Pace shares hit by second profits warning

Pace Micro Technology, the set-top box manufacturer, last night put out its second profit warning in two months, this time saying that the crisis at ITV Digital had contributed to worsening market conditions.

Pace Micro Technology, the set-top box manufacturer, last night put out its second profit warning in two months, this time saying that the crisis at ITV Digital had contributed to worsening market conditions.

The company, run by chief executive, Malcolm Miller, shocked the City last month with the news that it had been forced to stop shipments of boxes to an important customer, NTL, the cable company, because it was unable to get trade insurance on this business. NTL's credit rating has been shattered by its inability to manage its £12bn debt pile. That left Pace stuck with £50m worth of NTL boxes.

Pace issued yesterday's trading update just before the market closed but even so, the shares immediately lost a further 19 per cent to close at 79p. Before last month's earnings alert, the stock was trading at about 300p. The group manufactures boxes that allow conventional television sets to receive the encrypted pictures from pay-TV companies.

The company yesterday warned that it was now facing a loss for the second half of its financial year, which ends on 1 June, from expectations of a small profit even after March's statement.

John Dyson, its finance director, said: "We are in a very difficult market place at the moment, with cable slowing down both in the UK and the US."

He said Pace was close to a new agreement with NTL, which would involve shipping boxes in smaller quantities. The company's revenues are forecast to drop from £520m last financial year to some £350m this time. With a small second-half loss, full-year pre-tax profits are estimated at £17m, after Pace made £22m in the first half. The original profit forecast for the full year was about £50m.

Pace said that ITV Digital being placed administration, last month, had resulted in some unsold stocks. The difficulties at ITV Digital also meant that Pace now only expected to sell about half the number originally expected of its new cut-price digital terrestrial box by the end of May.

Ray Burgum, an analyst at Beeson Gregory, said: "They're just throwing ITV Digital into the mix but the main issue is NTL.... Up to last month the new management was doing well but they have fallen from grace since."