PHTM.L Regulatory News (PHTM)

8th December 2011

PHOTO-ME INTERNATIONAL PLC - INTERIM RESULTS ANNOUNCEMENT

Photo-Me (PHTM.L), the instant service equipment group, announces its results for the six months to 31 October 2011. 

Results highlights:

 † Before special items

 ‡ As defined in note 9 to the accounts

 *As at 30 April 2011

John Lewis, Non-Executive Chairman, said: "This has been a very good half year for the Group with an extremely resilient performance in the Operations division, led by France. In the current environment, a rise in profits of over 20% is a real achievement and testimony to the management strength in a number of key markets. The Sales and Servicing division has experienced caution from certain large customers who have re-scheduled their deliveries and delayed orders which had been expected in August and which has translated into difficult trading. Accordingly, we are taking the opportunity to press ahead with further restructuring.

"The Group's cash generation was again strong and the net cash position at the end of October was £51.1million, an increase of more than £10 million during the half year. This enables us to declare an interim dividend of 1.25p per share, a 25% increase on the same period last year.

 "As we have commented before, the first half is always the stronger for Photo-Me in terms of profits and we expect this certainly to be the case again. Despite the economic climate, which remains difficult, the Board remains confident that, given that the level of profit in the first half was close to matching the level for the whole of the previous year, market expectations will be achieved for the full year."

For further information please contact:

Serge Crasnianski or Françoise Coutaz-Replan

Media

Madano Partnership

Investors:

IR Focus

CHAIRMAN'S STATEMENT

Results

Despite the fact that revenue was slightly down at £115.6m (2010: £118.4m), an excellent performance from our Operations division ensured we were able to report a 25.7% increase in adjusted pre-tax profit (before special items) at £17.6m (2010: £14.0m). After special items this year, the reported pre-tax profit is £17.0m; there were no special items last year. This improved result again was led by our European Operations business which produced a very strong performance.

The Sales and Servicing division's result was disappointing, largely as a result of increased caution from large customers who delayed their orders, due to the difficult economic environment. It is planned to implement a more radical restructuring at KIS (the main company in this division, based in France) which is progressively expected to produce a much more robust performance in the future.

Strategy

Our strategy is focused on the development of new complementary products that build upon the strength of the ID photobooth business and offer diversified revenue and profit streams for the future. This has produced a range of photobook and pocketbook products, the new DKS4 minilab and the Philippe Starck designed photobooth. Following the reorganisation at KIS we are currently developing new lines of products, and will be looking to accelerate the rate of new product development going forward.

In order to maximize the returns from our substantial photobooth operations and given the very strong performance in the French market, we are now bringing the UK operation under the management control of France to focus on its profitability, and we will be looking to move from several national distribution centres towards a single logistics and distribution platform for Europe, which will generate further savings for the Group.

Dividends

As a result of the Group's strong financial performance, with a continued high rate of conversion of profits into cash, the Board is recommending an interim dividend of 1.25 pence, an increase of 25% over the interim dividend of1.00 pence paid last year.

The interim dividend will be paid on 8 May 2012 to shareholders on the register on 30 March 2012, with an ex-dividend date of 28 March 2012.

Outlook 

The Operations business will benefit from the launch of the new Starck photobooth and the new multi-format printing kiosk, which will help to stabilise the revenue and to increase its profitability. For Sales & Servicing, we have more to do at KIS in general in order to improve its result.

Traditionally, the first half is always the stronger for Photo-Me and we would expect this certainly to be the case again. Despite the economic climate, which remains difficult, the Board remains confident that, given that the level of profits in the first half was close to matching the level for the whole of the previous year, market expectations will be achieved for the full year.

John Lewis,

Non-executive Chairman

CHIEF EXECUTIVE'S BUSINESS AND FINANCIAL REVIEW

Business Review

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

Operations - which comprises the operation of unattended vending equipment, primarily photobooths, digital photo kiosks, photobook makers and amusement machines.

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

The following table summarises the results, excluding special items, analysed between the two Divisions, Operations and Sales & Servicing:

Whilst revenue slightly declined, adjusted profit before tax significantly improved, rising by 25.7%. After a special item of £0.6 million in relation to restructuring at KIS, statutory pre-tax profit rose by 21.6%. Diluted earnings per share were up 39.2%, at 3.23pence (2010: 2.32p).

Our larger Operations division continued to improve its profitability due to a strong level of trading in Europe combined with a continued focus on costs. The Sales and Servicing division suffered from a lack of throughput, with product demand held back by customers restricting spending on new equipment.

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

Geographical analysis of revenue and profit (by origin)

Continental Europe, which includes the great majority of Sales & Servicing revenue, once again comprised the largest element of reported Group revenue - 58% (56%) - but contributed 77% (73%) of group operating profit (2011 - before special items).

OPERATIONS

Photo-Me's Operations business is global, trading in 15 industrialised countries. However, 86% of sites are located in three territories - the UK & Ireland, France and Japan.

Operations contributed 85% (2010: 82%) of group revenue. Divisional revenue increased marginally, but operating profit rose by 19.1%, with a strong performance in Europe. Japan, one of the three main contributors to the Group's profit, has suffered from the aftermath of the earthquake and tsunami during what is usually the best trading period of the year, but has recently returned to normal levels of trading.

Photobooths

Photobooths are an efficient and competitively-priced provider of ID and fun photographs and represent a fairly mature cash generative business. They represent the bulk of the operating profit within the Operations division and within that the most important individual market is France. Over the half year the number of sited photobooths increased by 600 to almost 23,000 sites internationally.

The Group intends to improve the returns from these substantial core photobooth operations through an active management programme. Following a period of excellent trading within the French market, the Group has decided to bring the management of the UK operations under the French management's control to accelerate the site optimisation and cost reduction programme.

The introduction of new products is also key and the new designer "Photobooth by Starck" has now been launched throughout Europe and the Group will be pressing ahead with the roll-out in the months ahead and remain confident that these booths will be more profitable than the models they replace.

Digital photo kiosks

Digital photo kiosks are very much focused in Continental Europe, particularly France and Switzerland, with a smaller presence in the UK. The number of vending sites for digital kiosks is around 5,200 sites.

The product offering is continuing to evolve and the Group has now introduced its latest model of multi-format printing kiosk, the Speedlab300, into the marketplace.

SALES & SERVICING

Substantially all of Sales & Servicing revenue derives from the sale to third parties of retail photographic equipment, in the form of machines and related supplies and consumables. A disappointing result from KIS has been outweighed by improved performance from other Group companies within this division, to produce a modest increase in profit for the half year (before special items this year). 

KIS, the largest Group company in this division, has suffered from a lack of throughput in the first half as larger customers have reined in their capital expenditure due to the difficult economic background, while smaller customers have found the lack of bank finance an issue. Sales of the new DKS4 minilab have thus been restrained to date, while further orders for photo/pocketbook machines from OEMs have been deferred until 2012.

The Group is therefore taking the opportunity to fundamentally alter the structure of KIS: all the maintenance activity has been transferred under the management umbrella of Photomaton (the Operations business in France), to maximise the benefits from the existing synergies; KIS will become a smaller company and will be more efficient, with an increased focus on R&D, now representing 30% of the total number of employees.

The Group believes that this will help KIS to return to a better fundamental level of profitability. It will also accelerate new product development, which has not been as efficient as it should have been and is key to increasing profitability over the medium-term.

STATEMENT OF FINANCIAL POSITION

Shareholders' equity at 31 October 2011 totalled £97.2 million (30 April 2011: £87.8 million), equivalent to 26.8 pence (30 April 2011: 24.3 pence) per share.

The Group's net financial position continued to improve. It reported a net cash balance of £51.1 million at the end of the period (30 April 2011: £40.7 million).

RISKS AND UNCERTAINTIES

The Group's operational performance and growth are influenced and impacted by a number of risks.

The following key risks have been identified by the Board:

Risk relating to the economic backdrop

·; The ability for our customers to obtain finance for purchases of equipment might reduce the level of sales of equipment

·; Operations revenue might suffer from a further contraction of consumer spending

·; Volatility in foreign exchange rates might impact the Group's turnover and margins

·; Risks associated with the general economic crisis in Europe

Operational risk

·; A reduction in the retail site-owner base, impacting on Operations revenue and reducing the market for Sales & Servicing

·; Failure to achieve substantial orders for the Photobook maker suite of products and for the new DKS 4 range of minilabs

Regulatory risks

·; Operations revenue might be adversely affected if governments centralise the production of ID photos in connection with the implementation of biometric passports and other applications, although the potential impact of this risk has been reduced in recent months

Some of these risks are beyond the control of the Group but the Board is continuously analysing and assessing the risks faced and improving the policies and plans to manage the risks identified.

Serge Crasnianski

Chief Executive Officer

GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 October 2011

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

GROUP CONDENSED STATEMENT OF FINANCIAL POSITION

as at 31 October 2011

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

GROUP CONDENSED STATEMENT OF CASH FLOWS

for the six months ended 31 October 2011

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

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY

for the six months ended 31 October 2011

On 31 August 2010 the Company redeemed all of the 8,040,000 issued Deferred shares of 0.25p each for a total consideration of 1p.

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

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY -continued

for the six months ended 31 October 2011

During the period 521,592 new Ordinary shares of 0.5p each were issued on the exercise of share options.

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

NOTES TO THE INTERIM REPORT

1 Corporate information

The condensed consolidated interim financial statements of Photo-Me International plc (the "Company") for the six months ended 31 October 2011 ("the Interim Report") were approved and authorised for issue by the Board of Directors on 7 December 2011.

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

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

2 Basis of preparation and accounting policies

The condensed consolidated interim financial statements for the six months ended 31 October 2011 have been prepared in accordance with IAS 34 Interim Financial Reporting and International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority. The condensed consolidated interim financial statements comprise the unaudited financial information for the six months to 31 October 2011 and 31 October 2010, together with the audited results to 30 April 2011. They do not include all of the information and disclosures required for full annual financial statements, and should be read in conjunction with the Group's financial statements for the year ended 30 April 2011. The condensed financial statements do not constitute statutory accounts within the meaning of section 434 of the UK Companies Act 2006.

The Interim Report is unaudited but has been reviewed by the auditors and their report to the Company is included in the Interim Report. The comparative figures for the financial year ended 30 April 2011 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors (i) was unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 of the Companies Act 2006.

Accounting policies

The accounting policies applied by the Group in this Interim Report are the same as those applied in the Group's financial statements for the year ended 30 April 2011, except as indicated below.

New standards adopted in the period:

There are a number of revised standards and interpretations not all of which are applicable to the Group, which have been issued and are effective for the 2012 and future reporting periods. The most significant standards and interpretations which are likely to have a more material impact on the Group's financial statements were listed in the Group's 2011 Annual Report. These included IFRS 9 on Financial Instruments, Disclosures - Transfer of Financial Assets (amendments to IFRS7) and the 2010 Improvement to IFRS. The effect of adopting new standards for the 2012 year end has not had a material impact on this interim report.

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

Use of non-GAAP profit measures

The Group's income statement and segmental analysis separately identify an adjusted profit, being trading results before special items. "Special item" is the term management uses to describe those items that are material items of income and expenditure which, in their opinion, due to their size or nature require separate disclosure in the financial statements to allow a better understanding of the financial performance of the period and in comparison with prior periods and have little predictive value.

There were no special items in the six months to 31 October 2010 and in the year ended 30 April 2011.

The directors believe that adjusted profit and alternative earnings per share (based on adjusted profit after tax) provide additional useful information to shareholders on underlying trends and performance. These measures are used internally and may not be directly comparable to other companies' adjusted measures as adjusted profit is not defined under IFRS. All adjustments to profit from operations and adjustments to earnings per share are explained in this Report.

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

Risks and uncertainties and cautionary statement regarding forward looking statements

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

Going Concern

The Annual Report for the year ended 30 April 2011 and the Interim Report for the six months ended 31 October 2011 have been prepared on a going concern basis. In reaching this conclusion, management has reviewed budgets, cash flow forecasts, updated forecasts and current trading results, financial resources and financing arrangements. The Annual Report for 2011 contained a full description of the activities of the Group, its financial position, cash flows, liquidity position, facilities and borrowing position, together with the main risk factors likely to impact on the Group. This Interim Report for the six months to 31 October 2011 provides updated information regarding business activities, financial position, cash flows and liquidity position.

3 Segmental analysis

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

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

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

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

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

Seasonality of operations

Historically, the Group's Operations activities, which represent more than 80 per cent of the Group's activities have shown greater revenue and profits in the first half of the financial year than the second half. For the current year ending 30 April 2012 it is expected that this pattern will continue.3 Segmental analysis (continued)

3 Segmental analysis (continued)

3 Segmental analysis (continued)

4 Special items and adjusted profit

Special items in the six months to 31 October 2011 relate to restructuring costs in the French Sales & Servicing business.

There was a tax credit of £197,000 associated with these special items.

5 Taxation

A number of changes to the UK Corporation tax system were announced in the March 2011 UK Budget Statement. The Finance Act 2011 included legislation to reduce the main rate of corporation tax from 27% to 26% from 1 April 2011 and to 25% from 1 April 2012. The proposed reduction from 27% to 25% was substantively enacted at the balance sheet date.

The tax charge in the Group Income Statement is based on management's best estimate of the full year effective tax rate based on expected full year profits to 30 April 2012. The full year effective tax rate includes the impact to the Group Income Statement of calculating UK deferred tax balances at the reduced UK tax rate of 25%. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. These further changes had not been substantively enacted at the balance sheet date and, therefore, are not included in this interim consolidated financial information.

6 Dividends

Year ending 30 April 2012

The Board has declared an interim dividend of 1.25p per share for the year ending 30 April 2012, to be paid on 8 May 2012 to shareholders on the register at 30 March 2012.

Year ended 30 April 2011

The Board declared an interim dividend of 1.0p per share for the year ended 30 April 2011, which was paid on 6 May 2011 to shareholders on the register at 25 March 2011. The Board proposed a final dividend for the year ended 30 April 2011 of 1.0p per share which was approved at the Annual General Meeting on 6 October 2011 and was paid on 7 November 2011.

Year ended 30 April 2010

The Board declared an interim dividend of 0.25p per share for the year ended 30 April 2010, which was paid on 4 May 2010. The Board declared a final dividend for the year ended 30 April 2010 of 1.0p per share, which was approved at the Annual General Meeting on 15 September 2010, and was paid on 5 November 2010.

7 Earnings per share

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

Alternative earnings per share, a non-GAAP measure is shown in note 11 below.

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

9 Net cash

At 31 October £2,361,000 (31 October 2010: £583,000, 30 April 2011: £1,871,000) of the total net cash comprised bank deposit accounts, shown as financial assets held to maturity in the condensed statement of financial position, that are subject to restrictions and are not freely for use by the Group.

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

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

10 Related parties

The Group's significant related parties are disclosed in the 2011 Annual Report and include its associates, its pension funds and the Company's Directors.

11 Non-GAAP Measures

As indicated in Note 2, Basis of preparation and accounting policies, the Group uses certain non-GAAP measures to monitor performance internally. Included in these measures are adjusted earnings after tax and adjusted basic and diluted earnings per share. The Group also measures performance using earnings before interest, tax, depreciation and amortisation ("EBITDA"), as shown in note 3 Segmental analysis.

The Group shows on the face of the Group Condensed Statement of Comprehensive Income those material one-off items of income and expense, special items, which, because of their nature and expected infrequency of the event giving rise to them, merit separate disclosure to allow shareholders better to understand the underlying performance of the Group and to facilitate comparison with prior periods. Adjusted earnings are earnings adjusted for the impact of these one-off items. The Group also shows below, basic and diluted earnings per share on this adjusted basis.

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

We confirm that to the best of our knowledge:

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

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

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

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

By order of the Board

John Lewis (Non-executive Chairman)

Serge Crasnianski (Chief Executive Officer and Deputy Chairman)

7 December 2011

INDEPENDENT REVIEW REPORT TO PHOTO-ME INTERNATIONAL PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2011 which comprises the Group condensed statement of comprehensive income, the Group condensed statement of financial position, the Group condensed statement of cash flows, the Group condensed statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

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

Directors' responsibilities

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

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

Our responsibility

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2011 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

Mark Sheppard

for and on behalf of KPMG Audit PlcChartered Accountants 

1 Forest Gate

Brighton Road

Crawley

RH11 9PT

7 December 2011

Note:

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

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

CAUTIONARY STATEMENT AND DISCLAIMERS

This Interim Financial Report is addressed to the shareholders of Photo-Me International plc and has been prepared solely to provide information to them. This report is intended to inform the shareholders of the group's performance during the 6 months to 31 October 2011.

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

DISTRIBUTION OF REPORT

This half-yearly report is released to the London Stock Exchange. It may be viewed and down loaded from our website www.photo-me.co.uk.

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

Photo-Me International plc

Church Road

Bookham

Surrey KT23 3EU

Tel: +44 (0)1372 453399

Fax: +44 (0)1372 459064

e-mail: ir@photo-me.co.uk