PRELIMINARY ANNOUNCEMENT

RNS Number : 7509B

Photo-Me International PLC

21 June 2016

 

PHOTO-ME INTERNATIONAL PLC - PRELIMINARY ANNOUNCEMENT

Record profits - Ordinary dividend increased by 20%, special dividend of £10.6million

Photo-Me International plc ("Photo-Me" or "the Group"), the instant-service equipment group, announces its results for the year ended 30 April 2016. 

Results highlights:

	2016†	2016	2015	Change†	Change
Revenue	£188.4m	£184.0m	£177.2m	+6.3%	+3.8%
Underlying EBITDA*	£58.4m	£56.7m	£51.8m	+12.7%	+9.5%
Underlying Pre-tax Profit*	£41.3m	£40.1m	£35.0m	+18.0%	+14.6%
PBT**	£41.3m	£40.1m	£38.5m	+7.3%	+4.1%
Net Cash ***		£62.4m	£60.7m		+2.8%
Underlying EPS (diluted)*		7.72p	6.70p		+15.2%
Final Ordinary Dividend per Share		3.285p	2.54p		+29.3%
Aggregate Annual Ordinary Dividend per share		5.86p	4.88p		+20.1%
Special Dividend per share		2.815p	-

† At constant currency (CC)

   Average rates of exchange used: £/€ 1.35 (2015: 1.29)     £/Yen 178.08 (2015:177.31)

* Excluding profit on sale of land of £nil (2015: £3.5m)

** Including profit on sale of land of £nil (2015: £3.5m)

***As defined in note 7

Financial Highlights

·     Revenue up +3.8% at £184.0 million and +6.3% at CC

·     Underlying EBITDA 9.5% higher and margin increased to 30.8% 

·     Underlying Pre-tax Profit of £40.1 million, up 14.6%

·     Net cash position of £62.4 million

·     Increase of 20% in the annual ordinary dividend

·     Special dividend amounting to £10.6 million

Operational Highlights

·    Photobooth performance boosted by first stage of My Number programme in Japan

·    Agreement signed with Moneygram for money transfer capability in booths

·    Agreement signed with ANTS in France for driving licence applications direct from booths

·    Development of 3D photo technology for security applications

·    Further good progress in Revolution rollout and returns remain very satisfactory

·    Continue the roll out of the launderette concept in Europe

·    Production of the smaller Revolution to commence in September 2016

·    New digital photo printing kiosks showing promise

John Lewis, Non-executive Chairman, said:

"It has been another strong year for the Group with a 14.6% increase in reported underlying pre-tax profits to a record £40.1million."

"Our cash generation remained strong and we improved our net cash balance to £62.4 million despite investments and dividend payments totalling £43.4 million during the year. We are recommending a final dividend of 3.285 pence per share to give a total dividend for the year of 5.86 pence, an increase of 20% and in addition, a special dividend of 2.815 pence per share representing an additional distribution amounting to £10.6 million. The aggregate dividend is in line with the undertaking that we gave last year. Moreover, the Group is committing to increase the ordinary dividend by 20% for the next two financial years."

"Operationally, the business has made strong progress against a global economic backdrop that has been challenging. The expansion of our Revolution laundry product remains on track and returns stay encouraging. The addition of both smaller Revolutions and the introduction of launderettes will add to the momentum in this business. Volumes in our photobooth estate have been boosted by the gradual rollout of the new Japanese identity card (My Number) and new agreements were signed with Moneygram and ANTS which should further enhance returns in the medium-term. Prospects for both our leading products remain extremely positive and the development and addition of 3D capability within the booths is an exciting feature for the medium-term."

"Whilst uncertainties remain, in particular in relation to currency, the Board anticipates another year of good growth."

Enquiries:
Photo-Me International	01372 453 399
Serge Crasnianski or Gabriel Pirona
Media
Madano Partnership
Matthew Moth / Kimberley Richardson	020 7593 4000
Investors
IR Focus
Neville Harris	07909 976044

CHAIRMAN'S STATEMENT

Results

At constant currency, Group Revenue was 6.3% higher over the year with a 3.8% improvement on a reported basis. Group reported underlying EBITDA increased by 9.5% during the period, to £56.7m, with underlying EBITDA margins improving to 30.8% from 29.2% in 2015.

Strategy

Our stated strategy is 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. 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.

We have continued to make good progress with this strategy. The expansion of our Revolution laundry product is proceeding in line with our plan and is producing strong returns. Our photobooth business is expanding gradually into new markets and our product development pipeline - including the enhanced security technology in the photobooths - is promising. The strength of our cash flow is allowing us both to finance the capital expenditure programme and to raise returns to shareholders by way of dividends. 

Dividends

Last year we stated that we intended to increase the annual dividend by 10%p.a. over the following three years. We also stated that any net cash on the balance sheet at April 30 in each year in excess of £50m would be available to shareholders as a special dividend, provided that the business had no immediate needs for the capital, for example acquisitions or specific investments.

We are therefore pleased to confirm that the proposed total annual dividend of 5.86 pence per share and the proposed special dividend of 2.815 pence per share reflect the commitment made last year. We have decided to increase the returns through ordinary dividends following feedback received from our investors.

We are also committing to increase the ordinary dividend by 20% for the next two financial years.

If approved at the Annual General Meeting on 20 October 2016, the final dividend and the special dividend will be paid on 10 November 2016 to shareholders on the register at the close of business on 7 October 2016. The ex-dividend date will be 6 October 2016.

Current trading and Outlook 

Whilst uncertainties remain, in particular in relation to currency, the Board anticipates another year of good growth.

John Lewis

Non-executive Chairman

OVERVIEW OF THE YEAR

	Revenue				Underlying Operating profit*
Year to 30 April	2016 †	2016	2015	Change †	2016 †	2016	2015	Change †
	£m	£m	£m	%	£m	£m	£m	%
Continental Europe	97.9	93.7	94.3	+3.8%	25.3	24.1	22.0	+15.0%
UK & Republic of Ireland	45.9	45.8	44.7	+2.7%	8.0	8.0	8.4	-4.8%
Asia & ROW	44.6	44.5	38.2	+16.8%	10.7	10.7	6.9	+55.1%
	188.4	184.0	177.2	+6.3%	44.0	42.8	37.3	+18.0%
Corporate					(3.0)	(3.1)	(2.5)
					41.0	39.7	34.8	+17.8%
† 2016 trading results of overseas subsidiaries converted at 2015 exchange rates. *excluding profit on sale of land in 2015

			Vending units
	2016		2015		Change
Continental Europe	22,800	50%	22,400	50%	+1.8%
UK & Republic of Ireland	12,500	28%	12,400	28%	+0.8%
Asia & ROW	10,200	22%	9,800	22%	+4.1%
Total	45,500	100%	44,600	100%	+2.0%

CONTINENTAL EUROPE

This division contributed 51% of Group revenue (2015: 53%) and 61% of underlying operating profit (2015:63%). At the end of April 2016, 50% (2015: 50%) of the Group's estate was sited in Continental Europe. There were 22,800 (2015: 22,400) units in total of which 12,500 (2015:12,400) were photobooths. The Group operates in nine countries.

Reported revenue was 0.6% lower than last year, but on a constant currency basis increased by 3.8%. Operating profits increased by 9.5% on a reported basis, due to the reduction in siting costs and continued focus on operating costs reduction.

The European photobooth estate increased by 0.5% year-on-year with the main areas for growth being France, Germany and Switzerland. The Group continues its roll-out of higher-margin Starck booths and there are now 3,780 deployed across Europe, an increase of 567 over the year.

The Group continues to assess the price increases in its photobooth estate and is now running trials in two countries - Switzerland and the Netherlands.

The roll-out of the Group's main laundry product - branded Revolution - predominantly using the same sites as the photobooth estate, continues to progress well.

Total (including UK & Ireland)	2016	2015	2014	Change
Owned and operated (total)	1,411	644	202	+119%
Sold (cumulative total at year end)	737	440	317	+68%
Ave. revenue per owned unit (€)†	15,382	14,396	13,887	+7%

 († Average calculated only on machines in France, Ireland and Portugal with full month takings)

The results from the units in operation in France, Ireland and Portugal remain extremely encouraging with takings during the period averaging €1,282 per unit per month across the operating estate. For the full year, the turnover of the entire laundry business units was £11.8m (including a contribution of £1.2m from Fowler(UK)) (2015: £6.3m), which has more than trebled since 2014. Laundries represented 13% of total turnover in France, 47% in Ireland and 52% in Portugal.

The Group now has laundry units in twelve countries globally, with the most significant coverage being in France, Belgium, Portugal and Ireland. Besides supermarket locations, the Group continues to be encouraged by potential demand in sites like campsites, universities and military barracks, all of which have demand for heavy-duty laundry capability. The product has continued to perform extremely well in Portugal and in Ireland where an agreement with Tesco (Ireland) means that the number of operated units in that country should increase to 120 over the next 12 months. The profit in these two countries has climbed rapidly since the units were first introduced in those markets in 2014 and is expected to approach €1m in the coming year.

The Group continues to target 6,000 laundry units by 2020 and as the business grows, it is expected that the majority of these will be owned/operated. The Group remains focused on ensuring that only the best locations are targeted for the machines, given the investment and logistics involved and the speed of the roll-out programme is dictated by the availability of suitable venues.

The Group has been trialling a number of launderettes in towns across France and Belgium over the past three years. The vast majority of these have achieved the desired return on capital and the Group now considers it appropriate to roll out the concept more aggressively, targeting towns where there is no large supermarket nearby and where competition within the town is limited. The stores (all short leaseholds) again will benefit from leading edge design and are expected to cost around €32,000 each to equip fully. The Group's ambition is to develop in that segment rapidly and reach a sizeable base of locations.

Photo-Me also announced the development of "Revolution 2", which would only have a footprint of 5sqm compared with the 10sqm of existing units. One principal advantage of these smaller units is that they avoid planning restrictions and in addition may be attractive in markets where space is more limited. Production of these units is expected to commence fully in September 2016.

The expansion of the Revolution estate continues to represent an opportunity for a material increase in Group revenue and, with an attractive cash generation and EBIT profile, they provide an opportunity to enhance returns to shareholders in future years.

The Group continues to operate over 5,000 digital printing kiosks, primarily in France and Switzerland, and is currently upgrading the estate to the latest technology to accept all models of memory cards and other media. The new range of Starck-designed kiosks are gradually being introduced and good progress is being seen with the Speedlab Cube in particular. The Group considers the potential worldwide to be very promising over the medium-term.

Europe remains the centre of the Group's R&D efforts and new product development. The Group is increasingly focusing on new technologies, like 3D digital photos and is investing with the aim of becoming a leader in the field. One of the targets is to develop enhanced ID security standards through  3D technology which the Group believes will be increasingly attractive to Governments. The Group has already introduced biometric standards into a number of its booths in Germany, Switzerland and China and the addition of 3D photo capture would represent a major step forward in security. Photobooths are therefore progressively being enabled digitally and in February 2016, the Group announced that it had obtained the first agreement with ANTS (National Agency of Secure Documents in France) to allow the delivery of a digitized e-photo and signature for the purposes of driving licence application with the document being sent from the photobooths via a secure server. The Group has some 7,800 units in France and the entire estate will be enabled rapidly. Similarly, in September 2015 Photo-Me signed a five-year agreement with Moneygram under which money transfer services would be made available in its booths worldwide, beginning in France.

The Group is still trialling its carwash concept and Photo-Me will report further on its plans for this concept at the end of the next financial year.

ASIA & R.O.W.

This division contributed 24% of Group revenue (2015: 22%) and 27% of operating profit (2015: 20%). At the end of April 2016, 22% (2015: 22%) of the Group's estate was sited in Asia & ROW. There were 10,200 (2015: 9,800) units in total of which 8,600 (2015: 8,200) were photobooths. Growth in photobooths units was 4.6% year on year, mainly deploying machines in Japan in order to respond to the increased demand created by the roll-out of a new photo ID. The Group operates in six countries, with the latest addition being the USA.

The largest territory by size of the machine estate and revenue by far is Japan where performance was outstanding. Revenues were up by 16% with profits 69% higher.

Performance here has benefited from the first stage of adoption of the new ID card regulation which came into force in 2016. Under this system all Japanese citizens may apply to be issued with their own personal 12-digit number (My Number) which will in due course require an accompanying photo ID card. The system is not currently compulsory, but brings a significant number of administrative benefits to both the private user and the public sector and widespread adoption is expected.

Owing to technical and administrative problems at local government level, the implementation of this plan to date has not gone as smoothly as planned, after a strong start, but the Japanese government is committed to the programme and is increasing financial resource to ensure swifter issuance. Based on the official roadmap issued by the Japanese administration, it is expected that by March 2019, 87 million cards will be issued, while the scope and functionality of the card will be expanded, although the speed of issuance will be reliant upon promotion of the scheme by the Japanese government. Ultimately the card will become the Japanese photo ID card, branded One Card. This is likely to lead to a steady and substantial increase in photobooth volumes over the period but, due to the uncertainty over timing, we have not included any profits related to My Number in our forecast for the current year.

Gradual progress continues to be made in China where turnover rose by 24% (at CC) with a good increase in profitability.

UK & IRELAND

This division contributed 25% of Group revenue (2015: 25%) and 20% of operating profit (2015: 24%). At the end of April 2016, 28% (2015: 28%) of the Group's estate was sited in UK & Ireland. There were 12,500 (2015: 12,400) units in total of which 6,600 (2015: 6,400) were photobooths. Growth in photobooth numbers was 2.9% year-on-year.

In a market background remaining difficult, the turnover in the UK and Ireland increased by +2.5% (CC) due to the resilience of the photographic business in the UK and the fast expansion of the laundry business in Ireland. Profits contracted by -4.8% reflecting the increase in depreciation and some site costs.

The Group's progress in rolling out its Revolution laundries in Ireland has been good and is covered in the Continental Europe section (above).

STRATEGIC OVERVIEW

What we do

Photo-Me's current 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 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.

To further its diversification, the ambition of the Group is to expand the laundry business to all segments (supermarket car parks Revolution units, town centre launderettes, B2B equipment sales and rentals), as well as aggressively move into offering security management solutions to governments leveraging 3D identification technology and secured digital transmission of identification data.

Where we operate

Photo-Me has three principal areas of operation geographically - UK & Ireland, Continental Europe and Asia. Its most important territory in Continental Europe is France, and in 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 operate (although for differing reasons) in South America, Africa or Australasia.

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

Key performance indicators

The Group measures its performance using a mixture 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-16	Apr-15	Apr-14
Group total revenue at actual rate of exchange		£184.0m	£177.2m	£186.6m
Group total revenue excluding minilab business at constant rate of exchange	The turnover at constant rate of exchange excluding minilabs indicates the underlying growth of the core business	£195.9m	£183.7m	£181.6m
Group profit before tax		£40.1m	£38.5m	£30.1m
Underlying profit before tax		£40.1m	£35.0m	£30.1m
EBITDA margin	The EBITDA margin is a good indicator of our improvements in profitability	30.8%	31.2%	25.6%
Underlying EBITDA margin	The underlying EBITDA margin is a good indicator of our improvements in profitability excluding major one-off items	30.8%	29.2%	25.6%
Gross takings (including VAT)	Gross takings are an important indicator of the trend in our core vending business	+3.7%	+2.5%	+1.9%
Increase in number of photobooths	The increase in number of photobooths is always a priority and a main driver for growth	+611	+916	+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	+1,064	+417	+235

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, the Revolution laundry units and the newly redesigned photo printing kiosks 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 enhance customer opportunity.

·    Reliability

Combined with the telemetry connected technology, we employ an extensive network of experienced engineers to minimize downtime and maintain appearance.

·    Quality of product

Photobooths produce ICAO (International Civil Aviation Organisation)-compliant photos and constant investment in technology ensures the estate in general offers the consumer a very satisfactory 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 statistics support 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, the Group managed a 2% increase over the year and will be expanding its estate in Japan significantly to take advantage of new photo ID card legislation which comes into force in 2016.

b. Introducing new products

With its history of innovation, the Group has been very successful at introducing new products and modernizing its portfolio.  The last four years have seen the introduction of the Philippe Starck- designed photobooth range as well as the launch of the brand-new Revolution laundry units, which are now being extended into a laundrette format in 2016.

In addition, the Group has further products on trial. This includes the carwash system, the photolight and the new Starck designed digital printing kiosks.

The Group is also focussing heavily on developing next-generation technology in its photobooths  encompassing biometry and 3D photography, which it believes will provide solutions to national and local governments in the area of increased security. Biometric applications are already in use in Germany, Switzerland and China and during the year the Group signed a deal with ANTS in France in relation to digital driving licence applications.   

c. Entering new markets

The Group takes an opportunistic approach to investments in new markets, and constantly assesses new potential markets.

In the last twelve months, very positive progress has been made in South Korea, where some 100 photobooths have been sited. Small operations have been launched in Poland.

2. Increase takings per unit

Over the last few years the Group has generally chosen not to raise prices in light of both the generally difficult economic background globally as well as a desire to ensure that the offering remains very competitive. However, in 2014, a price rise was effected in the Japanese booths to offset VAT increases and the prices on kiddie rides and amusement machines have been raised from low levels in the UK. Going forward, however, the increasing introduction of contactless payment across the estate should allow more price flexibility. The Group is trialling in two countries currently and planning a phased rollout of price increases over the next two years.

Besides price initiatives, the introduction of attractive new offerings on the existing estate as well as active resiting of machines to more attractive locations are also strategies to increase takings.

3. Minimizing production and operational costs

The principal operating cost - other than depreciation - is the commission paid to site owners. Thanks to sophisticated telemetry inside all of its operating units and robust internal controls, 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 - 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 significantly less than the photobooths as they use external space that would normally produce no value for the site owners.

Over the last three years, 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. In both cases this has significantly reduced production costs.

The Group reviews regularly its supply chain and endeavours to further reduce production costs.

FINANCIAL REVIEW

Financial Performance

The Group delivered a strong financial performance, as illustrated by the significant increase in profits.

Reported revenue increased by 3.8% to £184.0m as the result of the consistently sustained roll-out of the new laundry business line, the increased volumes in the ID photo business in Asia, and to a lesser extent its resilience in Europe.

	Apr 16 £m	Apr 15 £m
Revenue	184.0	177.2
Underlying EBITDA (*)	56.7	51.8
Underlying Operating Profit (*)	39.7	34.8
Underlying Profit before tax (*)	40.1	35.0
Profit after tax	29.2	28.0

(*) Excludes the profit on sale of land of £3.5m in 2015

The movements in turnover are outlined in the following table:

	£m	£m
Apr 15 Turnover		177.2
Change in core business revenue
UK & Ireland	+1.2
Continental Europe	+3.8
Asia	+6.4
Decline in the minilab business	-0.2
Impact of exchange rates	-4.4
Apr 16 Turnover		184.0

The increase in the underlying profit before tax can be explained as follows:

	£m
Apr 15 - PBT	38.5
Profit on disposal of land	-3.5
Apr 15 - Underlying PBT	35.0
Changes in Revenue	+6.8
Changes in Costs	-1.9
Increase in depreciation and amortization	-
Increase in net finance revenue	+0.2
Apr 16 - PBT	40.1

Review of operating costs

Operating costs amounted to £144.3m (2015: £138.8m).

Staff costs amounting to £40.9m increased by 1.5% compared with the previous year and represented 22.2% of revenue (2015: 22.7%). The increase is in line with the salary inflation across the Group.

The reduction in inventory costs is the direct result of both the winding down of the parts and consumable intensive minilab division as well as the costs reductions achieved through enhanced efficiencies in the supply chain.

	Apr 16 £m	Apr 15 £m
Staff costs	40.9	40.3
Inventory costs	11.5	12.6
Other operating costs	75.2	69.0
	127.6	121.9
Depreciation and Amortization	16.9	16.9
Profit / (loss) on disposal of fixed assets (*)	-0.2	-
Operating costs	144.3	138.8

(*) Excluding a profit of £3.5m on the disposal of land in 2015

Taxation

The Group tax charge of £10.9m corresponds to an effective tax rate of 27.2% (2015: 27.2%).

The Group undertakes business in over 17 countries worldwide, with most of the tax charge arising in France, Japan and the United Kingdom. In each jurisdiction in which the Group operates, operations are organised so that the Group pays the correct and appropriate amount of tax at the right time according to the local regulations and ensure compliance with the Group's tax policy and guidelines.

Dividends

During the year, the Group paid dividends totalling £18.2m in respect of the interim and final dividend for the year ended 30 April 2015.

The interim dividend for the year ended 30 April 2016 (2.575p per share) declared in December 2015 was paid in May 2016 and amounted to £9.7m.

Statement of Financial position

The Group balance sheet can be summarised as follows:

	Apr 16 £m	Apr 15 £m
Non-current assets (excl deposits)	84.5	71.5
Current assets (excl cash and deposits)	32.4	23.9
Non-current liabilities (excl. borrowings)	-8.4	-7.5
Current liabilities (excl. borrowings)	-48.2	-44.2
Net Cash	62.4	60.7
Total Equity	122.7	104.4
Minority interests	-1.1	-0.9
Total Shareholders' funds	121.6	103.5

Following the payment of dividends of £18.2m, the Shareholders funds at 30 April 2016 amounting to £121.6m increased by £18.1m compared with the previous year end.

The non-current assets detail is outlined in the following table:

	Apr 16 £m	Apr 15 £m
Goodwill	11.6	10.2
R&D costs	4.7	2.6
Other intangible assets	4.0	3.9
Operating equipment	49.8	43.1
Plant and machinery	5.1	3.8
Land and buildings	1.3	1.3
Investment property	0.6	0.5
	77.1	65.4
Investments	1.7	0.9
Deferred tax asset	4.2	3.5
Trade and other receivables	1.5	1.7
Total non-current assets (excl. deposits)	84.5	71.5

The goodwill mainly relates to the Japanese subsidiary. The addition corresponds to the acquisition of Fowler (UK).

With a net book value of £49.8m, the operating equipment is largely the main component of the Group's total non-current assets. The Group owns some 45,500 machines operated worldwide. The change in the net book value reflects the Group's capital expenditure of £25.3m net of depreciation and exchange differences.

Cash flow and net cash position

	Apr 16 £m	Apr 15 £m
Opening net cash	60.7	63.1
Cash generated from operations	51.4	49.1
Taxation	-10.8	-9.1
Net cash generated from operations	40.6	40.0
Net cash used in investing activities	-24.8	-18.1
Dividends paid and other financing activities	-17.8	-21.1
Net cash generated	-2.0	0.8
Impact of exchange	3.7	-3.2
Net cash inflow	1.7	-2.4
Closing net cash	62.4	60.7

The increase in the EBITDA, coupled with optimised working capital mitigated the impact of increase tax payments leading to the increase in Net cash generated from operations by £0.6m.

The cash generation was still substantial and enabled the Group to finance its capital expenditure program as well as to pay out to shareholders dividends amounting to £18.2m.

Taking advantage of very advantageous fixed interest rates, the Group raised over the year £10.1m of long term external debt, aimed at financing the acquisition of town centre launderettes. The outstanding debt was deducted from the closing net cash at 30 April 2016. The total cash and cash equivalents at 30 April 2016 amounted to £71m (2015: £58.6m).

At the end of April 2016, the Group's net financial position amounting to £62.4 m could be split as follows:

	Cash and deposits £m	Borrowings £m	Net Financial Position £m
Balance at 30 April 2015	60.9	-0.2	60.7
Cash flow	8.6	-10.6	-2.0
Non-cash movements	3.7	-	3.7
Balance at 30 April 2016	73.2	-10.8	62.4

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 actions taken to mitigate them.

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 hedges its exposure to currency fluctuations on transactions, as relevant. 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.
Regulations
• 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, including the introduction of 3D technology in ID security standards. The Group also ensures that its ID product remains affordable and of high quality. The Group is also conducting lobbying activities.
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 mainly 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 would have an adverse albeit contained, impact on the Group's results, considering how the Group's turnover is spread over a large client base and none of the accounts representing more than 1% of the Group turnover	The Group's major 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 risks of 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 dramatic effect.	The Board has decided to hold a strategic stock of paper, allowing for 6 to 10 months' 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 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.
Technological
• Failure to keep up with the advances in technology	The Group operates in fields particularly in relation to photography where upgrades to new technologies are mission critical.	The Group mitigates this risk by continual focus on R&D.

Group Statement of Comprehensive Income

For the year ended 30 April 2016

		2016	2015
		£ '000	£ '000
Revenue		183,994	177,202
Cost of Sales		(131,546)	(129,638)
Gross Profit		52,448	47,564
Other Operating Income		1,306	1,166
Administrative Expenses		(14,185)	(10,524)
Share of Post-Tax Profits from Associates		165	164
Operating Profit		39,734	38,370
Analysed as:
Operating profit before specific items		39,734	34,886
Profit on sale of land		-	3,484
Operating profit after specific items		39,734	38,370
Finance Revenue		538	191
Finance Cost		(166)	(65)
Profit before Tax		40,106	38,496
Total Tax Charge		(10,907)	(10,452)
Profit for Year		29,199	28,044
Other Comprehensive Income
Items that are or may subsequently be classified to profit and loss:
Exchange differences arising on translation of foreign operations		5,328	(6,779)
Taxation on exchange differences		485	-
Total items that are or may subsequently be classified to profit and loss		5,813	(6,779)
Items that will not be classified to profit and loss:
Remeasurement (losses)/gains in defined benefit obligations and other post-employment benefit obligations		43	(860)
Deferred tax on remeasurement  (losses)/gains		(9)	221
Total items that will not be classified to profit and loss		34	(639)
Other comprehensive income/(expense) for the year net of tax		5,847	(7,418)
Total comprehensive income for the year		35,046	20,626
Profit for the Year Attributable to:
Owners of the Parent		29,066	27,900
Non-controlling interests		133	144
		29,199	28,044
Total comprehensive income attributable to:
Owners of the Parent		34,841	20,605
Non-controlling interests		205	21
		35,046	20,626
Earnings per Share
Basic Earnings per Share		7.78p	7.49p
Diluted Earnings per Share		7.72p	7.43p
All results derive from continuing operations

Statements of Financial Position

For the year ended 30 April 2016

		Group
		2016	2015
		£'000	£'000
Assets
Non-current assets
Goodwill		11,606	10,180
Other intangible assets		8,706	6,507
Property, plant & equipment		56,094	48,263
Investment property		629	458
Investment in - associates		1,713	848
Investment in subsidiaries		-	-
Other financial assets - held to maturity		2,253	2,220
Other financial assets - available for sale		75	70
Deferred tax assets		4,216	3,512
Trade and other receivables		1,548	1,684
		86,840	73,742
Current assets
Inventories		17,094	12,099
Trade and other receivables		13,010	10,874
Current tax		2,273	869
Cash and cash equivalents		71,005	58,632
		103,382	82,474
Assets held for sale		96	-
Total assets		190,318	156,216
Equity
Share capital		1,877	1,866
Share premium		8,156	7,131
Translation and other reserves		10,507	4,766
Retained earnings		101,101	89,744
Equity attributable to owners of the Parent		121,641	103,507
Non-controlling interests		1,109	904
Total equity		122,750	104,411
Liabilities
Non-current liabilities
Financial liabilities		9,183	124
Post-employment benefit obligations		4,755	4,291
Provisions		10	17
Deferred tax liabilities		1,887	1,067
Trade and other payables		1,821	2,050
		17,656	7,549
Current liabilities
Financial liabilities		1,660	59
Provisions		4,103	5,540
Current tax		8,341	5,981
Trade and other payables		35,808	32,676
		49,912	44,256
Total equity and liabilities		190,318	156,216

Group Statement of Cash Flows

For the year ended 30 April 2016

			2016	2015
			£'000	£'000
Cash flow from operating activities
Profit before tax			40,106	38,496
Finance cost			166	65
Finance revenue			(538)	(191)
Operating profit			39,734	38,370
Share of post tax profit from associates			(165)	(164)
Amortisation of intangible assets			1,548	2,092
Depreciation of property, plant and  equipment			15,413	14,789
Profit/(loss) on sale of property, plant and equipment			(236)	(3,510)
Exchange differences			2,031	(1,996)
Other items			(1,615)	(876)
Changes in working capital:
Inventories			(3,665)	(1,910)
Trade and other receivables			52	2,587
Trade and other payables			108	451
Provisions			(1,775)	(671)
Cash generated from operations			51,430	49,162
Interest paid			(166)	(64)
Taxation paid			(10,816)	(9,124)
Net cash generated from operating activities			40,448	39,974
Cash flows from investing activities
Acquisition of subsidiaries net of cash acquired			(1,642)	(422)
Investment in associates			(671)	(146)
Investment in  intangible assets			(3,221)	(3,641)
Proceeds from sale of intangible assets			-	1
Purchase of property, plant and equipment			(21,276)	(19,833)
Proceeds from sale of property, plant and equipment			1,521	5,623
Proceeds of sale of subsidiaries net of cash sold			-	32
Interest received			538	189
Dividends received from  associates			-	96
Net cash generated from investing activities			(24,751)	(18,101)
Cash flows from financing activities
Issue of Ordinary shares to equity shareholders			1,036	617
Repayment of capital element of finance leases			(147)	(78)
Repayment of borrowings			(665)	(158)
Increase in borrowings			10,946	-
Decrease in assets held to maturity			29	76
Dividends paid to owners of the Parent			(18,217)	(21,381)
Dividends paid to non-controlling interests			-	(158)
Net cash utilised in financing activities			(7,018)	(21,082)
Net increase in cash and cash equivalents			8,679	791
Cash and cash equivalents at beginning of year			58,632	60,996
Exchange loss on cash and cash equivalents			3,694	(3,155)
Cash and cash equivalents at end of year			71,005	58,632

Group Statement of Changes in Equity

For the year ended 30 April 2016 

	Share capital £'000	Share premium £'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 2014	1,859	6,521	1,874	9,528	83,332	103,114	1,119	104,233
Profit for year	-	-	-	-	27,900	27,900	144	28,044
Other comprehensive (expense)/income
Exchange differences	-	-	-	(6,656)	-	(6,656)	(123)	(6,779)
Transfers between reserves	-	-	-	20	(20)	-	-	-
Remeasurement losses in defined benefit pension scheme and other post-employment benefit obligations	-	-	-	-	(860)	(860)	-	(860)
Deferred tax on remeasurement gains	-	-	-	-	221	221	-	221
Total other comprehensive (expense)/income	-	-	-	(6,636)	(659)	(7,295)	(123)	(7,418)
Total comprehensive (expense)/income	-	-	-	(6,636)	27,241	20,605	21	20,626
Transactions with owners of the Parent
Shares issued in the period	7	610	-	-	-	617	-	617
Share options	-	-	-	-	371	371	-	371
Deferred tax on share options	-	-	-	-	181	181	-	181
Dividends	-	-	-	-	(21,381)	(21,381)	(158)	(21,539)
Disposal of minority	-	-	-	-	-	-	(78)	(78)
Total transactions with owners of the Parent	7	610	-	-	(20,829)	(20,212)	(236)	(20,448)
At 30 April 2015	1,866	7,131	1,874	2,892	89,744	103,507	904	104,411
At 1 May 2015	1,866	7,131	1,874	2,892	89,744	103,507	904	104,411
Profit for year	-	-	-	-	29,066	29,066	133	29,199
Other comprehensive (expense)/income
Exchange differences	-	-	-	5,256	-	5,256	72	5,328
Tax on exchange	-	-	-	485	-	485	-	485
Remeasurement losses in defined benefit pension scheme and other post-employment benefit obligations	-	-	-	-	43	43	-	43
Deferred tax on remeasurement gains	-	-	-	-	(9)	(9)	-	(9)
Total other comprehensive (expense)/income	-	-	-	5,741	34	5,775	72	5,847
Total comprehensive (expense)/income	-	-	-	5,741	29,100	34,841	205	35,046
Transactions with owners of the Parent
Shares issued in the period	11	1,025	-	-	-	1,036	-	1,036
Share options	-	-	-	-	413	413	-	413
Deferred tax on share options	-	-	-	-	61	61	-	61
Dividends	-	-	-	-	(18,217)	(18,217)	-	(18,217)
Total transactions with owners of the Parent	11	1,025	-	-	(17,743)	(16,707)	-	(16,707)
At 30 April 2016	1,877	8,156	1,874	8,633	101,101	121,641	1,109	122,750

NOTES

1 Basis of preparation and accounting policies

The preliminary results for the year ended 30 April 2016 have been extracted from the audited consolidated financial statements, which were approved by the Board of Directors on 21 June 2016. 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. 

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 2015 or 2016 but is derived from those accounts. Statutory accounts for 2015 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 Segmental analysis

IFRS 8 requires operating segments to be identified, based on information presented to the Chief Operating Decision Maker (CODM) in order to allocate resources to the segments and monitor performance. The Group monitors performance at the adjusted operating profit level before specific items, interest and taxation.

In accordance with IFRS 8, 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.

The segment results are as follows:

	Asia	Continental Europe	United Kingdom & Ireland	Total
	£'000	£'000	£'000	£'000
2016
Total revenue	45,364	100,816	46,066	192,246
Inter segment sales	(865)	(7,104)	(283)	(8,252)
Revenue from external customers	44,499	93,712	45,783	183,994
EBITDA	13,633	33,881	11,934	59,448
Depreciation and amortisation	(3,134)	(9,718)	(3,973)	(16,825)
Operating profit excluding associates	10,499	24,163	7,961	42,623
Share of post-tax profits from associates				165
Corporate costs excluding depreciation and amortisation				(2,918)
Corporate depreciation and amortisation				(136)
Operating profit				39,734
Finance Revenue				538
Finance costs				(166)
Profit before tax				40,106
Tax				(10,907)
Profit for year				29,199

Reconciliation of operating profit
	Asia	Continental Europe	United Kingdom & Ireland	Total
	£'000	£'000	£'000	£'000
Operating profit before associates	10,499	24,163	7,961	42,623
Share of post tax profits from associates	165	-	-	165
Corporate operating profit	-	737	(3,791)	(3,054)
Total operating profit	10,664	24,900	4,170	39,734

	Asia	Continental Europe	United Kingdom & Ireland	Total
	£'000	£'000	£'000	£'000
2015
Total revenue	38,925	100,127	44,867	183,919
Inter segment sales	(720)	(5,782)	(215)	(6,717)
Revenue from external customers	38,205	94,345	44,652	177,202
EBITDA	10,232	32,013	11,810	54,055
Depreciation and amortisation	(3,465)	(9,967)	(3,359)	(16,791)
Operating profit excluding associates	6,767	22,046	8,451	37,264
Share of post-tax profits from associates				164
Corporate costs excluding depreciation and amortisation				1,032
Corporate depreciation and amortisation				(90)
Operating profit				38,370
Finance Revenue				191
Finance costs				(65)
Profit before tax				38,496
Tax				(10,452)
Profit for year				28,044

Included in corporate costs for 2015 is the profit on sale of vacant land at the Bookham site of £3,484,000.

Reconciliation of operating profit
	Asia	Continental Europe	United Kingdom & Ireland	Total
	£'000	£'000	£'000	£'000
Operating profit before associates	6,768	22,045	8,453	37,266
Share of post tax profits from associates	164	-	-	164
Corporate operating profit	-	1,012	(72)	940
Total operating profit	6,932	23,057	8,381	38,370

Inter-segment revenue mainly relates to sales of equipment.

3 Taxation

Tax charges/(credits) in the statement of comprehensive income

			2016	2015
			£'000	£'000
Current taxation
UK Corporation tax
- current year			1,965	2,164
- prior years			(15)	(144)
			1,950	2,020
Overseas taxation
- current year			9,023	7,491
- prior years			(64)	(62)
			8,959	7,429
Total current taxation			10,909	9,449
Deferred taxation
Origination and reversal of temporary differences
- current -year - UK			(520)	1,103
- current -year - overseas			256	(123)
Adjustments to estimated recoverable amounts of deferred tax assets arising in previous years
- UK			(15)	(56)
- Overseas			205	79
Impact of change in rate			72	-
Total deferred tax			(2)	1,003)
Tax charge in the statement of comprehensive income			10,907	10,452

4 Earnings per share

Basic earnings per share amounts are calculated by dividing net earnings attributable to shareholders of the Parent of £29,066,000 (2015: £27,900,000) by the weighted average number of shares in issue during the year, excluding those held, where applicable, as treasury shares.

Diluted earnings per share amounts are calculated by dividing the net earnings attributable to shareholders of the Parent by the weighted average number of shares outstanding during the year plus the weighted average number of shares that would be issued on conversion of all the dilutive potential shares into shares. The Group has only one category of dilutive potential shares: the share options granted to senior staff, including directors.

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

		2016			2015
	Earnings £'000	Weighted average number of shares £'000	Earnings per share pence	Earnings £'000	Weighted average number of shares £'000	Earnings per share pence
Basic earnings per share	29,066	374,121	7.77	27,900	372,381	7.49
Effect of dilutive share options		2,514	(0.05)		3,314	(0.06)
Diluted earnings per share	29,066	376,635	7.72	21,422	375,695	7.43

Potential shares (for example, arising from exercising share options) are treated as dilutive only when their conversion to shares would decrease basic earnings per share or increase loss per share from continuing operations.

Alternative earnings per share

The table below reconciles earnings per share (EPS) and diluted earnings per share (DPS) before and after specific items. There were no specific items in the year ended 30 April 2016.

Alternative earnings per share		2016			2015
	£'000	EPS	DPS	£'000	EPS	DPS
Earnings available to shareholders	29,066	7.77	7.72	27,900	7.49	7.43
Special items net of tax	-	-	-	(2,752)	(0.74)	(0.73)
Earnings after special items	29,066	7.77	7.72	25,148	6.75	6.70
Weighted average number of shares in issue in period- basic ('000)	374,121			372,381
- including dilutive share options ('000)	376,635			375,695

Specific items for the year ended 30 April 2015 relate to the sale of vacant land at the Bookham site. The contract for £4,200,000 was exchanged on 5 June 2014 with cash settlement on completion one month later.

5 Dividends paid and proposed

Year ended 30 April 2016 Proposed dividends not yet paid

The Board declared an interim dividend of 2.575p per share for the year ended 30 April 2016, amounting to £9,669,000 which was paid on 12 May 2016. The Board proposes a final dividend of 3.285 p per share, which is subject to the shareholder's approval at the Annual General Meeting to be held on 20 October 2016. In addition the Board propose a special dividend of 2.815p per share. Both the final and special dividend will be paid on 10 November 2016 in total amounting to £22,904,000.
 

Year ended 30 April 2015 - Paid after 30 April 2015.

The Board declared an interim dividend of 2.34p per share for the year ended 30 April 2015, amounting to £8,733,000 which was paid on 14 May 2015. The Board proposed a final dividend for the year ended 30 April 2015 of 2.54 per share, amounting to £9,484,000 which was paid on 12 November 2015.

6 Non-Current assets

	Goodwill	Intangible assets	Property, plant & equipment	Investment property
	£'000	£'000	£'000	£'000
Net book value at 1 May 2015	10,180	6,507	48,263	458
Exchange difference and other movements	153	327	2,619	33
Additions - photobooths and vending equipment	-	-	19,402	-
Additions - other assets	-	3,221	2,053	140
Additions - new subsidiaries	1,273	254	549
Amortisation	-	(1,548)	-	-
Depreciation	-	-	(15,411)	(2)
Reclassifications	-	13	-	-
Transfer to assets held for sale	-	-	(96)	-
Disposals at net book value	-	(68)	(1,285)	-
Net book value at 30 April 2016	11,606	8,706	56,094	629

7 Net cash

	2016	2015
	£'000	£'000
Cash and cash equivalents per statement of financial position	71,005	58,632
Financial assets - held to maturity	2,253	2,220
Non -current instalments due on bank loans	(8,866)	-
Current instalments  due on bank loans	(1,515)	-
Non-current finance leases	(317)	(124)
Current finance leases	(145)	(59)
Net cash	62,415	60,669

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 instalments on loans and other borrowings.

At 30 April 2016, £2,253,000 of the total net cash (2015: £2,320,000 ) comprised bank deposit accounts that are subject to restrictions and are not freely available for use by the Group and Company. These amounts are shown under financial assets held to maturity.

By order of the Board

John Lewis                                                                          Serge Crasnianski

Chairman                                                                            Chief Executive Officer

21 June 2016

8 Publication of the audited financial statements

Copies of the Report and Accounts for the year ended 30 April 2016 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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