Final Results

PHOTO-ME INTERNATIONAL PLC 17 August 1999 PHOTO-ME INTERNATIONAL plc PRELIMINARY RESULTS - YEAR ENDED 30 APRIL 1999 'A successful and eventful year' * Photo-Me, the world's leading operator and manufacturer of coin-operated photobooths which is also a major manufacturer of photographic mini-lab machines, announces a 32% increase in underlying pre-tax profit to £20.0 million: Year ended 30 April 1999 1998 Increase Turnover (£m) 197.5 168.7 17.0% Underlying operating profit (£m) 23.5 17.2 36.9% Underlying pre-tax profit (£m) 20.0 15.2 32.0% Underlying basic earnings per share (p) 19.83 13.18 50.5% Dividends per share (p) 7.50 6.50 15.4% * A substantial increase in the number of digital photobooths, whose sales are much higher than for traditional photobooths, is planned to supplement the existing 20,000 photobooths directly operated. * The first 800 personalised post card machines were successfully installed and Photo-Me is confident of its ability to develop a substantial business from the vast global post card market. * The full benefit of the radical restructuring of Operations commenced in H2 following the appointment of Serge Crasnianski as CEO will only be shown in fiscal 2000. * Digital KIS minilabs should benefit substantially from the replacement by digital technology of the 144,000 minilabs worldwide. * In May 1999, BT signed an agreement to support Photo-Me's development of a UK network of multimedia photobooths with Internet access, and a rapid development of this business is planned. * In June 1999, the 49.8% minority interest in Photo-Me's Japanese subsidiary was purchased on what the Group considers to be very favourable terms. * Serge Crasnianski, Chief Executive, stated 'I am pleased to report that the year ended 30 April 1999 was a successful and eventful one for Photo-Me. For the first quarter of fiscal 2000, Operations revenues were up by an average of 18 per cent in the three key markets of the UK, France and Japan, yet these figures, and the results for fiscal 1999, reflect only a small part of both the huge technological advance Photo-Me has made and is making and the efficiency gains in its Operations. Accordingly, I look forward to reporting our continued progress in the implementation of our enhanced and already successful strategy.' There will be an analyst meeting at 0900 today at the offices of Greig Middleton, 30 Lombard Street, London EC3. Enquiries: Photo-Me International plc 01372-453399 Serge Crasnianski (CEO) 0171-655 4000 (until 3.00 pm)/or 00 33 6 11 95 63 63/00 33 6 85 82 96 03 (mobiles) Bankside Consultants Limited 0171-220 7477 Charles Ponsonby CHIEF EXECUTIVE'S STATEMENT INTRODUCTION I am pleased to report that the year ended 30 April 1999 was a successful and eventful one for Photo-Me. We improved margins and cash-flow, achieved record earnings per share before exceptional write-offs and, consequently, increased our dividend. As announced in May 1999, we made exceptional write- offs, totalling £29.4 million before tax and £15.0 million after tax and minorities, principally related to equipment made obsolete by our rapid development of digital technology. This strong financial result was based on progress in implementation of our corporate strategy in both our Operations and our Manufacturing activities. In particular, progress in our digital photobooth technology and in our strategic partnerships position Photo-Me to provide added benefits for its customers from the introduction of an Internet-driven product line. FINANCIAL OVERVIEW On turnover 17.0 per cent higher at £197.5 million, pre-tax profit (before exceptional items) increased by 32.0 per cent to £20.0 million. Underlying basic earnings per share were up 50.5 per cent at 19.83p, benefiting in part from a lower effective tax rate of 27.9 per cent (1998: 37.1 per cent). The Prontophot acquisitions contributed substantially to the increase in turnover, but rather less to the increase in profits, precise figures being unavailable due to the merging of the Prontophot activities with those of Photo-Me. The impact of movements in exchange rates assisted, with gains on exchange contributing £0.5 million (1998: £0.5 million loss). Continental Europe was Photo-Me's principal trading area, with the merging of the Prontophot companies increasing turnover by 34.5 per cent at £85.1 million (43 per cent of total turnover) and underlying pre-tax profit 25.9 per cent higher at £9.9 million. The UK and Republic of Ireland saw turnover increase by 12.1 per cent to £62.9 million (32 per cent of total turnover) and underlying pre-tax profit 83 per cent better at £9.3 million. Asia made an underlying profit of £2.8 million on a turnover of £35.4 million (18 per cent of total turnover), whilst the Americas lost an underlying £2.0 million on a turnover of £14.1 million (7 per cent of total turnover). Operations turnover increased substantially by 29.9 per cent to £158.3 million (80 per cent of total turnover), largely due to the acquisition of the Prontophot companies. Manufacturing turnover fell by 16.3 per cent to £39.2 million (20 per cent of total turnover) due to the completion in the first half of the year of the contract to supply equipment to Kodak in the USA, which had generated significant turnover in the previous year. DIVIDENDS A final dividend of 5.3p (1998: 4.5p) per share is proposed. If approved at the AGM on 20 October 1999, the dividend will be paid on 4 January 2000 to shareholders on the register at close of business on 29 October 1999. Together with the interim dividend of 2.2p (1998: 2.0p) per share, paid on 1 April 1999, dividends per share are increased by 15.4 per cent to 7.5p (1998: 6.5p) per share. OPERATIONS Digital technology contributed substantially to improvements in Operations. Sales from the digital Photovision photobooths are in excess of our budgets and, on a per machine basis, are much higher than from traditional machines. This sales increase is driven by the superior print quality and broader product offering of our digital photobooths (which deliver 4 ID photos, portraits and mini photographs, all in colour or black & white, plus a choice of fun pictures) compared to the colour ID and portrait photographs from traditional photobooths. In addition, we have successfully installed the first 800 personalised post card machines (which enable customers to superimpose their own photograph onto a stored image, which might be of a scenic location or of a scene from a new Disney film). To test our confidence in the ability of personalised post cards to generate substantial business from the vast global post card market - annually, the Japanese send four billion and the British and French each some 600 million - over the next 12 months Photo-Me is planning to install, in Ireland, the same number of post card machines as photobooths. Acquisitions and restructuring completed on time and on budget led to a sharp improvement in our Operations world-wide. We initiated on 1 May 1998 and completed by 31 October 1998 the integration of the Prontophot group business (most of which was acquired on 30 April 1998), which increased our number of directly operated photobooths by approximately 22 per cent. By acquiring and integrating into the Group all Prontophot's national subsidiaries in Austria, Switzerland, Germany, Belgium, the Netherlands, France, Ireland and the UK, we have provided a better service to site owners and customers and accelerated the renewal of machine technology with the installation of digital photobooths. In the UK, during the fiscal year we closed the Bookham factory, computerised the maintenance and cash accounting systems and reinforced the site owner focus of the commercial team. We are now well positioned to take full advantage of the new UK photocard driving licence which the DVLA began issuing to all categories of applicant in July 1999. We changed our management teams in the USA and Brazil, increased the number of photobooths in Brazil by shipments of existing, traditional technology machines from Europe, reduced staff by 30 per cent and increased site productivity. We anticipate profitability from these important markets in fiscal 2000. The Japanese subsidiary performed well in the fiscal year. We expect continued growth as Japan is also now benefiting from the renewal of photocard driving licences. With the acquisition in June 1999 of the 49.8 per cent minority interest in the Japanese subsidiary on what the Group considers to be very favourable terms (being a consideration of £25.2 million of which £23.0 million is in soon to be replaced, older generation photobooths), Japan has consolidated its position as one of Photo-Me's key three territories alongside the UK and France. In so far as the restructuring (other than in France and in connection with the integration of the Prontophot group business) only commenced following my appointment as Chief Executive Officer in late October 1998, the full benefit will only be shown in fiscal 2000. MANUFACTURING During the fiscal year, we strengthened our research and development activities, refocusing them on our digital technology. The choice we made in June 1997 of LCD (liquid crystal display) accelerator technology is now being endorsed by the successful introduction of our digital minilabs. Indeed, some of our leading competitors in minilab manufacturing are now abandoning earlier technology choices to embrace LCD accelerators, albeit with a substantial time lag relative to Photo-Me. The digital KIS minilab offers exciting prospects in two areas: in the renewal of all minilabs worldwide (of which there are some 144,000), since the great majority of new orders for minilabs next fiscal year are likely to be for digital ones, and in the possibility for photographs to be sent for processing over the Internet without any reduction in print quality. In May 1999, we entered into a commercial agreement with British Telecommunications to support our development of advanced technology multimedia photobooths. These new photobooths will provide UK customers with a free e-mail address and full e-mail facilities. They will be fully integrated into the Internet and may also provide telecommunications and e-commerce services. The initial roll out in the UK of 1,000 multimedia photobooths is expected by September 2000, and other territories will follow. To meet the demand for these new multimedia photobooths, which will also provide a full range of digital photo-based services, we have increased the production capacity and versatility of our Manufacturing facilities in Grenoble. EXCEPTIONAL ITEMS Against the background of changes in technology and an increasing range of services offered within photobooths (as exemplified by the development of the new multimedia photobooths), the Board announced in May 1999 that it had undertaken a review of its older generation photobooths under the recently introduced accounting standard FRS 11. As a result of this review, the Board made a non-recurring reduction to the written down value of older generation photobooths, stock and capitalised research and development expenditure as at 30 April 1999. This write down has been treated as an exceptional item and has no effect on group cash flows or anticipated takings. The resultant net book value of the photobooths affected will be written off over the next five years. The write down, together with restructuring costs, results in exceptional charges totalling £29.4 million before and £15.0 million after accounting for the effects of taxation and minority interests. Reflecting the write downs, year end shareholders' funds have decreased to £72.8 million from £77.8 million. BORROWINGS AND INTEREST During the fiscal year, net debt increased slightly by £3.3 million to £62.0 million, notwithstanding £37.8 million of capital expenditure, of which £32.7 million relates to Operations equipment. As a result of the increase in net debt combined with the reduction in net assets (before minority interests) resulting from the exceptional items, gearing has increased from 65 per cent to 75 per cent. A reduction in the level of indebtedness is expected in the current year. Net interest paid of £3.5 million (1998: £2.0 million) was covered 6.8 times (1998: 8.6 times) by underlying profit before interest and tax. STRATEGY In fiscal 2000 and the years immediately following, our strategy will be to: * increase Photo-Me's market presence and market leadership in terms of the number of sites and the diversity of our Internet-based product offerings from advanced technology photobooths. We anticipate 2,500 new photobooth sites in fiscal 2000 and 4,000 in fiscal 2001. Personalised post card machine installations should reach 1,500 by 30 April 2000 and 4,000 by the end of the following fiscal year; * develop rapidly our presence in telecommunications and Internet-based products through our partnership with British Telecommunications; and * capture increased market share in minilabs through the introduction of our DKS digital technology. PROSPECTS In the first quarter of fiscal 2000, Operations revenues were up by an average of 18 per cent in the three key markets of the UK, France and Japan, yet these figures, and the results for fiscal 1999, reflect only a small part of both the huge technological advance Photo-Me has made and is making and the efficiency gains in its Operations. Accordingly, I look forward to reporting our continued progress in the implementation of our enhanced and already successful strategy. Serge Crasnianski 17 August 1999 Chief Executive Officer CONSOLIDATED PROFIT AND LOSS ACCOUNT Notes Unaudited - Year to 30 April 1999 Before After Audited excep- Excep- excep- Year to tional tional tional items items items30 April £000 £000 £000 1998 (Note 3) £000 Turnover 1 Continuing operations and acquisitions* 197,506 - 197,506 168,738 ====== ====== ====== ====== Trading profit/(loss) 50,612 (5,591) 45,021 37,045 Depreciation (27,643)(21,556) (49,199)(19,413) Foreign exchange differences 482 - 482 (454) ------ ------ ------ ------ Group operating profit/(loss)* 23,451 (27,147) (3,696) 17,178 Share of operating profit of associates 68 - 68 - ------ ------ ------ ------ Total operating profit/(loss) 23,519 (27,147) (3,628) 17,178 Restructuring costs 3 - (2,278) (2,278) - Loss on disposal of group undertakings 3 - (7) (7) - Interest receivable 481 - 481 387 Interest payable (3,951) - (3,951) (2,377) ------ ------ ------ ------ Profit/(loss) on ordinary activities before taxation 2 20,049 (29,432) (9,383) 15,188 Tax on profit on ordinary activities 4 (5,591) 10,917 5,326 (5,629) ------ ------ ------ ------ Profit/(loss) on ordinary activities after taxation 14,458 (18,515) (4,057) 9,559 Minority interests - equity and non-equity interests (238) 3,546 3,308 (109) ------ ------ ------ ------ Profit/(loss) attributable to members of the holding company 14,220 (14,969) (749) 9,450 Dividends 5 (5,380) - (5,380) (4,661) ------ ------ ------ ------ Retained profit/(loss) for year 8,840 (14,969) (6,129) 4,789 ====== ====== ====== ====== Basic earnings per share 6 19.83p (20.87p) (1.04p) 13.18p Diluted earnings per share 6 19.69p (20.73p) (1.04p) 13.18p Gross cash inflow per share 7 69.92p - 69.92p 51.61p Dividends per share 5 7.50p - 7.50p 6.50p * As the acquisitions have been merged with existing operations, it is not possible to isolate turnover and profits arising from those acquisitions. CONSOLIDATED BALANCE SHEET Unaudited Audited 30 April 30 April 1999 1998 Notes £000 £000 Fixed assets Intangible assets - goodwill arising on acquisition 8 377 - - negative goodwill arising on acquisition 8 (268) - - other 8 5,095 8,432 Tangible assets 8 129,500 137,566 Investments 583 657 ------- ------- 135,287 146,655 ------- ------- Current assets Stocks 30,567 32,954 Debtors 30,275 44,515 Investments and short-term deposits 2,249 3,175 Cash at bank and in hand 6,955 4,759 ------- ------- 70,046 85,403 Creditors Amounts falling due within one year 72,962 92,330 ------- ------- Net current liabilities (2,916) (6,927) ------- ------- Total assets less current liabilities 132,371 139,728 Amounts falling due after more than one year 35,401 27,985 ------- ------- 96,970 111,743 Provision for liabilities and charges Provisions 2,181 1,697 Deferred taxation 12,416 20,106 ------- ------- 82,373 89,940 Minority interests - equity interests 8,765 11,413 - non-equity interests 780 731 ------- ------- 72,828 77,796 ====== ====== Capital and reserves Called-up share capital 1,994 1,994 Reserves: Share premium account 9 1,068 1,039 Capital reserves 9 10,834 16,323 Profit and loss account 9 58,932 58,440 ------- ------- 72,828 77,796 ====== ====== Shareholders' funds are attributable to: - equity interests 72,627 77,595 - non-equity interests 201 201 ------- ------- 72,828 77,796 ====== ====== GROUP CASH FLOW STATEMENT Notes Unaudited Audited Year to Year to 30 April 30 April 1999 1998 £000 £000 Net cash inflow from operating activities (a) 43,392 34,028 Returns on investments and servicing of finance (b) (3,497) (2,019) Taxation (2,868) (2,147) Capital expenditure and financial investment (c) (33,629) (36,621) Acquisitions and disposals 245 120 Dividends paid - equity shareholders (4,805) (3,943) ------- ------- Cash outflow before use of liquid resources and financing (1,162) (10,582) Management of liquid resources 737 312 Financing - increase in debt (d) 1,907 3,842 ------- ------- Increase/(decrease) in cash 1,482 (6,428) ------- ------- Notes (a) Cash flow from operating activities Trading profit 45,021 37,045 Non-cash charge relating to exceptional stock provisions 5,591 - Profit on sale of assets (474) (43) ------- ------- Gross cash inflow 50,138 37,002 Exceptional items - restructuring costs and profits on sale of group undertakings (2,285) - Net movement in working capital (4,461) (2,974) ------- ------- 43,392 34,028 ------- ------- (b)Returns on investments and servicing of finance Interest received 481 387 Interest paid (3,951) (2,377) Dividends paid to minority interests in subsidiary undertakings (27) (29) ------- ------- (3,497) (2,019) ------- ------- (c)Capital expenditure and financial investment Purchase of intangible and tangible assets (40,422) (37,937) Sale of tangible assets 6,793 1,316 ------- ------- (33,629) (36,621) ------- ------- (d)Financing - (decrease)/increase in debt New loans raised 28,700 21,465 Loans and finance leases repaid (26,822) (17,627) Share capital subscribed 29 4 ------- ------- 1,907 3,842 ------- ------- NOTES 1. Turnover Turnover was contributed as follows: Year to Year to 30 April 30 April 1999 1998 £000 £000 Area of activity Manufacturing Total sales 62,059 69,232 Sales to group undertakings (22,835) (22,364) ------- ------- 39,224 46,868 Operating 158,282 121,870 ------- ------- 197,506 168,738 ====== ====== Geographical area United Kingdom and Republic of Ireland 62,941 56,131 Overseas - Continental Europe 85,138 63,299 - The Americas 14,081 19,108 - Asia 35,346 30,200 ------- ------- 197,506 168,738 ====== ====== 2. Profit before tax (before exceptional items) Geographical area United Kingdom and Republic of Ireland 9,330 5,091 Overseas - Continental Europe 9,854 7,829 - The Americas (1,980) 79 - Asia 2,845 2,189 ------- ------- 20,049 15,188 ====== ====== 3. Exceptional Items The exceptional items in the year to 30 April 1999 relate to the impairment of old technology equipment, redundancy and other costs arising from the restructuring of operational activities worldwide. Impairment of old technology Stocks 5,591 Tangible assets 16,949 Intangible assets 4,607 21,556 ------- ------- 27,147 Restructuring and redundancy costs 2,278 ------- 29,425 Loss on disposal of group undertakings 7 ------- 29,432 ======= Year to Year to 30 April 30 April 1999 1998 £000 £000 4. Taxation United Kingdom 89 1,570 Overseas (5,415) 4,059 ------- ------- (5,326) 5,629 ====== ====== 5. Dividends Interim - 2.2p per share (1998: 2.0p) 1,578 1,434 Final - 5.3p per share (1998: 4.5p) 3,802 3,227 ------- ------- 5,380 4,661 ====== ====== The proposed final dividend of 5.3p (1998: 4.5p) per Ordinary Share will be paid on 4 January 2000 to shareholders on the register at the close of business on 29 October 1999. Year to 30 April 1999 Year to Before After 30 April excep- excep- 1998 tionals tionals 6. Earnings per share Basic earnings per share 19.83p (1.04p) 13.18p Diluted earnings per share 19.69p (1.04p) 13.18p The calculation of earnings per share is based on the following: (Loss)/Profit attributable to shareholders £14,220,000 (£749,000)£9,450,000 Number of issued Ordinary Shares - Basic 71,711,172 71,711,172 71,694,990 - Diluted 72,201,695 72,201,695 71,722,306 7. Gross cash inflow per share 69.92p 69.92p 51.61p The calculation of gross cash inflow per share is based on the following: Gross cash inflow £50,138,000 £50,138,000 £37,002,000 Number of issued Ordinary Shares 71,711,172 71,711,172 71,694,990 8. Fixed assets Intan- Intan- Intan-Tangible gible gible gible - Good- - Neg-- Other will ative Goodwill £000 £000 £000 £000 Net book value at 1 May 1998 - - 8,432 137,566 Exchange adjustment - - 26 2,020 Additions - new subsidiaries at net book value 377 (277) - 1,657 - operating equipment - - - 32,684 - other - - 2,666 5,072 Depreciation provided in the year - 9(6,029)(43,179) Disposals at net book value - - - (6,320) ------ ------ ------ ------ Net book value at 30 April 1999 377 (268) 5,095129,500 ====== ====== ====== ====== 9. Reserves Share Capital Profit Premium Reserves and Loss £000 £000 £000 Balance at 1 May 1998 1,039 16,323 58,440 Exchange adjustment - 352 261 Loss for year - - (6,129) Transfer between reserves - (5,841) 5,841 Goodwill - - 519 Arising on issue of shares 29 - - ------- ------- ------- Balance at 30 April 1999 1,068 10,834 58,932 ====== ====== ====== 10.Net debt 30 April 30 April 1999 1998 £000 £000 Net debt comprises: Bank overdrafts 15,578 14,919 Loans and finance leases due within one year 20,227 23,522 ------- ------- Debt due within one year 35,805 38,441 Loans and finance leases due after one year 35,351 27,930 ------- ------- 71,156 66,371 Cash at bank and in hand (6,955) (4,759) Current asset investments and short term deposits (2,249) (2,946) ------- ------- 61,952 58,666 ====== ====== 11.Copies of the Report and Accounts will be mailed to shareholders on 20 September 1999 and will be available from the Company's registered office at Church Road, Bookham, Surrey KT23 3EU (telephone: 01372-453399, fax: 01372-459064) after that date.

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