  Pace estimates an impact on profits of $35-50 million for the 2012 fiscal year.

Strategic Review

Pace has been conducting a comprehensive review of their business since May 2011 to determine how to become more distinctive, scalable, and profitable, according to the statement. The review has shown that they operate in markets with the potential for further growth and profitability and that the company needs a sharper focus. They estimate that a 9% operating margin is a reasonable medium term goal for the firm.

CEO Neil Gaydon commented on the 17 November announcement:

“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.”

↑ Pace Warns on Profit as Floods Hit Key Supplier

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