Pace shares crash as it blames NTL for big shortfall in set-top box sales

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The Independent Online

A damaging row broke out yesterday between the set-top box maker Pace Micro Technology and NTL, fuelling fears over the credit worthiness of the debt-laden cable company.

Pace shares crashed 67 per cent to 100p when it issued its third warning in seven months, saying sales for the year to 31 May would be £150m short of expectations.

It said a key reason for the shortfall was the termination of set-top box shipments to NTL because Pace had been unable to secure credit insurance for the contracts.

Malcolm Miller, Pace's chief executive, said: "We have stopped shipments [to NTL] because we can't get credit insurance. We are talking to NTL and the credit insurers about how to go forward."

This was hotly denied by NTL, which described the remarks as "confusing and inaccurate". A spokeswoman said: "We have a contract with Pace and that contract is fully insured. We have sufficient boxes in our warehouse to service our customer needs."

This was disputed by Pace, which said the contract had previously been insured but that cover was no longer available. "Pace does not have credit insurance for NTL so we stopped manufacturing yesterday," the company said. The issue has blown a huge hole in Pace's accounts as NTL accounts for around 30 per cent of its sales.

NTL has debts of £11.8bn and has appointed advisers to organise a refinancing. Pace does not receive payment until it ships the units to customers such as NTL and obtains credit insurance to guarantee the sums owed. But Pace's credit insurers, NCM, has been cutting back its exposure to the cash-strapped UK cable market. "They are being cautious so we have to be cautious," Mr Miller said. He added that it was the insurer's decision as to whether it decided to have exposure to a particular company or not.

As of 31 December Pace had £130m of unit sales insured from various customers.

The credit insurance issue also raises questions about Pace's other customers, which include heavily indebted companies such as Telewest and ITV Digital. Shares in Telewest fell 13 per cent to 11.25p.

However, Pace said it had not been refused credit insurance for any other customer. Pace said its sales to the United States had also been affected. "We are only going to ship 200,000 units to the United States and we were hoping to ship 500,000," Mr Miller said.

Pace's revenue for the year to 31 May will now be £350m rather than the £500m previously forecast. Analysts have halved their pre-tax profit forecast to £23.5m. Some said the latest warning called the credibility of management into question. Asked whether he expected calls for boardroom changes after the latest warning, Mr Miller said: "I haven't heard anything."

Pace is the world's third largest set-top box manufacturer after Motorola and Scientific-Atlanta.

The row blew up as Telewest sought to dampen fresh speculation about a merger with NTL. Adam Singer, Telewest's chief executive, said the debt levels of both companies (Telewest's debt mountain is £5.1bn) made a deal unworkable. "In the long term, of course, there have to be scale advantages [from a merger]. Does it make sense at the moment with both companies' balance sheets as they currently are? Probably not."