Signs of Recovery Lift Pace More Than 11%


LONDON -- Pace (ISE: PIC.L) is coming off a trying year, but the recovery looks to be nicely on track. After profit warnings, inventory concerns, and direct impacts from last year's disasters in Japan and Thailand, the world's largest provider of set-top boxes needed a little good news.

A 15% drop in revenue and a 27% fall in net income for the first half of the year may not qualify as good news in many investors' books, but management's positive outlook -- calling for 16% sales growth for the second half of the year and raising guidance on operating margins -- boosted the company's shares more than 11% this morning.

In addition to anticipating the successful launch of next-generation products in the U.S., Pace's largest market, the company's new management team has focused on cost control -- operating expenses were down 13.5% compared with the first half of last year -- and better inventory management. The result was a 62% increase in operating cash flow, which helped fund a 15% increase in the interim dividend and a reduction in net debt from $321.7 million at year-end to $243.3 million on June 30.

Rising cash flow and an improving balance sheet are the types of things investors like to see -- as evidenced by today's price jump. However, today's move pales in comparison with the 192% return Pace's shares have provided since last November, when the company was surrounded by uncertainty and fear.

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