PHOTO-ME INTERNATIONAL PLC - INTERIM RESULTS

RNS Number : 1003V

Photo-Me International PLC

10 December 2013

 



PHOTO-ME INTERNATIONAL PLC - INTERIM RESULTS ANNOUNCEMENT

RECORD HALF-YEAR RESULTS - CONFIDENT OUTLOOK

Photo-Me International plc (PHTM.L), the instant service equipment group, announces its results for the six-month period ended 31 October 2013. 

Results in brief:

	2013	2012	Change
Turnover	£101.3m	£107.4m	-5.6%
EBITDA	£31.8m	£29.8m	6.7%
Pre-tax profit	£23.0m	£20.0m	14.9%
EPS(diluted)	4.27p	3.93p	8.7%
Net Cash/(Debt) ‡	£67.8m	£61.4m*	£6.4m
Dividend	1.8p	1.5p	20.0%

‡ As defined in note 8 to the interim report

* As at 30 April 2013

Operational Highlights

·      Pre-tax profits up 14.9%** to a record £23.0m.

·      Turnover decline of 5.6% predominantly due to Sales and Servicing division.

·      Profitability in Sales and Servicing substantially improved with lower costs and good sales of laundry units.

·      Photobooths expansion on track - unit numbers rose by 5% year-on-year.

·      Manufacturing cost reduction plans on track - substantial benefits expected in 2014 and beyond.

·      Excellent operating results from laundry units - strong future growth anticipated.

·      Net cash position of £67.8 million, despite increased capital expenditure and combined tax and dividend payments of £12m.  

·      Interim dividend increased by 20% to 1.8 pence per share.

·      Further commitment to grow the dividend by 20% p.a for the two financial years 2014/15 and 2015/16.

·      Board will continue to monitor the scope for further special dividends.

** This figure is 18.2% if we exclude the impact of the sale of a property and additional provision on stock in 2012 totalling £0.5m.

John Lewis, Non-Executive Chairman, said: "The Group has again produced an excellent performance in its stronger half and delivered another record result. It is very pleasing that our photobooth estate is now clearly back on a growth footing as a result of the roll-out of the new Starck-designed booths and entry into new markets, led by China. While the contribution in this period was modest, our new Revolution ® laundry units are producing excellent returns and we remain very excited about the future prospects.

"We have made good progress on costs in past years, but this will be overshadowed by the leap forward we will take in 2014 in reducing the manufacturing costs of both our photobooths and laundry units, by outsourcing to China and Hungary respectively. Not only does this open up the emerging markets for us, it enables us to increase manufacturing capacity with potential decrease in capital expenditure.

"We continued to generate significant levels of cash in the period and the net cash position at the end of October was £67.8 million, an increase of some £6.4 million since the end of April, even after paying tax, dividends and self-financing our capital expenditure. We are therefore increasing the interim dividend by 20% - in line with what we said at the time of our preliminary results."

Enquiries:

Photo-Me International                                                                        01372 453 399

Serge Crasnianski or Françoise Coutaz-Replan   

Media

Madano Partnership                                     

Matthew Moth /Julien Cozens                                                              020 7593 4000

Investors:

IR Focus

Neville Harris                                                                                        020 7593 4015

CHAIRMAN'S STATEMENT

Results

Despite the fact that turnover was some 5.6% lower (predominantly due to the Sales and Servicing division), a further reduction in costs year-on-year and a contribution from sales of our laundry units meant we were able to increase operating profits by some 15%. Currencies were a mixed bag over the period; a decline of some 19% in the yen against sterling masked a strong underlying performance from our Asian businesses while a decline in sterling against the Euro enhanced an already decent performance by Europe. Operating profits overall benefited by 3% from currency movements.

Our Sales and Servicing division again had lower turnover, with its activities now at a much lower level following an extensive period of restructuring. In particular, minilab-related business was some 30% lower over the period and continues to decline. However, the division enjoyed a significantly lower cost base and there were useful profits from the outright sale of our laundry units which produced revenue of £1.2m.

Strategy

Our strategy is focused on the development of new complementary products that build upon the strength of the ID photobooth business and offer diversified revenue and profit streams for the future. This has produced the Philippe Starck-designed photobooth and the Revolution ® laundry units in the recent past.

We have also sought to reduce our costs progressively to maintain margins and cashflow and this will take a quantum step forward in 2014 with the outsourcing of manufacturing of our Revolution ® laundry units and photobooths to Hungary and China respectively.

We are now focussing on rolling out our Revolution ® laundry product aggressively and will increasingly focus on developing new markets for the photobooths, facilitated by the reduction in manufacturing costs.

Dividends

In line with what we said at the time of our preliminary results in June 2013, the Board is recommending an interim dividend of 1.8 pence per share, an increase of 20% over the interim dividend of 1.5 pence per share paid last year.

The interim dividend will be paid on 6 May 2014 to shareholders on the register on 28 March 2014, with an ex-dividend date of 26 March 2014.

Outlook 

We always remind investors that the first half of the financial year is seasonally the stronger for Photo-Me in terms of profits, and we expect this certainly to be the case again. However, the Board remains sufficiently confident for the outlook of the business over the medium-term that we are prepared at this stage to indicate that we expect to be able to increase the dividend by a further 20% per annum in each of the next two financial years, in addition to the current one. The Board will also continue to monitor the scope for further special dividends.

John Lewis

Non-Executive Chairman

CHIEF EXECUTIVE'S BUSINESS AND FINANCIAL REVIEW  

Business Review

Photo-Me has two principal activities, which the Board monitors in assessing the Group's performance:

Operations - which comprises the operation of unattended vending equipment (primarily photo booths and laundry units), digital printing kiosks, photobook makers and amusement machines.

Sales and Servicing - which comprises the development, manufacture, sale and after-sale servicing of the above-mentioned Operations equipment and a range of photo processing equipment.

The following table summarises the results analysed between the two divisions, Operations and Sales & Servicing:

	Revenue			Operating profit
Six months to 31 October		2013	2012		2013	2012
		£m	£m		£m	£m
Operations		92.8	94.2		20.6	20.3
Sales & Servicing		8.5	13.2		4.2	1.2
Group overheads					(1.8)	(1.5)
		101.3	107.4		23.0	20.0

Whilst turnover declined by 5.6% - predominantly due to sales and services - operating profit and profit before tax again materially improved, rising by nearly 15%. Diluted earnings per share were up 8.7% at 4.27 pence (2012: 3.93 pence).

The business is international in its reach and focused on three main geographic hubs at present: Continental Europe, UK & Republic of Ireland, and Asia. 

Geographical analysis of revenue and profit (by origin)

	Revenue			Operating profit
Six months to 31 October		2013	2012		2013	2012
		£m	£m		£m	£m
Continental Europe		58.4	59.5		18.7	14.8
UK & Republic of Ireland		23.4	24.2		2.0	2.6
Asia		19.5	23.7		2.3	2.6
		101.3	107.4		23.0	20.0

Continental Europe, which includes the great majority of Sales & Servicing revenue, once again comprised the largest element of reported Group revenue - 58% (2012: 55%) - but contributed81% (2012: 74%) of group operating profit. Substantially all Group overheads are charged against the UK & Republic of Ireland. The result for Asia - on translation - was adversely affected by a sharp decline of 19% in the yen relative to sterling. European results benefited from a decline in sterling against the Euro.

OPERATIONS

Operations contributed 92% (2012: 88%) of group revenue. Photo-Me's operations business is global, trading in 15  countries. However, 84% of sites are located in three territories - the UK & Ireland, France and Japan. By area, Continental Europe accounted for 20,873 (2012: 19,856) sites; the UK and Ireland for 13,142 (2012: 14,323); and Asia for 9,429 (2012: 8,981).

At the half-year end, the total number of vending sites worldwide was 43,444 (2012: 43,160) of which photobooths represent around 60%. This extensive network of sites, with related site-owner contracts and relationships, supplemented by an established field service and cash collection infrastructure, represents one of Photo-Me's greatest strengths.

Since October 2012, the Group has removed some 1,080 bouly machines whose takings were considered marginal, in order to focus on those machines with a higher contribution to profit and to improve productivity.

Revenue declined by 1.5% and Operating profits increased by 0.9% but last year's figures benefited from a very strong performance from Fotofix - Photo-Me's German business - where the introduction of new regulations in relation to both health insurance cards and children's ID photos boosted profits by around €1m.

Photobooths

Photobooths currently represent the bulk of the operating profit of the Operations division and for this product the most important individual market is France. Year-on-year the number of sited photobooths increased by 1,204 to 25,485 sites internationally, an increase of 5%. Over half of this increase was in Europe which has been led by the rollout of the newer Starck-designed booths, which after a two to three month settling-in period on site, are showing turnover some 30% higher than older models, justifying the Group's optimism about their introduction. There are currently around 1,800 Starck booths in the market place and the group anticipates a substantial increase in numbers over the year ahead in both Europe and Asia.

There was a 6% increase in Asian units during the period and this, combined with the introduction of newer booths with a much enhanced photo quality, contributed to a strong performance in Japan.

Although the market is long-established, there are now opportunities for strong growth in new territories which are being made possible by a very significant reduction in the manufacturing cost of the Photobooths. This is a combination of two factors: First, the Group is outsourcing its manufacturing base to China; second, technology improvements have led to a reduction of both hardware and software costs associated with the machines. As a result, the cost of a booth produced in 2014 will be around 40% of the cost of one produced in early 2013. The Group's commitment to the Asian market is further underlined by the recent opening of an R&D facility in Hanoi, Vietnam, following the opening of a facility in Shanghai earlier in 2013.

This means that the retail price in developing economies can be reduced in line with the decrease in production costs, thereby opening up territories that were not previously economical for the Group to operate in. The Group is now testing in Malaysia, Poland, the Ukraine, Thailand and Vietnam.

Progress in China continues to be made. The Group now has licences to operate in all of the major urban areas and is installing units at the rate of approximately 30 per month. The revised target is to have around 600 machines installed by the end of 2014 and 1,200 by the end of 2015.

Overall, the business continues to be managed tightly and remains a significant cash generator for the Group despite the expansionary capital expenditure requirements.

Laundry units

As previously stated, Photo-Me believes a significant opportunity exists to roll out its laundry product - branded Revolution - aggressively in France and Belgium initially, as well as other European territories in due course, predominantly utilising the same sites as the photobooth estate. As at the end of the half-year, Photo-Me had sold 276 of these units (40 during the period) and continues to operate 103 (an increase of 55 during the period). As anticipated, progress to date has been somewhat limited by the production capability available in France and thus the Group has planned to transfer manufacturing to Hungary to both lower production costs and increase capacity significantly. Production costs per operating unit are expected to be around 25% lower in 2014.

It is pleasing to report that this plan remains on schedule. The first prototype machine has been delivered and this includes two additional features. First, it will be possible to pay by debit/credit card and second the machine will send a free text message to the user to inform them when their laundry cycle is about to end. From January 2014 it is expected that production will rise to 50 machines per month, rising to 80 -100 machines per month by the end of 2014.

The results from the units in operation have been extremely encouraging to date with monthly takings averaging €1,400 across the operating estate.  Takings vary according to the location of the units (e.g. whether situated in a small town supermarket franchise or an edge of town hypermarket) but the modern-looking units have been universally well received by the site owners as helping to increase footfall. In the six-month period ended 31 October 2013, the turnover of the laundry units was £460,000 (constant currency) and in the final three months of the period, the average takings per unit* were averaging around €1,600 per month.

In addition to the stand-alone units, Photo-Me is now trialling 5 laundrettes in Northern France and Belgium. These unattended shops have been redesigned to offer customers a new and modern environment. TV and WiFi is available and depending on the size of the unit, they may also incorporate a Starck photobooth and a photocopier and/or digital printing kiosk. These trials will continue during 2014, but early results are encouraging.

From the current base of 380 units (either sold or operated), the Group is expecting the number to approach 2,000 (excluding shops) by the end of calendar year 2015 depending on how quickly production is ramped up in Hungary. The roll-out of the units can be self-financed by Photo-Me and operated and maintained by its extensive network of service engineers, using the same telemetry as in the photobooth estate. Photo-Me believes that this network, combined with its excellent long-standing relationship with site owners - as well as competitive pricing - , will provide effective competitive market advantages. 

While the initial core markets remain France and Belgium, other countries - Germany, UK & Ireland - are under active investigation and the Group is finding potential demand in other locations like campsites and riding stables, both of which have demand for heavy-duty laundry.

*A unit usually comprises two or three machines.

Other Products

Digital printing kiosksare very much focused in Continental Europe, particularly France and Switzerland.

While the Group continues to develop its range of innovative products, the retail photographic market remains difficult and turnover declined by 9% in constant currency terms in the period.

Amusement machines are predominantly a UK business and there continues to be a reduction in the number of low-value, loss-making units. The business overall is profitable but very small.

Business service equipment is largely in France, and much of the estate is co-located with photobooths and kiosks, and again is a small part of the business.

SALES & SERVICING

Substantially all of Sales & Servicing revenue derives from the sale to third parties of retail photographic equipment, in the form of machines and related supplies and consumables, as well as sales of Revolution ® laundry units.

After substantial restructuring, the division is now considerably smaller than it was and is now focusing its effort on supporting the Operations division in relation to manufacturing costs and R&D for the Group as a whole. In the first half, despite sales of laundry units amounting to £1.2m, revenue was 35% lower than a year ago. This was because Minilab-related sales declined by some 40% and that business continues to decline.

The cost base was lower than a year earlier and this, combined with a good margin on the laundry sales, meant that operating profits moved ahead well.

STATEMENT OF FINANCIAL POSITION

Shareholders' equity as at 31 October 2013 totalled £101.1 million (30 April 2013: £97.1 million), equivalent to 27.2 pence (30 April 2013: 26.7 pence) per share.

The Group's net financial position continued to improve, reporting a net cash balance of £67.8 million at the end of the period (30 April 2013: £61.4 million).

RISKS AND UNCERTAINTIES

The principal risks and uncertainties affecting the continuing business activities of the Group were outlined in detail at the time of the preliminary results in June and in the opinion of the Board are unchanged since then.

The Board manages these risks - as much as possible - through the adoption of relevant policies and mitigation plans which were also described in the preliminary results in June.

Serge Crasnianski

Chief Executive Officer

GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 October 2013

	Notes	Unaudited  6 months to 31 October 2013 £'000	Unaudited 6 months to 31 October 2012 £'000	Audited Year to 30 April 2013 £'000
Revenue	3	101,335	107,393	195,590
Cost of sales		(71,476)	(79,153)	(153,363)
Gross profit		29,859	28,240	42,227
Other operating income		661	501	1,138
Administrative expenses		(7,629)	(8,690)	(19,221)
Share of post-tax profits/(losses) from associates		70	(16)	55
Operating profit	3	22,961	20,035	24,199
Finance revenue		93	156	533
Finance cost		(53)	(175)	(426)
Profit before tax	3	23,001	20,016	24,306
Total tax charge	4	(6,918)	(5,668)	(6,746)
Profit for the period	3	16,083	14,348	17,560
Other comprehensive income
Items that are or may subsequently be classified to profit and loss:
Exchange differences arising on translation of foreign operations		(1,174)	(538)	(2,161)
Total items that are or may subsequently be classified to profit and loss		(1,174)	(538)	(2,161)
Items that will not be classified to profit and loss:
Actuarial movements in defined benefit obligations and other post-employment benefit obligations		-	-	15
Deferred tax on actuarial movements		-	(11)	(308)
Total items that will not be classified to profit and loss		-	(11)	(293)
Other comprehensive expense (net of tax)		(1,174)	(549)	(2,454)
Total comprehensive income for the period		14,909	13,799	15,106
Profit for the period attributable to:
Owners of the Parent		15,997	14,274	17,405
Non-controlling interests		86	74	155
		16,083	14,348	17,560
Total comprehensive income attributable to:
Owners of the Parent		14,823	13,737	14,910
Non-controlling interests		86	62	196
		14,909	13,799	15,106

Earnings per share
Basic earnings per share	6	4.31p	3.94p	4.78p
Diluted earnings per share	6	4.27p	3.93p	4.76p

The accompanying notes form an integral part of these condensed consolidated financial statements.

GROUP CONDENSED STATEMENT OF FINANCIAL POSITION

as at 31 October 2013

	Notes	Unaudited 31 October 2013 £'000	Unaudited 31 October 2012 £'000	Audited 30 April 2013 £'000
Assets
Non-current assets
Goodwill	7	9,978	9,867	9,980
Other intangible assets	7	6,075	7,853	6,735
Property, plant and equipment	7	45,438	45,814	45,334
Investment property	7	579	907	723
Investments in associates		813	614	790
Other financial assets - held to maturity	8	2,405	2,101	2,447
- available-for-sale		81	79	81
Deferred tax assets		1,616	2,649	2,157
Trade and other receivables		1,698	1,650	1,691
		68,683	71,534	69,938
Current assets
Inventories		13,407	12,472	13,241
Trade and other receivables		14,061	14,181	12,848
Other financial assets - held to maturity	8	-	213	14
- available-for-sale		94	4	88
Current tax		15	33	30
Cash and cash equivalents	8	65,774	70,713	59,651
		93,351	97,616	85,872
Total assets		162,034	169,150	155,810
Equity
Share capital		1,858	1,855	1,856
Share premium		6,403	6,184	6,287
Treasury shares		-	(5,802)	-
Other reserves		15,549	18,399	16,723
Retained earnings		77,252	80,254	72,295
Equity attributable to owners of the Parent		101,062	100,890	97,161
Non-controlling interests		1,283	1,063	1,197
Total equity		102,345	101,953	98,358
Liabilities
Non-current liabilities
Financial liabilities	8	121	530	236
Post-employment benefit obligations		3,584	4,145	3,765
Provisions		5	78	7
Deferred tax liabilities		120	1,793	858
Trade and other payables		4,214	4,989	4,981
		8,044	11,535	9,847
Current liabilities
Financial liabilities	8	313	2,494	543
Provisions		7,157	4,536	8,297
Current tax		7,050	8,334	6,549
Trade and other payables		37,125	40,298	32,216
		51,645	55,662	47,605
Total equity and liabilities		162,034	169,150	155,810

The accompanying notes form an integral part of these condensed consolidated financial statements.

GROUP CONDENSED STATEMENT OF CASH FLOWS

for the six months ended 31 October 2013

	Notes	Unaudited 6 months to 31 October 2013 £'000	Unaudited  6 months to 31 October 2012 £'000	Audited Year to 30 April 2013 £'000
Cash flows from operating activities
Profit before tax		23,001	20,016	24,306
Finance cost		53	175	426
Finance revenue		(93)	(156)	(533)
Operating profit		22,961	20,035	24,199
Share of post-tax (profits)/losses from associates		(70)	16	(55)
Amortisation of intangible assets		1,515	1,564	4,285
Depreciation of property, plant and equipment		7,343	8,225	16,443
Profit on sale of property, plant and equipment		(51)	(2,617)	(2,698)
Exchange differences		(253)	(259)	(126)
Other items		100	52	222
Changes in working capital:
Inventories		(244)	4,287	3,966
Trade and other receivables		(1,344)	(933)	374
Trade and other payables		(1,312)	1,492	(2,738)
Provisions		(1,253)	(473)	2,738
Cash generated from operations		27,392	31,389	46,610
Interest paid		(53)	(174)	(423)
Taxation paid		(6,448)	(2,917)	(7,276)
Net cash generated from operating activities		20,891	28,298	38,911
Cash flows from investing activities
Investment in associates		-	(32)	(118)
Loan advanced to associates		(19)	-	(129)
Loan repaid by associates		5	-	-
Investment in intangible assets		(618)	(557)	(1,859)
Proceeds from sale of intangible assets		-	-	133
Purchase of property, plant and equipment		(8,212)	(8,360)	(17,256)
Proceeds from sale of property, plant and equipment		353	3,213	3,659
Purchase of available-for-sale investments		-	-	(86)
Interest received		90	156	533
Net cash utilised in investing activities		(8,401)	(5,580)	(15,123)
Cash flows from financing activities
Issue of Ordinary shares to equity shareholders		118	316	420
Sale of Treasury shares		-	-	5,749
Repayment of capital element of finance leases		(54)	(84)	(126)
Repayment of borrowings		(354)	(2,010)	(4,489)
Decrease/(increase) in assets held to maturity		49	52	(21)
Dividends paid to owners of the Parent		(5,568)	(4,529)	(19,970)
Net cash utilised in financing activities		(5,809)	(6,255)	(18,437)
Net increase in cash and cash equivalents		6,681	16,463	5,351
Cash and cash equivalents at beginning of the period		59,651	54,605	54,605
Exchange loss on cash and cash equivalents		(558)	(355)	(305)
Cash and cash equivalents at end of the period	8	65,774	70,713	59,651

The accompanying notes form an integral part of these condensed consolidated financial statements.

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY 

for the six months ended 31 October 2013

	Share capital	Share premium	Treasury shares	Other reserves	Translation reserve	Retained earnings	Attributable to owners of the Parent	Non-controlling interests	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2012	1,850	5,873	(5,802)	2,430	16,495	74,994	95,840	1,001	96,841
Profit for period	-	-	-	-	-	14,274	14,274	74	14,348
Other comprehensive expense
Exchange differences	-	-	-	-	(526)	-	(526)	(12)	(538)
Deferred tax arising from a change in rate	-	-	-	-	-	(11)	(11)	-	(11)
Total other comprehensive expense	-	-	-	-	(526)	(11)	(537)	(12)	(549)
Total comprehensive income/(expense) for the period	-	-	-	-	(526)	14,263	13,737	62	13,799
Transactions with owners of the Parent
Shares issued in period	5	311	-	-	-	-	316	-	316
Share options	-	-	-	-	-	57	57	-	57
Dividends	-	-	-	-	-	(9,060)	(9,060)	-	(9,060)
Total transactions with owners of the Parent	5	311	-	-	-	(9,003)	(8,687)	-	(8,687)
At 31 October 2012	1,855	6,184	(5,802)	2,430	15,969	80,254	100,890	1,063	101,953
At 1 May 2012	1,850	5,873	(5,802)	2,430	16,495	74,994	95,840	1,001	96,841
Profit for year	-	-	-	-	-	17,405	17,405	155	17,560
Other comprehensive income/ (expense)
Exchange differences	-	-	-	-	(2,202)	-	(2,202)	41	(2,161)
Actuarial movement in defined benefit pension scheme and other post-employment benefit obligations	-	-	-	-	-	15	15	-	15
Deferred tax on actuarial movements	-	-	-	-	-	(308)	(308)	-	(308)
Total other comprehensive income/( expense)	-	-	-	-	(2,002)	(293)	(2,495)	41	(2,454)
Total comprehensive income/ (expense) for the year	-	-	-	-	(2,202)	17,112	14,910	196	15,106
Transactions with owners of the Parent
Shares issued in the period	6	362	-	-	-	-	368	-	368
Share options	-	-	-	-	-	212	212	-	212
Sale of Treasury shares	-	52	5,802	-	-	(53)	5,801	-	5,801
Dividends	-	-	-	-	-	(19,970)	(19,970)	-	(19,970)
Total transactions with owners  of the Parent	6	414	5,802	-	-	(19,811)	(13,589)	-	(13,589)
At 30 April 2013	1,856	6,287	-	2,430	14,293	72,295	97,161	1,197	98,358

The accompanying notes form an integral part of these condensed consolidated financial statements.

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY -continued

for the six months ended 31 October 2013

	Share capital	Share premium	Other reserves	Translation reserve	Retained earnings	Attributable to owners of the Parent	Non-controlling interests	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2013	1,856	6,287	2,430	14,293	72,295	97,161	1,197	98,358
Profit for period	-	-	-	-	15,997	15,997	86	16,083
Other comprehensive expense
Exchange differences	-	-	-	(1,174)	-	(1,174)	-	(1,174)
Total other comprehensive expense	-	-	-	(1,174)	-	(1,174)	-	(1,174)
Total comprehensive income/(expense) for the period	-	-	-	(1,174)	15,997	14,823	86	14,909
Transactions with owners of the Parent
Shares issued in period	2	116	-	-	-	118	-	118
Share options	-	-	-	-	100	100	-	100
Dividends	-	-	-	-	(11,140)	(11,140)	-	(11,140)
Total transactions with owners of the Parent	2	116	-	-	(11,040)	(10,922)	-	(10,922)
At 31 October 2013	1,858	6,403	2,430	13,119	77,252	101,062	1,283	102,345

The accompanying notes form an integral part of these condensed consolidated financial statements.

NOTES TO THE INTERIM REPORT

1 Corporate information

The condensed consolidated interim financial statements of Photo-Me International plc (the "Company") for the six months ended 31 October 2013 ("the Interim Report") were approved and authorised for issue by the Board of Directors on 9 December 2013.These condensed consolidated interim financial statements comprise the Company and its subsidiaries (together the "Group") and are presented in Pounds sterling, rounded to the nearest thousand.

The Company is a public limited company, incorporated and domiciled in England, whose shares are quoted on the London Stock Exchange, under symbol PHTM. Its registered number is 735438 and its registered office is at Church Road, Bookham, Surrey KT23 3EU.

Photo-Me's principal activities are the operation, sale and servicing of a wide range of instant service equipment. The Group operates coin-operated automatic photobooths for identification and fun purposes and a diverse range of vending equipment, including digital photo kiosks, amusement machines, business service equipment and laundry machines. Sales and servicing comprises the manufacture, sale and after-sale servicing of both the above-mentioned equipment and a range of photo-processing equipment, including photobook makers and minilabs. The principal operations of the Group are in the United Kingdom and Ireland, Continental Europe and Asia.

2 Basis of preparation and accounting policies

The condensed consolidated interim financial statements for the six months ended 31 October 2013 have been prepared in accordance with IAS 34 Interim Financial Reporting and International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and in accordance with the Disclosure and Transparency Rules of the UK Financial Conduct Authority. The condensed consolidated interim financial statements comprise the unaudited financial information for the six months to 31 October 2013 and 31 October 2012, together with the audited results to 30 April 2013. They do not include all of the information and disclosures required for full annual financial statements, and should be read in conjunction with the Group's financial statements for the year ended 30 April 2013. The condensed financial statements do not constitute statutory accounts within the meaning of section 434 of the UK Companies Act 2006.

The consolidated financial statements of the Group as at and for the year ended 30 April 2013 are available at www.photo-me.com or upon request from the Company's registered office at Church Road, Bookham, Surry KT23 3EU.

The Interim Report is unaudited but has been reviewed by the auditors and their report to the Company is included in the Interim Report. The comparative figures for the financial year ended 30 April 2013 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors (i) was unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 of the Companies Act  2006.

Accounting policies and estimates

The accounting policies applied by the Group in this Interim Report are the same as those applied in the Group's financial statements for the year ended 30 April 2013, except as indicated below.

New standards adopted in the period:

There are a number of new and revised standards and interpretations, not all of which are applicable to the Group, which have been issued and are effective for the 2014 and future reporting periods. The most significant standards and interpretations which are likely to have a more material impact on the Group's financial statements were listed in the Group's 2013 Annual Report. The effect of adopting new standards for the 2014 year end has not had a material impact on this Interim Report. 

Estimates

The preparation of the condensed consolidated financial information requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities and the disclosure of contingent liabilities at the date of the condensed consolidated financial information. Such estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances and constitute management's best judgement at the date of the financial statements. In future, actual experience may deviate from these estimates and assumptions, which could affect the financial statements as the original estimates and assumptions are modified, as appropriate, in the period in which the circumstances change.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting polices and the key sources of estimation uncertainty were in they same areas as those that applied in the consolidated financial statements as at and for the year ended 30 April.

Use of non-GAAP profit measures

The Group measures performance using earnings before interest, tax, depreciation and amortisation ("EBITDA"). EBITDA is a common measure used by a number of companies, but is not defined in IFRS.

The Group measures cash on a net cash basis as explained in note 8.

Risks and uncertainties and cautionary statement regarding forward looking statements

The principal risks and uncertainties affecting the business activities of the Group are set out in the "Risks and Uncertainties" section of the Interim Management Report, contained within this Interim Report. The cautionary statement regarding forward looking statements is shown below.

Going Concern

The Annual Report for the year ended 30 April 2013 and the Interim Report for the six months ended 31 October 2013 have been prepared on a going concern basis. In reaching this conclusion, management has reviewed budgets, cash flow forecasts, updated forecasts and current trading results, financial resources and financing arrangements. The Annual Report for 2013 contained a full description of the activities of the Group, its financial position, cash flows, liquidity position, facilities and borrowing position, together with the main risk factors likely to impact on the Group. This Interim Report for the six months to 31 October 2013 provides updated information regarding business activities, financial position, cash flows and liquidity position.

3 Segmental analysis

IFRS8 requires operating segments to be identified based on information presented to the Chief Operating Decision Maker in order to allocate resources to the segments and monitor performance. The Group has identified two segments as set out below.

(i) Operations: comprises the operation of unattended vending equipment, in particular photobooths, digital photo   kiosks, amusement machines, business service equipment and laundry machines.

(ii) Sales & Servicing: comprises the development, manufacture, sale and after-sale service of this operations  equipment and a range of photo-processing equipment, together with the servicing of other third party equipment.

The Group monitors performance at the adjusted operating profit level before special items, interest and taxation.

In accordance with IFRS8, no segment information is provided for assets and liabilities in the disclosures below, as this information is not regularly provided to the Chief Operating Decision Maker.

Seasonality of operations

Historically, the first half of the financial year is seasonally the stronger for the Group in terms of profits, and this is expected to be the case again for the current year ending 30 April 2014.

3 Segmental analysis (continued)

	Operations £'000	Sales & Servicing £'000	Total £'000
6 Months to 31 October 2013
Total revenue	92,814	21,844	114,658
Inter-segment revenue	-	(13,323)	(13,323)
Revenue from external customers	92,814	8,521	101,335
EBITDA	27,614	5,685	33,299
Depreciation and amortisation	(7,123)	(1,527)	(8,650)
Operating profit excluding associates	20,491	4,158	24,649
Share of post-tax profits from associates			70
Corporate costs excluding depreciation and amortisation			(1,550)
Corporate depreciation and amortisation			(208)
Operating profit			22,961
Finance revenue			93
Finance costs			(53)
Profit before tax			23,001
Tax			(6,918)
Profit for period			16,083
Capital expenditure	8,157	629	8,786
Corporate capital expenditure Total			113
Total capital expenditure			8,899

3 Segmental analysis (continued)

	Operations  £'000	Sales & Servicing £'000	Total £'000
6 months to 31 October 2012
Total revenue	94,234	24,394	118,628
Inter-segment revenue	-	(11,235)	(11,235)
Revenue from external customers	94,234	13,159	107,393
EBITDA	28,225	2,831	31,056
Depreciation and amortisation	(7,871)	(1,623)	(9,494)
Operating profit excluding associates	20,354	1,208	21,562
Share of post -tax loss from associates			(16)
Corporate costs excluding depreciation and amortisation			(1,216)
Corporate depreciation and amortisation			(295)
Operating profit			20,035
Finance revenue			156
Finance costs			(175)
Profit  before tax			20,016
Tax			(5,668)
Profit  for period			14,348
Capital expenditure	8,319	572	8,891
Corporate capital expenditure Total			46
Total capital expenditure			8,937

3 Segmental analysis (continued)

	Operations £'000	Sales & Servicing £'000	Total £'000
Year to 30 April 2013
Total revenue	173,217	47,092	220,309
Inter-segment revenue	-	(24,719)	(24,719)
Revenue from external customers	173,217	22,373	195,590
EBITDA	43,846	3,723	47,569
Depreciation and amortisation	(15,779)	(4,361)	(20,140)
Operating profit excluding associates	28,067	(638)	27,429
Share of post-tax profit from associates			55
Corporate costs excluding depreciation and amortisation			(2,697)
Corporate depreciation and amortisation			(588)
Operating profit			24,199
Finance revenue			533
Finance costs			(426)
Profit before tax			24,306
Tax			(6,746)
Profit for year			17,560
Capital expenditure	17,768	1,206	18,974
Corporate capital expenditure Total			205
Total capital expenditure			19,179

4 Taxation

	6 months to 31 October 2013 £'000	6 months to 31 October 2012 £'000	Year to 30 April 2013 £'000
Profit before tax	23,001	20,016	24,306
Total taxation charge	6,918	5,668	6,746
Effective tax rate	30.0%	28.3%	27.8%

A number of changes to the UK Corporation tax system were announced in both March 2013 and March 2012 UK Budget Statements. The Finance Act 2013 included legislation to reduce the main rate of corporation tax from 23% to 21% from 1 April 2014 and will further reduce to 20% from 1 April 2015. This legislation was substantively enacted at the balance sheet date. 

The tax charge in the Group Income Statement is based on management's best estimate of the full year effective tax rate based on expected full year profits to 30 April 2014. The full year effective tax rate includes the impact to the Group Income Statement of calculating UK deferred tax balances at the reduced UK tax rate of 20%.

5 Dividends

Year ending 30 April 2014

The Board has declared an interim dividend of 1.8p per share for the year ending 30 April 2014, to be paid on 6 May 2014 to shareholders on the register at 28 March 2014. These condensed consolidated interim financial statements do not reflect this dividend payable.

Year ended 30 April 2013

The Board declared an interim dividend of 1.5p per share for the year ended 30 April 2013, which was paid on 7 May 2013 amounting to £5,568,000. The Board proposed a final dividend of 1.5p per share, which was approved at the Annual General Meeting held on 12 September 2013 and was paid on 7 November 2013 amounting to £5,572,000. A special dividend of 3.0p per share was paid on 8 March 2013 amounting to £10,910,000.

Year ended 30 April 2012

The Board declared an interim dividend of 1.25p per share for the year ended 30 April 2012, which was paid on 8 May 2012 amounting to £4,529,000. The Board proposed a final dividend for the year ended 30 April 2012 of 1.25p per share which was approved at the Annual General Meeting on 13 September 2012 and was paid on 7 November 2012 amounting to £4,531,000.

6 Earnings per share

The earnings and weighted average number of shares used in the calculation of earnings per share are set out in the table below:

	6 months to 31 October 2013	6 months to 31 October 2012	Year to 30 April 2013
Basic earnings per share	4.31p	3.94p	4.78p
Diluted earnings per share	4.27p	3.93p	4.76p
Earnings available to Ordinary shareholders (£'000)	15,997	14,274	17,405
Weighted average number of shares in issue in the period
- basic ('000)	371,374	362,574	364,066
- including dilutive share options ('000)	375,060	363,465	365,632

7 Non-current assets - intangibles, property, plant and equipment and investment property

	Goodwill £'000	Other intangible assets   £'000	Property, plant and equipment £'000	Investment property £'000
Net book value at 1 May 2012	9,895	8,958	46,128	1,147
Exchange adjustment	(28)	(98)	(96)	(17)
Additions
- photobooths and vending machines	-	-	8,018	-
- research and development costs	-	506	-	-
- other additions	-	51	362	-
Depreciation provided in the period	-	(1,564)	(8,002)	(223)
Net book value of disposals	-	-	(596)	-
Net book value at 31 October 2012	9,867	7,853	45,814	907
Net book value at 1 May 2012	9,895	8,958	46,128	1,147
Exchange adjustment	85	239	(1,064)	27
Additions
- photobooths and vending machines	-	-	16,381	-
- research and development costs	-	1,058	-	-
- other additions	-	801	939	-
Depreciation provided in the period	-	(4,285)	(15,992)	(451)
Net book value of disposals	-	(36)	(1,058)	-
Net book value at 30 April 2013	9,980	6,735	45,334	723
Net book value at 1 May 2013	9,980	6,735	45,334	723
Exchange adjustment	(2)	(1)	(438)	-
Additions
- photobooths and vending machines	-	-	8,008	-
- research and development costs	-	583	-	-
- other additions	-	35	273	-
Transfers	-	238	(238)	-
Depreciation provided in the period	-	(1,515)	(7,199)	(144)
Net book value of disposals	-	-	(302)	-
Net book value at 31 October 2013	9,978	6,075	45,438	579

8 Net cash

	31 October 2013 £'000	31 October 2012 £'000		30 April 2013 £'000
Cash and cash equivalents per the statement of financial position	65,774	70,713	59,651
Financial assets - held to maturity	2,405	2,314	2,461
Financial assets - available for sale	89	-	86
Non-current instalments due on bank loans	(50)	(463)		(183)
Current instalments due on bank loans	(241)	(2,402)		(463)
Non-current finance leases	(71)	(67)		(53)
Current finance leases	(72)	(92)		(80)
Net cash	67,834	70,003		61,419

At 31 October 2013 £2,405,000 (31 October 2012: £2,314,000, 30 April 2013: £2,461,000) of the total net cash comprised bank deposit accounts that are subject to restrictions and are not freely for use by the Group.

Cash and cash equivalents per the cash flow comprise cash at bank and in hand and short-term deposit accounts with an original maturity of less than three months, less bank overdrafts.

Net cash is a non-GAAP measure since it is not defined in accordance with IFRS but is a key indicator used by management in assessing operational performance and financial position strength. The inclusion of items in net cash as defined by the Group may not be comparable with other companies' measurement of net cash/debt. The Group includes in net cash: cash and cash equivalents and certain financial assets (mainly deposits), less loans and other borrowings.

The tables below, which are not currently required by IFRS, reconcile the Group's net cash to the Group's statement of cash flows. Management believes the presentation of the tables will be of assistance to shareholders.

	1 May  2012  £'000	Exchange difference  £'000	Other  movements  £'000	Cash flow  £'000	31 October  2012  £'000
Cash and cash equivalents per statement of financial position	54,605	(355)	-	16,463	70,713
Financial assets - held to maturity	2,389	(23)	-	(52)	2,314
Loans	(4,941)	66	-	2,010	(2,865)
Leases	(221)	(2)	(20)	84	(159)
Net cash	51,832	(314)	(20)	18,505	70,003
	1 May 2012  £'000	Exchange difference  £'000	Other movements  £'000	Cash flow  £'000	30 April  2013 £'000
Cash and cash equivalents per statement of financial position and cash flow	54,605	(305)	-	5,351	59,651
Financial assets - held to maturity	2,389	51	-	21	2,461
Financial assets - available for sale	-	-	-	86	86
Loans	(4,941)	(194)	-	4,489	(646)
Leases	(221)	26	(64)	126	(133)
Net cash	51,832	(422)	(64)	10,073	61,419
	1 May  2013  £'000	Exchange difference  £'000	Other movements  £'000	Cash flow  £'000	31 October 2013  £'000
Cash and cash equivalents per statement of financial position and cash flow	59,651	(558)	-	6,681	65,774
Financial assets - held to maturity	2,461	(5)	-	(51)	2,405
Financial assets - available for sale	86	1	-	2	89
Loans	(646)	1	-	354	(291)
Leases	(133)	5	(69)	54	(143)
Net cash	61,419	(556)	(69)	7,040	67,834

9 Related parties

The Group's significant related parties are disclosed in the 2013 Annual Report and include its associates, its pension funds and the Company's Directors. During the 6 months to 31 October 2013, there were no new related parties and no additional related party transactions have taken place that have materially affected the financial position or performance of the Group. In addition there were no material changes in the nature and relationship of transactions with related parties to those identified in the 2013 Annual Report.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF-YEARLY FINANCIAL REPORT

We confirm that to the best of our knowledge:

•the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

•the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

John Lewis (Non-executive Chairman)

Serge Crasnianski (Chief Executive Officer and Deputy Chairman)

9 December 2013

INDEPENDENT REVIEW REPORT TO PHOTO-ME INTERNATIONAL PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2013 which comprises the Group condensed statement of comprehensive income, the Group condensed statement of financial position, the Group condensed statement of cash flows, the Group condensed statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2013 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA.

Martin Newsholme

for and on behalf of KPMG LLP
Chartered Accountants 

1 Forest Gate

Brighton Road

Crawley

RH11 9PT

9 December 2013

Note:

a) The maintenance and integrity of the Photo-Me International plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

CAUTIONARY STATEMENT AND DISCLAIMERS

This Interim Financial Report is addressed to the shareholders of Photo-Me International plc and has been prepared solely to provide information to them. This report is intended to inform the shareholders of the Group's performance during the 6 months to 31 October 2013.

This Interim Financial Report contains certain forward looking statements which are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries and markets in which the Group operates. It is believed that the expectations reflected in this report are reasonable but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward looking statements in this Interim Financial Report will be realized. The forward looking statements reflect the knowledge and information available at the date of preparation.

DISTRIBUTION OF REPORT

This Interim Report is released to the London Stock Exchange. It may be viewed and downloaded from the Company's Investor Relations section on the website www.photo-me.co.uk.

Shareholders and others who require a copy of the report may obtain a copy by contacting the Company Secretary at the Company's registered office.

Photo-Me International plc

Church Road

Bookham

Surrey KT23 3EU

Tel: [phone]

Fax: [phone]

e-mail: [e-mail]

 

END

 

 

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