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Profits at Pace hot up as TV's digital revolution takes off

Television's digital revolution has sent profits soaring at Pace Micro Technology, the soon-to-be-quoted maker of new-generation set-top boxes.

In its pathfinder prospectus published yesterday, the Shipley-based manufacturer promised pre-tax profits in the year to 31 May of at least pounds 18.1m, up from just pounds 3.4m last time.

Barry Rubery, joint chief executive, said the booming markets for digital services in Australia, Thailand and South Africa helped the company shift 250,000 set-top boxes in the year.

"We are now looking forward to the launch of digital in the UK," Mr Rubery said. BSkyB, the satellite broadcaster owned 40 per cent by Rupert Murdoch's News Corporation, has said it would launch digital satellite services from autumn next year. Digital terrestrial television, available "through the air", is planned for introduction in 1998 if the Government's proposals succeed. Viewers will need special equipment to unscramble the digital signals, creating a demand for Pace's range of set-top boxes and other receiving equipment.

The devices currently cost as much as pounds 700, but it is expected that broadcasters launching digital services will seek ways of subsidising set-top boxes to encourage take-up. BSkyB, for example, claims it can lower the cost to about pounds 200, by working with manufacturers, retailers and other partners.

In its profit forecasts, Pace has not relied on income from digital satellite in the UK. "More than 80 per cent of our digital business comes from outside the UK," Mr Rubery said. "Anything that comes from the home market will be a welcome addition."

Analysts said the company would achieve a market capitalisation in excess of pounds 250m, once the shares are admitted for trading on the London Stock Exchange.

Established by David Hood, the joint chief executive, in 1982, Pace launched its first low-cost modem in 1985 and its first analogue receiver for satellite television in 1987. It developed a receiver-decoder for use in subscription television in 1990, and has benefited from the rapid growth of Sky Television, particularly since 1992.

Through a joint venture with NTL, the television transmission company, it developed a range of MPEG2 digital products, providing high-quality transmission.

The company is one of a handful of UK companies that stands to benefit from the transition from analogue to digital television. Digital television is already available in several countries, with the UK and continental Europe considered to be among the biggest potential markets for Pace.

The company decided against developing its own "conditional access" technology, by which transmissions are blocked unless the viewer has paid a subscription fee. As a consequence, Pace expects to be able to supply set-top boxes whatever the outcome of ongoing battles between suppliers of the technology.