Preliminary Announcement

RNS Number : 5673K

Photo-Me International PLC

26 June 2014

 



PHOTO-ME INTERNATIONAL PLC - PRELIMINARY ANNOUNCEMENT

Strong profit growth, confident outlook, dividend raised 25%

Photo-Me International plc ("Photo-Me" or "the Group"), the instant service equipment group, announces its results for the year to 30 April 2014. 

Results highlights:

	2014	2013	Change	2014†	Change
Revenue	£186.6m	£195.6m	-4.6%	£191.3m	-2.2%
EBITDA	£47.8m	£44.9m	+6.4%	£48.9m	+8.8%
Pre-tax Profit	£30.1m	£24.3m	+23.8%	£30.7m	+26.3%
EPS (diluted)	5.70p	4.76p	+19.7%
Net Cash *	£63.1m	£61.4m	+2.8%
Ordinary Dividend	3.75p	3.00p	+25.0%

† At constant currency (CC)

* As defined in note 7 to the accounts 

·     Revenue 4.6% lower at £186.6 million (-2.2% at CC)

·     Operations revenue and operating profits up by 1.5% and 12.6% respectively (at CC)

·     EBITDA 6.4% higher and margin increased to 25.6%

·     Pre-tax Profit of £30.1 million, up 23.8%

·     Further increase in the net cash position to £63.1 million

·     Special dividend of 2.0 pence per share declared in February 2014

·     Increase of 25% in the annual dividend to 3.75 pence per share

John Lewis, Non-executive Chairman, said;

"It has been another excellent year for the Group and an important one in terms of our future development. Our Operations division grew revenue by 1.5% (at CC) and operating profits by 12.6% (at CC) and considerable progress was made in our laundry product Revolution, where we successfully relocated manufacturing to Hungary and where the average takings on the units deployed fully justify our confidence in this product for the future.

Sales and Servicing revenue declined substantially as we expected but lower costs plus profits of £1.3m from sales of Revolution units meant a return to healthy profits. Going forward, because of the much smaller size of Sales & Servicing and its effective absorption into the operations in France, we will no longer be reporting it separately and the Group will report purely along geographic lines.

Cash generation remained strong and we further increased our net cash balance to £63.1 million. We are recommending a final dividend of 1.95 pence to give a total dividend for the year of 3.75 pence, an increase of 25% over the previous year. We previously stated our intent to increase the ordinary dividend by 20% this year but the business' performance, outlook and balance sheet strength justify a higher level.

Photobooth numbers rose by a healthy 5.1% over the year and we expect to be able to continue to expand this estate which is benefiting from the introduction of the Starck booths and the relocation of production to China. The manufacturing capacity for Revolution is steadily increasing in line with our plans and excellent returns are being generated. We remain on track to have 2,000 units in the field by the end of December 2015. Thus the Group's two core products are both in excellent shape and well positioned for further growth.

Subject to the risks and uncertainties detailed in the business and financial review, the Board anticipates further significant progress over the coming year."

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	07909 976044

CHAIRMAN'S STATEMENT

Results

At constant currency, Group Revenue was 2.2% lower over the year, which was principally due to a further expected decline in revenue from our Sales and Servicing division. Despite lower sales, Group EBITDA increased during the period, with EBITDA margins improving to 25.6% from 23.0% in 2013. Our Operations division grew revenues by 1.5%, aided by a 5.1% increase in photobooth units and a useful contribution from the laundry units. The operating margin in this division also improved to 18.0%  (from 16.2% in 2013) with the benefit of lower manufacturing costs.

Strategy

Our strategy has been to use the significant cash flow generated from our long-established photobooth business to develop new and complementary products which will drive our future growth. Alongside this, we are keen to penetrate new geographic markets, which offer the potential of long-term growth.

We are implementing this strategy by: introducing a new designer photobooth range by Starck; entering into new territories; increasing the organic growth of our Chinese operation; and rapidly developing and deploying our new laundry product.

It is also part of our strategy to be financially independent as far as we can be and to concentrate on increasing our returns to shareholders. Our cash flow strength has therefore enabled us to finance from our own resources the development and deployment of Revolution, the expansion of our photobooth estate as well as substantially increasing dividend payments over the last three years. We aim to continue to do this.

Costs

We have made substantial progress in reducing both central costs and manufacturing costs in the last three years. We have a centralised logistics platform for the Group and this has led to savings from reducing both the level of stocks and staff numbers and we have also made savings in R&D. 

Our principal focus going forward is to try and minimize manufacturing costs by the use of smarter technology and design and by using low-cost manufacturing bases. The cost of producing a photobooth has been dramatically reduced in the last two years facilitating our expansion into emerging markets while our outsourcing of the production of Revolution units to Hungary will be enormously beneficial going forward.

Dividends

We have rapidly grown dividends since reintroducing them in 2010. At the beginning of this year, we stated that we intended to increase the annual dividend by 20% and would consider the scope for a further special dividend that we subsequently declared in February 2014 which amounted to £7.4million. However, reflecting the confidence we have in the outlook for the business and the strength of its balance sheet, we are pleased to be recommending a final dividend of 1.95 pence to give a total dividend for the year of 3.75 pence, representing an increase of 25% over the previous year.

The Group's net cash position remains extremely healthy, our products are well positioned and it is our stated intention to maintain a progressive dividend policy. With the same strong provisos as last year, that the business moves forward as we expect, that our laundry product achieves its targets and we do not make a material acquisition, we intend to increase the annual dividend by 30% next year. In addition, the Board will continue to assess the scope for additional returns.

If approved at the Company's Annual General Meeting on 23 October 2014, the final dividend will be paid on 6 November 2014 to shareholders on the register at the close of business on 26 September 2014. The ex-dividend date is 24 September 2014.

Current trading and Outlook 

Performance in the final quarter of the year was good and this momentum has continued into the current year. In the UK we were pleased to regain a contract with TfL for the re-deployment of our photobooths within the London Underground. Elsewhere we are focused on manufacturing and deploying Revolution units as fast as we can and we are now in six markets having recently established a presence in the UK and Holland and are looking at a further three.

Subject to the risks and uncertainties detailed in the business and financial review, the Board anticipates further significant progress over the coming year.

John Lewis,

Non-executive Chairman

STRATEGIC REPORT

DIVISIONAL REVIEW

The following geographical analysis is provided in order to give additional information, it is not currently a segmental analysis used in managing the business.

Geographical analysis of revenue and profit (by origin)

	Revenue					Operating profit
Year to 30 April	2014	2014 †	2013	Change †	2014		2014 †	2013	Change †
	£m	£m	£m	%	£m		£m	£m	%
Continental Europe	102.9	99.9	104.9	-4.8	21.9		21.2	15.2	+39.8
UK & Republic of Ireland	44.9	44.8	44.9	-0.2	2.7		2.7	3.3	-19.9
Asia	38.7	46.6	45.8	+1.8	5.7		6.9	5.7	+21.4
	186.6	191.3	195.6	-2.2	30.3		30.8	24.2	+27.3
† 2014 trading results of overseas subsidiaries converted at 2013 exchange rates.

The Group strongly improved its overall profitability as Operations benefited from an increase in the laundry contribution and lower manufacturing costs and Sales & Servicing returned to good profitability due to lower costs and £1.3m of profit from laundry unit sales.

OPERATIONS 

	Revenue					Operating profit
	2014	2014 †	2013	Change †	2014		2014†	2013	Change †
	£m	£m	£m	%	£m		£m	£m	%
Year to 30 April	170.7	175.8	173.2	+1.5	30.8		31.7	28.1	+12.6
† 2014 trading results of overseas subsidiaries converted at 2013 exchange rates

	Vending units
	2014	2013	Change
Continental Europe	21,250	20,500	+3.6%
UK & Republic of Ireland	13,000	13,450	-3.3%
Asia	9,600	9,200	+4.5%
Total	43,850	43,150	+1.6%

This division contributed 92% (2013: 89%) of the reported revenue. Revenue increased by 1.5% at constant rate, but operating profit rose by 12.6%, with the company benefiting from the progressive rollout of Starck booths, growth in the laundry estate and lower manufacturing costs, principally in photobooths as the outsourcing of the manufacture of laundry units to Hungary did not occur until early 2014.

The Group removed a further 553 low value amusement machines in the UK, but growth of 5.1% in the photobooth estate across the Group - an increase of 1,260 units - meant that the overall vending unit estate grew.

The biggest contributor to the division's turnover and profits is the photobooth estate. This extensive network of sites, with long-standing site-owner contracts and relationships, supplemented by an established field service and cash collection infrastructure, represents one of Photo-Me's greatest strengths. They are very cash generative and provide much of the finance for corporate developments, including investment in R&D to produce the next generation of products.

Growing the number of photobooth sites remains a priority for the Group and the increase of 5.1% to 26,130 was evenly split between the three geographic areas. The increase in the UK was largely as a result of the Group obtaining the contract to run machines located in Wm Morrison supermarkets which brought an additional 300 booths. There were good performances in Japan and France, while Germany was weaker after strong performance in the previous year.

The modernization of the estate continues and the number of higher-margin Starck booths increased to 2,330, an increase of 1,138 over the year. All booths are now manufactured in China and further reductions in the cost base should feed through in 2014/15.

The Group is gradually expanding into new territories and operations have been established in Thailand, S Korea, Malaysia, Vietnam and Poland, supported by lower manufacturing costs.

Laundry units

The roll-out of the units is self-financed by Photo-Me and they will be operated and maintained by Photo-Me's extensive network of service engineers, using the same information systems as the photobooth estate.

The rollout of the laundry product is progressing to plan and the performance of the units is extremely encouraging.

While the average revenue for the French machines rose 13.1%, for the year, there was also an improving quarterly trend, with Q1 at 1%, Q2 and Q3 at 15% and Q4 at 27%. 

Following the relocation of the outsourced manufacturing capability to Hungary, the target is still to have around 2,000 units (either by way of sales or owned/operated) in the field by the end of calendar year 2015 and as the business grows, it is expected that the majority of these will be owned/operated. The order book for the machines is very strong and the Group has now sited machines in France, Belgium, Ireland, Germany, Holland and the UK. The units are not just being trialled outside supermarkets, but at campsites, universities, military barracks and riding stables. Further market testing is taking place in three other European countries.

As with photobooths, the machines are very cash generative and to date, the average EBIT margin on a laundry unit has exceeded 50%.

The achievement of the rollout targets in the short and medium term therefore represents an opportunity for a very significant increase in Group profitability and returns to shareholders.

Other products

Digital printing kiosks are very much focused in Continental Europe, particularly France and Switzerland. While the market for simple printed photos is fairly mature, the Group continues to develop innovative products, designed to appeal to changing consumer taste. The latest development has seen the introduction of technology to facilitate direct download from i-phones to the kiosk.

Amusement machines are predominantly a UK business and there has been a continued reduction in the number of low value units. However, recently, the Group has introduced 4-D experience rides to the estate. The business overall is profitable but very small.

Business service equipment is largely in France, and comprises mainly photocopiers and express business card machines. Much of the estate is co-located with photobooths and kiosks, and again is a small part of the business.

SALES & SERVICING

	Revenue					Operating profit(loss)
	2014	2014 †	2013	Change †	2014		2014 †	2013	Change †
	£m	£m	£m	%	£m		£m	£m	%
Year to 30 April	15.9	15.6	22.4	-30.4	3.5		3.2	(0.6)	+608.0
† 2014 trading results of overseas subsidiaries converted at 2013 exchange rates

Substantially all of Sales & Servicing revenue derives from the sale to third parties of laundry units and retail photographic equipment, principally supplies and consumables.  

Revenue decreased a further 30.4%, as minilab sales declined as expected, but the business returned to good profitability helped by lower staff costs, lower R&D costs and a £1.3 million contribution from sales of laundry units.

STRATEGIC OVERVIEW AND FINANCIAL REVIEW

What we do

Operations

Photo-Me's principal activity is the operation of unattended vending equipment aimed primarily at the consumer market. The largest part of this estate currently comprises Photobooths and digital printing kiosks, with the balance comprising laundry units, amusement machines (including kiddie rides) and business service equipment.

Photo-Me owns these units and pays the site owner a fixed fee and/or a commission based on turnover. This commission varies by country and location. Photo-Me is responsible for collecting the takings from and the service and maintenance of the units and employs a network of engineers to perform these tasks.

Sales & servicing

Photo-Me also develops, manufactures (under subcontract) and sells these units as well as a range of photo-processing equipment. It also offers an after-sales service for these items, as well as for other third-party equipment.

Where we operate

Photo-Me has three principal areas of operation geographically - UK and Ireland, Europe and Asia. Within Europe, its most important territory is France and within Asia it is Japan.

With photobooths historically being its core business, Photo-Me has chosen to operate in areas offering a strong and consistent demand for identity photos, in particular passports and driving licences. It has also chosen areas where it is able to establish a strong market share and where business practices maintain a high ethical standard. The Group does not therefore operate in North and South America, Africa or Australasia.

Within countries, units are generally sited in areas of high footfall and/or where there may be ambient demand for identity photos. Thus supermarkets, shopping malls (indoor and outdoors) and public transport venues are prime locations.

Our business model

Customers

The majority of our business is consumer-oriented and our units must therefore have certain characteristics. These are: good location, attractiveness, ease of use, reliability, quality of product and value for money.

·     Location

We maintain strong relationships with site owners and try to ensure optimum positioning of our machines.

·     Attractiveness

The Group has a strong history of innovation and is constantly looking for ways to update and modernize its estate, while introducing new products to the marketplace. The Starck photobooth and the Revolution laundry units are recent examples of this.

·     Ease of Use

Traditionally, units have been coin-operated in simple denominations (e.g. £5, €5) but the Group is progressively introducing alternative payment systems to improve the customer offering and to maximize the customer opportunity.

·     Reliability

We employ an extensive team of experienced engineers to minimize downtime and maintain appearance.

·     Quality of Product

Photobooths produce ICAO-compliant photos and constant investment in technology ensures the estate in general offers the consumer a satisfying experience.

·     Value for money

Historically, the Group has been cautious in raising its prices and believes it offers a competitively priced range of products. Machine usage supports this view.

From an operational perspective, the Group has three main aims:

1.   To increase the number of units in operation

2.   To increase takings per unit

3.   To minimize production and operational costs

1. Unit expansion

The Group's estate can be grown in the following ways:

a.   Adding further units within existing territories

b.   Introducing new products within existing territories

c.   Entering new markets

a. Adding further units

The Group has strong market positions in the established countries in which it operates, therefore adding further units within these territories is generally quite difficult to achieve. However, in the last year in the UK, Photo-Me was pleased to add Wm. Morrison's 300 photobooths to its estate and was also able to negotiate a contract with Transport for London for putting photobooths back within the London Underground.

b. Introducing new products

The Group has been very successful at introducing new products and modernizing its portfolio. The last two years have seen the introduction of the Philippe Starck designed photobooths as well as the launch of the new Revolution laundry units .

The modern and elegant design of the Starck booths is intended to appeal to the consumer and to attract more of them to the booths. This is clearly also attractive to the site owner. This dynamic enables Photo-Me to negotiate lower commission payments on Starck booths in some territories, and nearly all new sitings or replacements of booths in established territories are now Starck models.

The launch of the Revolution laundry units occurred in the second half of 2012. These machines offer an attractively priced product, and the initial target sites were expected to be outside of supermarkets in France and Belgium where Photo-Me already has long-standing relationships given the existence of the photobooth estate.

The rollout continues to make good progress and the Group continues to target an installed base of 2,000 units by the end of 2015. The Group is finding demand for the product in additional markets at differing locations, for example campsites, riding stables and student accommodation, and has now also launched into Ireland, Germany and the UK.

c. Entering new markets

While there are a number of large developed markets in which the Group does not operate, Photo-Me has decided that emerging markets offer the best expansion route going forward because of the large market potential combined with very limited competition. The Group entered the Chinese market in 2010, beginning in the Shanghai region and over the last year has begun trial operations in Poland, South Korea, Thailand, Vietnam and Malaysia. Because of the lower price points available in these territories, key to this expansion is lowering the cost of production and this is covered elsewhere in the review.

The Group now has more than 500 photobooth units in operation in China and is continuing to target 1,200 units by the end of 2015, with an additional 200 in South Korea.

2. Increase takings per unit

Clearly the most obvious route for the Group is to raise prices but over the last few years the Group has chosen not to do this in the light of both the generally difficult economic background globally as well as a desire to ensure that the offering remains very competitive.

Over the next year, the Group is, however, planning to increase prices both selectively and cautiously, to determine whether there is an impact on demand. A price rise, as a result of a software upgrade, has been effected in the Japan booths to offset recent VAT increases and the prices on kiddie rides and amusement machines generally are expected to increase from low levels. Elsewhere the Group is targeting a price increase in one of the smaller European markets to gauge its effect.

The introduction of attractive new products is also a route and this has been demonstrated by the Starck booths, where on average a good increase in like-for-like revenue has been seen, which when combined with a lower cost of production has led to better profitability on these units.

3. Minimizing production and operational costs

The principal operating cost - other than depreciation - is the commission paid to site owners. Because of sophisticated telemetry inside all of its operating units, the Group suffers virtually no fraud, and the costs of operating its network of engineers are also low as a percentage of the total cost base. The Group seeks to reduce commissions where possible - and it has achieved some success with the introduction of its Starck booths - and it remains an ongoing strategic management target. The commission payable on its Revolution laundry units is, however, significantly less than the photobooths as they utilize external space which would normally produce no value for the site owners.

The Group has also been through a period of significant restructuring in the last few years as a result of the decline in the global minilab market. This has resulted in the Sales and Servicing division being shrunk in terms of both numbers employed and scope of activity with a corresponding reduction in associated costs. As part of this process the Group moved to a single centralized logistics platform and this produced a further decline in central costs. The full benefit of these actions is apparent in the results for the year to April 2014 and no further additional benefit is expected to accrue.

The cost reduction associated with production is the area that, going forward, will have a material effect on profitability. Over the last year, the Group has transferred its production of photobooths to China and the production of the laundry units to Hungary. The facility in each country is operated by a large, listed European manufacturer with very high production standards and capability.

The cost of a photobooth has been further reduced by a change of technology inside the machine and the combined cost saving from this and the relocation is of the order of 60% compared with the price of a booth at the beginning of 2013.

Gender Diversity

The table below shows the gender diversity of the Group's employees as at 30 April 2014 with the corresponding figures as at the same date last year for comparison purposes: 

                                                                                     2014                                    2013

                                                                 Total       M             F          Total         M           F   ___

Directors                                                     6       5 (83%)     1 (17%)        6     5 (83%)    1 (17%)

Senior Managers (excluding Directors)         13      12 (92%)    1 (8%)        12    11 (92%)   1 (8%)

Employees (excluding above)                    1069    904 (85%)  165 (15%)  1061  890 (84%)  171 (16%)

Total                                                       1088    921 (85% ) 167 (15%)  1079   906 (84%) 173 (16%)

 

FINANCIAL REVIEW

Key performance indicators

The Group measures its performance using a mix of financial and non-financial indicators. The main objective of these KPIs is to ensure that the Group remains highly cash generative, delivers sustained long-term profitability, preserves the value of its assets and provides high returns to shareholders.

Description	Relevance	Performance
		Apr-12	Apr-13	Apr-14
Group total revenue	Although in decline over the past years, revenue is considered to be a useful indicator	£207.8m	£195.6m	£186.6m
Group profit before tax	The PBT is the main indicator of the performance of the Group	£20.1m	£24.3m	£30.1m
Group EBITDA margin	The EBITDA margin is a good indicator of our improvements in profitability	21.2%	23.0%	25.6%
Operations revenue organic growth	Our operations' revenue growth is an important indicator of the trend in our core business	-1.3%	+1.2%	+1.5%
Increase in number of photobooths	The increase in number of photobooths is always a priority and a main driver for growth	+1,071	+1,399	+1,261
Increase in number of laundry units (operated or sold)	The increase in number of laundry units measures our penetration in this market where there is a huge potential for growth and large profits	NR	NR	+235
Group Net Financial Position	The Group Net Financial Position is an indicator of the health and strength of the Group	£51.8m	£61.4m	£63.1m

Financial Performance

	Apr-14	Apr-13
	£m	£m
Revenue	186.6	195.6
EBITDA	47.8	44.9
Operating profit	30.3	24.2
Profit before tax	30.1	24.3
Profit after tax	21.6	17.6

With profits significantly up, it was a year of solid financial performance for the Group.

Reported revenues declined by 4.6% to £186.6m due largely to the decline of minilab-related sales and a very significant adverse effect of exchange rates (mainly Japanese Yen).

The following table summarises the movements in turnover:

	£m	£m
April 2013 turnover		195.5
Changes in revenue from Operations
UK & Ireland	0.5
Continental Europe	0.2
Asia	1.8
		2.5
Changes in Sales & servicing revenue
Decrease in minilab division	(7.3)
Increase in sales of laundry machines	0.9
Other	(0.4)
		(6.8)
Impact of exchange rates		(4.7)
April 2014 turnover		186.5

This decrease in total turnover was more than offset by savings in costs, and the Group reported a 23.8% increase in Profit Before Tax.

The following table explains the increase in profit before tax for the year:

	£m	£m
April 2013 profit before tax		24.3
Revenue changes		(9.0)
Cost changes		14.8
Changes in non-cash items
Decrease in depreciation & amortisation	3.2
Disposal of assets	(2.9)
Provision on investment	(0.3)
		0.0
April 2014 profit before tax		30.1

Review of operating costs

The Group incurred operating costs of £ 156.3m (2013: £ 171.4m)

Staff costs account for 23.5% of the Group's operating costs. These decreased by 4.4% on the previous year, mainly as a result of the restructuring in the sales and servicing division, where headcount was further reduced by 20.

The reduction in inventory costs is a direct result of both the decline of the minilab division (very few quantities of photographic equipment are now produced) and better efficiency in logistics and the supply chain organisation.

	Apr-14	Apr-13
	£m	£m
Staff costs	(43.8)	(45.9)
Inventory costs	(17.3)	(24.4)
Other operating costs	(77.5)	(83.1)
	(138.6)	(153.4)
Depreciation and amortisation	(17.5)	(20.7)
Profit/loss on disposal of fixed assets	(0.2)	2.7
Operating costs	(156.3)	(171.4)

The largest component of the other operating costs is the commissions paid to site-owners. There is a constant pressure from big site owners to increase the commission rates, but the Group managed to maintain the commissions at 32.4% of the operating turnover on average worldwide; this was helped by the lower commission rates paid on the new generation of photobooths (Starck booth) and on the laundry (Revolution) units.

The depreciation charge was £3.2m lower than last year. Amortisation of Research and Development costs was reduced by £1.4m and depreciation of operating equipment decreased by £1.6m as a result of the drastic reduction in manufacturing costs of the new machines now all outsourced in China (photobooths) and Hungary (laundry units).

	Apr-14	Apr-13
	£m	£m
Amortisation of R & D costs	(2.7)	(4.1)
Depreciation of Operating equipment	(13.3)	(14.9)
Other depreciation	(1.5)	(1.7)
Total depreciation	(17.5)	(20.7)

Taxation

The tax charge of £8.5m was at an effective rate of 28.3% (2013: 27.8%).

The Group carries on business in over 15 countries across the world, though the bulk of its taxes arise in France, Japan and the United Kingdom. For each country in which the Group operates, we organise our operations to pay the correct and appropriate amount of tax at the right time according to the applicable laws and ensure compliance with the Group's tax policy and guidelines.

Dividends

During the year, the Company paid dividends totalling £11.1m; this relates to the interim and final dividend for the year ended 30 April 2013.

The interim dividend for the year ended 30 April 2014 (1.8p per share) declared in December 2013 and the special dividend (2p per share) declared in February 2014, were both paid in May 2014. These totalled £14.1 million.

Statement of financial position

The Group's balance sheet can be summarised as follows:

	Apr-14	Apr-13
	£m	£m
Non-current assets (excl.deposits)	69.4	67.5
Current assets (excl.cash and deposits)	26.3	26.1
Non-current liabilities (excl.borrowings)	(8.6)	(9.6)
Current liabilities (excl.borrowings)	(46.0)	(47.0)
Net cash	63.1	61.4
Total equity	104.2	98.4
Minority interests	(1.1)	(1.2)
Total shareholder's equity	103.1	97.2

Shareholders' funds increased by £5.9m to £103.1m during the year. This mainly reflects the retained earnings for the year less dividends and after adjusting the translation reserve for exchange differences arising during the year. 

The detail of non-current assets is shown in the table below:

	Apr-14	Apr-13
	£m	£m
Goodwill	9.9	10
R&D costs	2.2	3.7
Other intangible assets	3.6	3.0
Operating equipment	41.7	40.1
Plant and machinery	3.3	2.7
Land and buildings	1.5	2.6
Investment property	0.5	0.7
	62.7	62.8
Investments	0.7	0.8
Deferred tax asset	4.2	2.2
Trade and other receivables	1.8	1.7
Total non-current assets	69.4	67.5

Goodwill mainly relates to the Japanese subsidiary.

With a net book value of £41.7m, the operating equipment is by far the main component of the Group's total non-current assets. The Group owns more than 43,850 machines operated worldwide. The change in the net book value reflects the Group's capital expenditure in the year of £17.3m, net of depreciation and net of exchange differences.

Cash Flow and net cash position

Overall, the Group's net cash position increased by £1.7m in the year:

	Apr-14	Apr-13
	£m	£m
Opening net cash	61.4	51.8
Cash generated from operations	45.6	46.6
Taxation	(9.9)	(7.3)
Net cash generated from operations	35.7	39.3
Net cash used in investing activities	(20.3)	(15.5)
Proceeds from sale of treasury shares		5.8
Dividends paid	(11.3)	(20.0)
Net cash generated	4.1	9.6
Other(impact of exchange)	(2.4)	nil
Net cash inflow	1.7	9.6
Closing net cash	63.1	61.4

Despite an increase in EBITDA, net cash flows from operating activities at £35.7m were £3.6m lower than last year due to the combined effect of higher tax paid and adverse movement in working capital. 

The cash generation was still substantial and enabled the Group to finance its capital expenditure program and pay large dividends to shareholders.

At the end of April 2014, the Group's net financial position was £63.1m, split as follows:

	Cash and deposits	Borrowings	Net Financial Position
	£m	£m	£m
Balance at 30 April 2013	62.2	(0.8)	61.4
Cash flow	3.7	0.5	4.2
Non-cash movements	(2.5)		(2.5)
Balance at 30 April 2014	63.4	(0.3)	63.1

Principal risks

Like all businesses, the Group faces risks and uncertainties that could impact the achievement of the Group's strategy. These risks are accepted as being part of doing business and the Board recognises that the nature and scope of these risks can change and so regularly reviews the risks faced by the Group as well as the systems and processes to mitigate them.

The table below sets out what the Board believes to be the principal risks and uncertainties, their impact and the mitigation actions.

Nature of the risk	Description and impact	Mitigation
Economic
• Global economic conditions	Economic growth is a major influence on consumer spending. A sustained period of economic recession could lead to a decrease in consumer expenditure in discretionary areas	The Group focuses on maintaining the characteristics and affordability of its needs-driven products
• Volatility of foreign exchange rates	The majority of the Group's revenue and profit is generated outside of the UK, and the Group results could be adversely impacted by an increase in the value of sterling relative to those currencies	The Group sometimes hedges its exposure to currency fluctuations on transactions. However, by its nature, in the Board's opinion it is very difficult to hedge against currency fluctuation arising from translation in consolidation in a cost-effective manner
Regulatory
• Centralisation of production of ID photos	In many European countries where the Group operates, if governments were to implement centralised image capture for biometric passport and other applications, the Group's revenues and profits could be seriously affected. *	The Group is developing new systems that could respond to this situation. The Group also ensures that its ID product remains affordable and of high quality. The Group is also lobbying.
Technology
· Obsolescent or obsolete technology	As the business is very reliant on technology, if the technology used within the Group's products were to become obsolete, this could affect the Group's competitive position in the market.	The Group invests in research and development to try and ensure that it has cutting edge technology and innovative products.
Strategic
• Identification of new business opportunities	Failure to identify new business areas may impact the ability of the Group to grow in the long term	The Management teams constantly review demand in existing markets and potential new opportunities. The Group continues to invest in research for new products and technologies
• Inability to deliver anticipated benefits from the launch of new products	The realisation of long-term anticipated benefits depends upon the successful launch of the "Revolution" laundry unit	The Group regularly monitors the performance of newly installed machines, which are heavily trialled before launch
Market
• Commercial relationships	The Group has well-established long-term relationships with a number of site-owners. The deterioration in the relationship with, or ultimately the loss of, a key account could have a material impact on the Group's results	Some of the Group's key relationships are supported by medium term contracts. We actively manage our site-owner relationships at all levels to ensure a high quality of service
Operational
• Reliance on foreign manufacturers	The Group sources most of its products from outside the UK. Consequently, the Group is subject to risks associated with international trade	Extensive research is conducted into quality and ethics before the Group procures products from any new country or supplier. The Group also maintains very close relationships with both its suppliers and shippers to ensure that disruption to production and supply are managed appropriately
• Reliance on one single supplier of consumables	The Group currently buys all its paper for photobooths from one single supplier. The failure of this supplier could have a significant effect	The Board has decided to hold a strategic stock of paper, allowing for one year's worth of paper consumption, to give enough time to put in place alternative solutions
• Reputation	The Group's brand is a key asset of the business. Failure to protect the Group's reputation and brand could lead to a loss of trust and confidence. This could result in a decline in the customer base	The protection of the Group's brand in its core markets is sustained by products with certain unique features and offerings as well as regular maintenance to maintain appearance
• Product and service quality	The Board recognises that the quality and safety of both its products and services is of critical importance and that any major failure will affect consumer confidence	The Group continues to invest in both its existing estate, to ensure that it remains contemporary, and in constant product innovation to meet customer needs. The Group also has a programme to regularly train its technicians

* The Board views the likelihood of such centralisation happening simultaneously (or nearly so) in all countries where the Group operates, as remote. The production of ICAO-compliant photos is technically challenging and may be an impediment to such change. Experience in one jurisdiction where such a change was implemented proved unsuccessful and was reversed.

By order of the Board

Françoise Coutaz-Replan

25 June 2014

GROUP STATEMENT OF COMPREHENSIVE INCOME

for the year ended 30 April 2014

		2014	2013
	Notes	£'000	£'000
Revenue	2	186,598	195,590
Cost of sales		(139,400)	(153,363)
Gross profit		47,198	42,227
Other operating income		1,420	1,138
Administrative expenses		(18,513)	(19,221)
Share of post-tax profits from associates		161	55
Operating profit	2	30,266	24,199
Finance revenue		227	533
Finance cost		(400)	(426)
Profit before tax		30,093	24,306
Total tax charge	3	(8,514)	(6,746)
Profit for year		21,579	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		(4,803)	(2,161)
Total items that are, or may subsequently be, classified to profit and loss		(4,803)	(2,161)
Items that will not be classified to profit and loss
Actuarial movements in defined benefit obligations and other post-employment benefit obligations		(67)	15
Deferred tax on actuarial movements		(11)	(308)
Total items that will not be classified to profit and loss		(78)	(293)
Other comprehensive expense net of tax		(4,881)	(2,454)
Total comprehensive income for the year		16,698	15,106
Profit for  the year attributable to:
Owners of the Parent		21,422	17,405
Non-controlling interests		157	155
		21,579	17,560
Total comprehensive income attributable to:
Owners of the Parent		16,579	14,910
Non-controlling interests		119	196
		16,698	15,106
Earnings per share
Basic earnings per share	4	5.77p	4.78p
Diluted earnings per share	4	5.70p	4.76p

GROUP STATEMENT OF FINANCIAL POSITION

as at 30 April 2014 

	Notes	2014	2013
		£'000	£'000
Assets
Non-current assets
Goodwill	6	9,911	9,980
Other intangible assets	6	5,776	6,735
Property, plant and equipment	6	46,529	45,334
Investment property	6	516	723
Investments in associates		620	790
Other financial assets   - held to maturity		2,334	2,447
- available-for-sale		78	81
Deferred tax assets		4,231	2,157
Trade and other receivables		1,831	1,691
		71,826	69,938
Current assets
Inventories		11,196	13,241
Trade and other receivables		14,345	12,848
Other financial assets  - held to maturity		-	14
- available-for-sale		86	88
Current tax		57	30
Cash and cash equivalents		60,996	59,651
		86,680	85,872
Assets held for sale		705	-
Total assets		159,211	155,810
Equity
Share capital		1,859	1,856
Share premium		6,521	6,287
Other reserves		11,402	16,723
Retained earnings		83,332	72,295
Equity attributable to owners of the Parent		103,114	97,161
Non-controlling interests		1,119	1,197
Total equity		104,233	98,358
Liabilities
Non-current liabilities
Financial liabilities		64	236
Post-employment benefit obligations		3,418	3,765
Provisions		10	7
Deferred tax liabilities		1,381	858
Trade and other payables		3,840	4,981
		8,713	9,847
Current liabilities
Financial liabilities		240	543
Provisions		8,256	8,297
Current tax		5,457	6,549
Trade and other payables		32,312	32,216
		46,265	47,605
Total equity and liabilities		159,211	155,810

GROUP STATEMENT OF CASH FLOWS

for the year ended 30 April 2014

		2014 £'000	2013 £'000
Cash flows from operating activities
Profit before tax		30,093	24,306
Finance cost		400	426
Finance revenue		(227)	(533)
Operating profit		30,266	24,199
Share of post-tax profit from associates		(161)	(55)
Amortisation of intangible assets		3,034	4,285
Depreciation of property, plant and equipment		14,503	16,443
Profit on sale of property, plant and equipment		198	(2,698)
Exchange differences		(1,546)	(126)
Other items		(46)	222
Changes in working capital:
Inventories		1,485	3,966
Trade and other receivables		(2,310)	374
Trade and other payables		32	(2,738)
Provisions		143	2,738
Cash generated from operations		45,598	46,610
Interest paid		(95)	(423)
Taxation paid		(9,916)	(7,276)
Net cash generated from operating activities		35,587	38,911
Cash flows from investing activities
Investment in associates		(121)	(118)
Loan advanced to associates		-	(129)
Investment in intangible assets		(2,007)	(1,859)
Proceeds from sale of intangible assets		3	133
Purchase of property, plant and equipment		(19,153)	(17,256)
Proceeds from sale of property, plant and equipment		781	3,659
Purchase of available-for-sale investments		-	(86)
Interest received		227	533
Dividends received from associate		63	-
Net cash utilised in investing activities		(20,207)	(15,123)
Cash flows from financing activities
Issue of Ordinary shares to equity shareholders		237	420
Sale of Treasury Shares		-	5,749
Repayment of capital element of finance leases		(90)	(126)
Repayment of borrowings		(449)	(4,489)
Increase in assets held to maturity		83	(21)
Dividends paid to owners of the Parent		(11,140)	(19,970)
Dividends paid to non-controlling interests		(197)	-
Net cash utilised in financing activities		(11,556)	(18,437)
Net increase in cash and cash equivalents		3,824	5,351
Cash and cash equivalents at beginning of year		59,651	54,605
Exchange loss on cash and cash equivalents		(2,479)	(305)
Cash and cash equivalents at end of year		60,996	59,651

GROUP STATEMENT OF CHANGES IN EQUITY

for the year ended 30 April 2014

	Share capital £'000	Share premium £'000	Treasury shares £'000	Other reserves £'000	Translation reserve £'000	Retained earnings £'000	Attributable to owners of the Parent £'000	Non-controlling interests £'000	Total £'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 year	-	-	-	-	-	17,405	17,405	155	17,560
Other comprehensive (expense)/income
Exchange differences	-	-	-	-	(2,202)	-	(2,202)	41	(2,161)
Remeasurement gains in defined benefit pension scheme and other post-employment benefit obligations	-	-	-	-	-	15	15	-	15
Deferred tax on remeasurement gains	-	-	-	-	-	(308)	(308)	-	(308)
Total other comprehensive (expense)/income	-	-	-	-	(2,202)	(293)	(2,495)	41	(2,454)
Total comprehensive (expense)/ income for the year	-	-	-	-	(2,202)	17,112	14,910	196	15,106
Transactions with owners of the Parent
Shares issued in 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
At 1 May 2013	1,856	6,287	-	2,430	14,293	72,295	97,161	1,197	98,358
Profit for year	-	-	-	-	-	21,422	21,422	157	21,579
Other comprehensive (expense)/income
Exchange differences	-	-	-	-	(4,765)	-	(4,765)	(38)	(4,803)
Transfers between reserves	-	-	-	(556)	-	556	-	-	-
Remeasurement losses  in defined benefit pension scheme and other post-employment benefit obligations	-	-	-	-	-	(67)	(67)	-	(67)
Deferred tax on remeasurement losses	-	-	-	-	-	(11)	(11)	-	(11)
Total other comprehensive (expense)/income	-	-	-	(556)	(4,765)	478	(4,843)	(38)	(4,881)
Total comprehensive (expense)/ income for the year	-	-	-	(556)	(4,765)	21,900	16,579	119	16,698
Transactions with owners of the Parent
Shares issued in period	3	234	-	-	-	-	237	-	237
Share options	-	-	-	-	-	277	277	-	277
Dividends	-	-	-	-	-	(11,140)	(11,140)	(197)	(11,337)
Total transactions with owners of the Parent	3	234	-	-	-	(10,863)	(10,626)	(197)	(10,823)
At 30  April 2014	1,859	6,521	-	1,874	9,528	83,332	103,114	1,119	104,233

NOTES

1 Basis of preparation and accounting policies

The preliminary results for the year ended 30 April 2014 have been extracted from the audited consolidated financial statements, which were approved by the Board of Directors on 25 June 2014. The audited consolidated financial statements have not yet been delivered to the Registrar of Companies but are expected to be published by the end of July. 

The Group has adopted Presentation of Items of Other Comprehensive Income (amendments to IAS 1 Presentation of Financial Statements in the 2014 consolidated financial statements.

Abridged financial information

The financial information in this announcement which was approved by the Board of Directors does not constitute the Company's statutory accounts for the years ended 30 April 2013 or 2014 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under s498(2) or (3) Companies Act 2006.

This preliminary announcement has been prepared in accordance with the accounting policies under IFRS as adopted by the EU.

Whilst the financial information included in this preliminary announcement has been prepared in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. This preliminary announcement constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosures and Transparency Rules (DTR).

2 Segment analysis

Operating segments are reported in a manner consistent with internal reporting to the Chief Operating Decision Maker as required by IFRS8, Operating Segments.

The Group has identified two segments as set out below:

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

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

	Operations £'000	Sales & Servicing £'000	Total £'000
2014
Total revenue	170,657	42,939	213,596
Inter-segment revenue	-	(26,998)	(26,998)
Revenue from external customers	170,657	15,941	186,598
EBITDA	44,903	6,486	51,389
Depreciation and amortisation	(14,193)	(2,996)	(17,189)
Operating profit excluding associates	30,710	3,490	34,200
Share of post-tax profit from associates			161
Corporate costs excluding depreciation and amortisation			(3,747)
Corporate depreciation and amortisation			(348)
Operating profit			30,266
Finance revenue			227
Finance costs			(400)
Profit before tax			30,093
Tax			(8,514)
Profit for year			21,579
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

3  Taxation 

	2014			2013
			£'000			£'000
Current taxation
UK			1,229			1,491
Overseas			8,675			7,597
Prior year adjustments			62			(1,503)
			9,966			7,585
Deferred taxation
Temporary differences			(1,521)			(978)
Prior year adjustments			32			50
Impact of change in rate			37			89
			(1,452)			(839)
Total tax charge			8,514			6,746

4 Earnings per share
				Year to 30 April  2014	Year to  30 April 2013
Basic earnings per share				5.77p	4.78p
Diluted basic earnings per share				5.70p	4.76p
The earnings and weighted average number of shares used in the calculation are set out in the table below:
Earnings attributable to ordinary shareholders (£'000)				21,422	17,405
Weighted average number of shares in issue in the period:
- basic ('000)				371,506	364,066
- including dilutive share options ('000)				375,831	365,632

5 Dividends paid and proposed
An interim dividend for the year ended 30 April 2013 of 1.50p per share was paid on 7 May 2013 and a final dividend of 1.50p per share was paid on 7 November 2013. The Board has declared an interim dividend of 1.80p per share for the year ended 30 April 2014, which was paid on 6 May 2014. The Board proposed a special dividend of 2.00p per share which was paid on 15 May 2014.The Board has proposed a final dividend for the year ended 30 April 2014 of 1.95p per share, which is subject to shareholder approval at the Annual General Meeting to be held on 23 October 2014. If approved, the dividend will be paid on 6 November 2014.

6 Non-current assets

	Goodwill	Intangible assets	Property, plant & equipment	Investment property
	£'000	£'000	£'000	£'000
Net book value at 1 May 2013	9,980	6,735	45,334	723
Exchange difference and other movements	(69)	(147)	(1,844)	(17)
Additions - photobooths and vending equipment	-	-	17,327	-
Additions - other assets	-	2,007	1,925	-
Amortisation	-	(3,034)	-	-
Depreciation	-	-	(14,313)	(190)
Reclassifications	-	220	(220)	-
Transfer to assets held for sale	-	-	(705)	-
Disposals at net book value	-	(5)	(975)	-
Net book value at 30 April 2014	9,911	5,776	46,529	516

 

Transfers to assets held for sale consists of vacant land at the Bookham head office site. Contracts were exchanged on 5 June 2014 for sale of the land for £4.2m, with settlement in cash in one month's time.

 

7 Net cash

	2014 £'000	2013  £'000
Cash and cash equivalents per statement of financial position	60,996	59,651
Financial assets - held to maturity	2,334	2,461
Financial assets - available-for-sale	85	86
Non-current instalments due on bank loans	-	(183)
Current instalments due on bank loans	(177)	(463)
Non-current finance leases	(64)	(53)
Current finance leases	(63)	(80)
Net cash	63,111	61,419

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.

At 30 April 2014, £2,334,000 of the total net cash (2013: £2,461,000) comprised bank deposit accounts that are subject to restrictions and are not freely for use by the Group.

By order of the Board

John Lewis                                      Serge Crasnianski

Chairman                                          Chief Executive Officer

25 June 2014

8 Publication of the audited financial statements

Copies of the Report and Accounts for the year ended 30 April 2014 will be mailed to those shareholders who have opted to receive them, by the end of July and will be available from the Company's registered office at Church Road, Bookham, Surrey KT23 3EU (telephone: [phone], fax: [phone], email: [e-mail] and the Company's website (http://investor.photo-me.com/financial_reports) after that date.

 

END

 

 

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