Interim Results
Photo-Me International PLC
12 January 2006
PHOTO-ME INTERNATIONAL PLC - INTERIM ANNOUNCEMENT
PMI, the FTSE 250 digital imaging company, announces its results for the half
year to 31 October 2005 (presented under IFRS), in which Vending, the larger of
PMI's two activities, made progress whilst Manufacturing produced a
disappointing result despite a good performance by the wholesale lab business.
Key Points - Financial
• On revenue down 6.1% at £108.5m, operating profit reduced by 10.0% to
£16.5m, resulting in an operating margin of 15.2% (2004: 15.9%).
• The first half benefited from the Bookham fire insurance credit of
£8.7m, of which £3.3m is included in operating profit (being in respect of
inventory that was destroyed) and £5.4m is treated as a non-operating
exceptional credit.
• Adjusted profit, before the non-operating exceptional credit and tax,
was 10.3% lower at £15.9m whilst adjusted EPS declined by 13.1% to 2.66p.
• Including the non-operating exceptional credit, a pre-tax profit of
£21.4m (2004: £17.8m), an interim record, up 20.2%, and basic earnings per share
of 3.99p (2004: 3.06p), up 30.4%, are reported.
• EBITDA (excluding the non-operating exceptional credit) amounted to
£28.3m (2004: £30.5m).
• The balance sheet further strengthened.
• Reflecting the Board's confidence in PMI's prospects and the record
reported interim pre-tax profit, an interim dividend per share of 1.0p (2004:
0.8p), up 25%, has been declared.
Key Points - Commercial
• As usual, Continental Europe accounted for over half of revenue and
profit.
• The Vending Division (which has an unrivalled network of 33,000 sites
worldwide) increased its revenue by 5.2% to £79.5m and contributed a
substantially increased profit (before Group overheads, non-operating
exceptional credit and tax) of £16.2m (2004: £11.7m).
• In the Manufacturing Division, turnover reduced by 27.3% to £29.0m
whilst profit (before Group overheads, non-operating exceptional credit and tax)
totalled £2.6m (2004: £9.2m).
• In recent months, PMI has made considerable technical and commercial
progress in Manufacturing, auguring well for the future. This has principally
been manifested in the exclusive supply agreement for minilabs in calendar 2006
with CVS Pharmacy, the sub-contracting agreement with Solectron for the DKS 3
minilab, and the acquisition of the assets of the wholesale lab division of
AgfaPhoto.
• The digital imaging market is widely predicted to sustain, in the
foreseeable future, the strong growth it has consistently achieved since its
establishment in the late 1990s, to PMI's advantage.
Serge Crasnianski, Chief Executive, stated: 'Since September, the expected
recovery from the poor trading by PMI's minilab Manufacturing activity, referred
to in the AGM Statement of 28 September 2005, has been delayed and is only now
beginning, with less than four months of the year outstanding. Whilst the Board
still expects a successful second half's trading by both Divisions, as
anticipated in the AGM Statement, it now believes that the pre-tax profit for
the year to 30 April 2006 (disregarding the non-operating exceptional credit)
will be 10-15% below last year's record reported result and well below current
market expectations. Prospects for the year to 30 April 2007 will be impacted by
starting from a lower base than hitherto expected, but remain encouraging.'
Legal Disclaimer:
Certain statements made in this announcement are forward looking statements.
Such statements are based on current expectations and are subject to a number of
risks and uncertainties that could cause actual events or results to differ
materially from these forward looking statements.
Presentation:
A presentation to investors and brokers' analysts will be given from 09.00 to
10.00 today at Regus, CityPoint, 1 Ropemaker Street, London EC2 (approximately
200 yards from Moorgate Station).
Enquiries:
Photo-Me International 01372-453 399
Vernon Sankey (Chairman)
Serge Crasnianski (CEO)
Jean-Luc Peurois (GFD)
Bankside Consultants
Charles Ponsonby 020-7367 8851 / 07789-202 312
CHIEF EXECUTIVE'S STATEMENT
In the half year to 31 October 2005, Vending, the larger of PMI's two
activities, made progress whilst Manufacturing's result was disappointing
despite a good performance by the wholesale lab business. This outcome is
consistent with indications of trading for the first four months of the year
given in the AGM Statement of 28 September 2005.
Since September, the expected recovery from the poor trading by PMI's minilab
Manufacturing activity, referred to in the AGM Statement, has been delayed and
is only now beginning, with less than four months of the year outstanding.
Whilst the Board still expects a successful second half's trading by both
Divisions, as anticipated in the AGM Statement, it now believes that the pre-tax
profit for the year to 30 April 2006 (disregarding the non-operating exceptional
credit) will be 10-15% below last year's record reported result and well below
current market expectations.
Meanwhile, in recent months, PMI has made considerable technical and commercial
progress in Manufacturing, auguring well for the future:
• the exclusive supply agreement for minilabs in calendar 2006 with CVS
Pharmacy, the US's largest retail pharmacy, represents the greatest ever
opportunity for PMI in the USA;
• the sub-contracting agreement with Solectron for the DKS 3 minilab will
permit the manufacture of third generation digital minilabs ahead of the
competition, at a highly competitive price; and
• the acquisition of the assets of the wholesale lab division of
AgfaPhoto will materially improve PMI's position in the wholesale lab market.
FINANCIAL REVIEW
The accompanying interim consolidated financial statements, for the half-year to
31 October 2005, are presented in accordance with International Financial
Reporting Standards ('IFRS'). Since this is the first period in respect of which
the Group has reported under IFRS, comparative figures for the half year to 31
October 2004 and for the year to 30 April 2005 have been restated. The effect on
both last year's interim Income Statement and the opening Balance Sheet has been
immaterial. For details of the impact of IFRS on these financial statements,
reference can be made to a further detailed document of today's date, which can
be viewed on the Company's website, www.photo-me.co.uk (Investor Relations
section - Company Results & Presentations, the document is referenced as
'Adoption of IFRS').
On revenue down 6.1% at £108.5m (2004: £115.5m), operating profit reduced by
10.0% to £16.5m (2004: £18.4m), resulting in an operating margin of 15.2% (2004:
15.9%).
With net finance cost unchanged at a charge of £0.6m and disregarding the
non-operating exceptional credit explained below, adjusted pre-tax profit was
10.3% lower at £15.9m (2004: £17.8m). On this basis, adjusted earnings per share
declined by 13.1% to 2.66p (2004: 3.06p).
The insurance credit, which was in respect of the destruction by fire of the
Bookham warehouse and workshop in December 2004, totalled £8.7m, before tax, and
is divided into two parts in the Income Statement. An amount of £3.3m (2004:
nil) is included in operating profit. This relates to the destruction of
inventory, held to fulfil a major contract, and to business interruption. A
further amount of £5.4m (2004: nil) is included below the operating profit line
as an exceptional non-operating credit. This relates to the destruction of
buildings and other tangible fixed assets, the profit arising due to the
insurance policy providing for replacement cost of assets.
Together, the two insurance credits gave rise to increases of 20.2% in the
reported pre-tax profit to £21.4m (2004: £17.8m), an interim record, and of
30.4% in reported basic earnings per share to 3.99p (2004: 3.06p). This higher
percentage also reflects a decrease in the effective tax rate to 30.6% from
36.8% as a result of the non-operating exceptional credit on the insurance claim
having a limited tax impact.
Again disregarding the non-operating exceptional credit, EBITDA amounted to
£28.3m (2004: £30.5m), which, although reflecting a 7.1% reduction, is still
substantial.
The balance sheet further strengthened. Equity capital and reserves increased to
£97.8m from £88.1m at 30 April 2005 and £86.2m at 31 October 2004. Cash and cash
equivalents less current borrowing decreased to £4.5m (30 April 2005: £10.9m; 31
October 2004: £7.9m), but non-current borrowing was slightly lower at £14.8m (30
April 2005: £16.7m; 31 October 2004: £17.6m). Consequently, gearing (defined as
net debt as a percentage of total equity) was 10.4% (30 April 2005: 6.5%; 31
October 2004: 11.1%). The increase in net debt in the period reflected capital
expenditure of £21.2m, payments to acquire businesses of £1.5m, and changes in
working capital of £14.3m (partly as a result of a debtor of £7.7m in respect of
the insurance claim, this amount being received in November 2005).
Dividend
Reflecting the Board's confidence in PMI's prospects and the record reported
interim pre-tax profit, an interim dividend per share of 1.0p (2004: 0.8p), up
25%, has been declared. The dividend will be paid on 3 May 2006 to shareholders
on the register on 3 March 2006, with an ex-dividend date of 1 March 2006.
BUSINESS REVIEW
Divisional Analysis of Revenue and Profit
Revenue Profit +
6 months to 31 Oct 2005 2004 2005 2004
£m £m £m £m
Vending 79.5 75.6 16.2 11.7
Manufacturing 29.0 39.9 2.6 9.2
Group overheads - - (2.9) (3.1)
Total 108.5 115.5 15.9 17.8
+ before non-operating exceptional item and tax
The 5% increase in Vending revenue reflected principally the siting of digital
media kiosks in France and kiddie rides in the UK. The 38% increase in Vending
profit also reflected cost savings in Japan following restructuring in the prior
year.
The 27% reduction in Manufacturing revenue is principally explained by the
considerable reduction in unit sales of minilabs, which has resulted in the 72%
decline in Manufacturing profit.
Vending accounted for 73% (2004: 65%) of Group revenue and 87% (2004: 56%) of
Group profit (before Group overheads).
Geographical Analysis of Revenue and Profit
Revenue Profit +
6 months to 31 Oct 2005 2004 2005 2004
£m £m £m £m
Continental Europe 56.5 70.2 10.5 16.7
UK & Republic of Ireland 34.9 28.7 6.2 3.3
Asia & Australia 15.7 14.9 2.3 1.1
USA 1.4 1.7 (0.2) (0.2)
Group overheads - - (2.9) (3.1)
Total 108.5 115.5 15.9 17.8
+ before non-operating exceptional item and tax
The 20% reduction in revenue and the 37% reduction in profit in Continental
Europe were both attributable to the Manufacturing activity.
The 22% increase in revenue in the UK & the Republic of Ireland derives mainly
from acquisitions of kiddie ride businesses. The 89% increase in profit in this
territory includes the £3.3m resulting from the insurance claim.
Continental Europe contributed 52% (2004: 61%) of Group revenue and 57% (2004:
80%) of Group profit (before Group overheads).
Vending
The Vending business comprises the operation of photobooths and other vending
equipment. Over the past 12 months, the total number of Vending sites worldwide
increased by approximately 6,000 (including 4,100 coin-operated kiddie rides and
other amusement equipment) to 33,000, including 20,400 photobooths. PMI is a
global company, operating in some 20 countries, with three major Vending
territories: France, the UK & the Republic of Ireland, and Japan - in all of
which it continues to enjoy a leading market position.
Geographical Analysis
Vending turnover in France (with 10,000 sites, including 6,100 photobooths, of
which 98% are digital) increased by 7%. The increase in the number of sites,
from 8,900 a year ago, reflects the siting of digital media kiosks. The
introduction of photographs on the national health identification card, giving
rise to 48 million replacement cards, is now expected to take effect in late,
rather than early, 2006.
Vending turnover in the UK & the Republic of Ireland (with 13,100 sites,
including 5,600 photobooths, of which 80% are digital) increased by 8%. The
increase in the number of sites of 4,200 relative to a year earlier mainly
reflects expansion in the area of kiddie rides, where PMI is now by far the UK's
leading manufacturer and operator, with over 5,300 rides sited. This follows the
acquisitions of Jolly Roger (Amusement Rides) Limited in May 2005 and certain
assets of RG Mitchell Limited in July 2005 for an aggregate consideration (net
of cash balances) of £4.5m. The two businesses acquired benefit from PMI's
photobooth maintenance infrastructure and site owner contacts.
Vending turnover in Japan (with 4,900 sites, including 4,800 photobooths, of
which 90% are digital) was unchanged, despite an increase of 500 in the number
of sites and an increase in the proportion of digital machines from 79%. Profits
were boosted by the related reduction in the maintenance workforce of one-third
during the previous financial year. The introduction in April 2006 of a new
generation of passports will represent a substantial opportunity (as all
passport holders in Japan will be obliged to seek immediate renewal), as will
the requirement from April 2007 for an ID card to purchase cigarettes from
vending machines which will affect Japan's 20 million smokers.
Digital Media Kiosks
Digital media kiosks are capable of printing from both digital cameras and
digital camera phones. They provide vending machine convenience and can be sited
at PMI's unrivalled network of locations worldwide or at retail locations.
During the period, manufacture was transferred to a sub-contractor in China, Via
System, reducing cost and permitting additional features. This, however, caused
a planned hiatus in the rollout, as a result of which machines in operation at
the period end totalled 2,300 (including 1,600 in France), compared to 900 a
year earlier. Revenues are satisfactory, despite the time taken to build up
takings from individual machines following their installation. By the year end,
it is expected that 4,500 digital media kiosks will be in operation within the
Group (including 3,000 in France).
Manufacturing
Manufacturing turnover primarily derives from the sale to third parties of
photo-processing equipment manufactured by PMI or by sub-contractors on its
behalf. PMI has a unique and comprehensive range covering all market segments,
from wholesale labs, to professional labs, to end-consumer vending kiosks. In
outputting terms, processing labs range from 250 to 20,000 prints per hour.
Wholesale Labs
The Group's wholesale lab business, Imaging Solutions, based near Zurich in
Switzerland, is involved in the development, manufacture, sale and technical
support of equipment and systems for high volume photo-finish laboratories (up
to 20,000 prints per hour).
In the half year, Imaging Solutions increased its turnover by 33% to £8.5m and
its profit, despite temporarily competitive market conditions.
With effect from the beginning of December 2005, PMI acquired from the Receiver
of AgfaPhoto the assets of its Munich-based wholesale lab division for a cash
consideration of £6.1m. Subsequently, AgfaPhoto's production line has been
closed and the remaining business is being run in tandem with Imaging Solutions.
The full benefit of the acquisition is expected to materialise in the next
financial year.
Professional Labs
A substantial majority of Manufacturing turnover is represented by sales of the
DKS 15xx range of minilabs. These minilabs, which since January 2004 have been
manufactured by the sub-contractor Flextronics in Poland, have an output ranging
from 800 to 1,500 prints per hour. For the last three years, unprecedently, they
have received the leading global trade show award for quality. Typically,
minilabs are sited in specialist photographic outlets, supermarkets and
pharmacies.
In the period, the global market for minilabs was extremely weak, to the
surprise of the industry, resulting in a c.40% reduction in its volumes. This
arose for two principal reasons:
• some major chains, in particular in the USA, deferred their capital
expenditure decisions since they were still operating substantial quantities of
analogue minilabs which were not fully depreciated; and
• the increased range of digital printing solutions available to
consumers gave rise to a price war in the market for digital prints. In this
context, many potential minilab buyers are awaiting the introduction of third
generation minilabs which they expect will give them improved payback.
In this temporarily depressed market, unit sales of minilabs in the half year
were considerably below those achieved in the half year to 31 October 2004.
In October, PMI signed a manufacture and supply agreement with Solectron
Corporation, a leading global provider of high-quality electronics
manufacturing. Under the agreement, whose minimum term is three years, Solectron
will manufacture, principally in Singapore, PMI's third generation DKS 3 digital
minilab. Volume production is expected to start in mid-2006. The agreement with
Solectron will permit the manufacture of an outstanding model - in terms of
maximum productivity (2,000 prints per hour), maximum format (12 x 18) and
minimum footprint (10.8 sq ft) - to be effected at a very keen price.
In early November, PMI signed an exclusive agreement for the supply of digital
minilabs in calendar 2006 with CVS, the largest retail pharmacy chain in the
USA, which operates over 5,400 retail and speciality pharmacy stores in 36
states. The agreement with CVS represents a major step in PMI's planned
penetration of the North American minilab market. PMI expects further progress
in this important market.
THE DIGITAL IMAGING MARKET
The digital imaging market is widely predicted to sustain in the foreseeable
future the strong growth it has consistently achieved since its establishment in
the late 1990s, to PMI's advantage:
• The number of digital cameras, in particular camera phones, in use
worldwide is expected to continue its strong growth. The projected increase is
from c.0.5 billion in 2005 to over 1.0 billion - equal to the number of analogue
cameras in 2004 - in 2008, of which more than half are camera phones (source:
GFK, I Gilliott Research, Photofinishing News).
• The quality of digital images is no longer a psychological block and
will continue to increase. 5 mega pixels is the current standard for digital
cameras, whilst over 3 mega pixels is estimated for more than half of camera
phones in 2008 (source: InfoTrends).
• Camera phones and digital cameras generate many more pictures per
household than analogue cameras - by factors of five and three, respectively, in
France in 2004 (source: API/Image Markets).
• The worldwide market for digital prints has increased from c. 1 billion
units in 2000 to c. 10 billion in 2005. A further increase to c. 30 billion
units in 2010 is projected (source: PMA Marketing Research).
• The steep decline in home printing of digital photographs (for reasons
of convenience, quality and price) is expected to continue. Usage in the USA has
already decreased from 90% in 2000 to 49% in 2005, in favour of retail printing,
which in that period increased from 6% to 40% (source: PMA Marketing Research).
• The worldwide proportion of digital photographs printed, c.17% in 2000
and c.39% in 2005, is expected to continue its advance (source: PMA Marketing
Research).
PROSPECTS
Market Opportunity
PMI remains uniquely placed to satisfy the need for digital printing solutions.
PMI's Vending activity operates much the largest network in the world of
photobooths and other imaging equipment, with the related maintenance
infrastructure. PMI's Manufacturing activity offers a complete range of high
quality, reasonably priced equipment targeted at each market segment, with a
limited number of competitors.
Vending
In the second half, Vending is expected to continue to trade successfully both
overall and in its three principal markets of France, the UK & Republic of
Ireland, and Japan.
Manufacturing
In the second half, a much improved performance is anticipated from minilab
Manufacturing, in large part reflecting the agreement with CVS. Following the
AgfaPhoto acquisition, the wholesale lab business is expected to generate
increased profits.
Overall
As indicated and explained at the beginning of my Statement, while the Board
still expects a successful second half's trading by both Divisions, it now
believes that the pre-tax profit for the year to 30 April 2006 (disregarding the
non-operating exceptional credit) will be 10-15% below last year's record
reported result and well below current market expectations.
Prospects for the year to 30 April 2007 will be impacted by starting from a
lower base than hitherto expected, but remain encouraging.
Serge Crasnianski
Chief Executive Officer 12 January 2006
Group income statement (unaudited)
for the six months ended 31 October 2005
Notes 6 months to 6 months to Year to
31 31
October October 30 April
2005 2004 2005
£' 000 £' 000 £' 000
---------------------------- ------- ---------- --------- ---------
Revenue 2 108,470 115,490 237,395
Cost of sales (84,640) (85,604) (177,820)
---------------------------- ------- ---------- --------- ---------
Gross profit 23,830 29,886 59,575
Administration
costs (11,219) (12,213) (25,771)
Other operating income 567 656 1,481
Profit on
insurance
recovery 3 3,331 - -
Share of operating profit of 14 25 6
associates ------- ---------- --------- ---------
----------------------------
Operating
profit 2 16,523 18,354 35,291
Investment income 47 126 61
Finance cost (628) (699) (1,411)
---------------------------- ------- ---------- --------- ---------
Profit before exceptional items and 15,942 17,781 33,941
tax
Exceptional
profit on
insurance
recovery 3 5,441 - -
---------------------------- ------- ---------- --------- ---------
Profit before tax 21,383 17,781 33,941
Taxation - UK (2,033) (113) (49)
- Overseas (4,518) (6,426) (10,971)
---------- --------- ---------
Total tax
charge 4 (6,551) (6,539) (11,020)
---------------------------- ------- ---------- --------- ---------
Profit for the period 14,832 11,242 22,921
---------------------------- ------- ---------- --------- ---------
Attributable to
- Equity shareholders of the 14,531 11,148 22,528
parent
- Minority interests 301 94 393
---------------------------- ------- ---------- --------- ---------
14,832 11,242 22,921
---------------------------- ------- ---------- --------- ---------
Basic earnings
per share
(total and
continuing) 5 3.99p 3.06p 6.18p
Diluted
earnings per
share (total
and
continuing) 5 3.93p 3.03p 6.12p
Dividend per
share 6 1.0p 0.8p 2.0p
Group balance sheet (unaudited)
as at 31 October 2005
Notes 31 October 31 October 30 April
2005 2004 2005
£' 000 £' 000 £' 000
------------------------ ------- ------------- ---------- ---------
Non-current assets
Goodwill 7 9,583 9,307 9,265
Other
intangible
assets 7 17,953 16,580 17,334
Property,
plant and
equipment 7 74,612 65,315 66,022
Investment
property 7 3,903 4,519 4,149
Investments in associates 192 234 206
Financial assets held to 346 359 348
maturity
Financial assets available for 58 49 58
sale
Deferred tax asset 455 1,188 1,087
Trade and other receivables 1,382 942 1,130
------------------------ ------- ------------- ---------- ---------
108,484 98,493 99,599
------------------------ ------- ------------- ---------- ---------
Current assets
Inventories 26,768 25,599 23,130
Trade and other receivables 42,958 38,942 40,425
Financial assets held to 6 70 6
maturity
Derivative financial 15 - 56
instruments
Financial assets available for 7 7 8,727
sale
Current tax 907 1,158 126
Cash and cash equivalents 26,615 20,790 24,879
------------------------ ------- ------------- ---------- ---------
97,276 86,566 97,349
------------------------ ------- ------------- ---------- ---------
Total assets 205,760 185,059 196,948
------------------------ ------- ------------- ---------- ---------
Equity
Capital and
reserves 8 97,792 86,160 88,073
Minority interests 1,482 936 1,188
------------------------ ------- ------------- ---------- ---------
Total equity 99,274 87,096 89,261
------------------------ ------- ------------- ---------- ---------
Non-current liabilities
Borrowings 14,806 17,550 16,673
Post-employment benefit 3,368 4,515 3,343
obligations
Provisions 67 328 162
Deferred tax liability 9,425 9,402 9,048
Trade and other payables 2,665 3,247 2,606
------------------------ ------- ------------- ---------- ---------
30,331 35,042 31,832
------------------------ ------- ------------- ---------- ---------
Current liabilities
Borrowings 22,146 12,885 14,017
Provisions 1,102 1,698 1,696
Current tax 5,499 7,694 9,843
Trade and other payables 47,408 40,644 50,299
------------------------ ------- ------------- ---------- ---------
76,155 62,921 75,855
------------------------ ------- ------------- ---------- ---------
Total equity and liabilities 205,760 185,059 196,948
------------------------ ------- ------------- ---------- ---------
Group statement of cash flows (unaudited)
for the six months ended 31 October 2005
Notes 6 months to 6 months to
31 31
October October
2005
2004
£'000 £'000
Net cash flow from operating activities
Operating profit 16,523 18,354
Non-operating exceptional item 5,441 -
Share of
operating
profit of
associates (14) (25)
Depreciation and amortisation 11,799 12,137
Loss on sale
of assets (241) (172)
Other non-cash movements 312 281
Exchange
differences (220) 733
Changes in
working
capital (14,266) (14,966)
-------------------------- ------ ---------- ----------
Cash generated from operations 19,334 16,342
Interest paid (856) (780)
Income tax
paid (10,707) (4,983)
-------------------------- ------ ---------- ----------
Net cash generated from operating activities 7,771 10,579
-------------------------- ------ ---------- ----------
Cash flows from investing activities
Purchase of
intangible
assets (3,613) (3,074)
Proceeds from sale of intangible assets - 98
Purchase of
property,
plant and
equipment (17,591) (18,394)
Proceeds from sale of property, plant and 640 931
equipment
Payments to
acquire
businesses (1,549) (2,462)
Interest received 247 216
Dividends received 47 55
-------------------------- ------ ---------- ----------
Net cash used
in investing
activities (21,819) (22,630)
-------------------------- ------ ---------- ----------
Cash flows from financing activities
Proceeds from issue of ordinary shares 115 -
Increased capital contributed by minorities - 11
Net movement
in borrowings (2,873) 1,852
Finance lease
repayments - (634)
Decrease in monetary funds 8,806 11,558
Dividends paid
to minorities - (19)
-------------------------- ------ ---------- ----------
Net cash from financing activities 6,048 12,768
-------------------------- ------ ---------- ----------
(Decrease)/inc
rease in cash
and cash
equivalents (8,000) 717
-------------------------- ------ ---------- ----------
Opening cash and cash equivalents (net of 22,958 14,673
overdrafts)
(Decrease)/inc
rease in cash
and cash
equivalents (8,000) 717
Effect of
foreign
exchange rate
changes (99) 463
-------------------------- ------ ---------- ----------
Closing cash
and cash
equivalents
(net of
overdrafts) 10 14,859 15,853
-------------------------- ------ ---------- ----------
Group statement of recognised income and expenses (unaudited)
for the six months ended 31 October 2005
6 months to 31 6 months to 31 Year to
October 2005 October 2004 30
April 2005
£'000 £'000 £'000
Actuarial loss
on defined
benefit
pension scheme - - (68)
Cash flow hedge gain - - 56
Cash flow
hedge
transferred to
income
statement (41) - -
Taxation on items taken directly 15 - -
to, or transferred from, equity ---------- --------- --------
Net expense
recognised
directly in
equity (26) - (12)
Profit for period 14,832 11,242 22,921
---------- --------- --------
Total recognised income for the 14,806 11,242 22,909
period ---------- --------- --------
Attributable to
- Equity shareholders of the 14,505 11,148 22,516
parent
- Minority interests 301 94 393
---------- --------- --------
14,806 11,242 22,909
---------- --------- --------
Notes to the interim report
1 Basis of preparation
The interim report for the six months ended 31 October 2005 has been prepared
under the Group's anticipated International Financial Reporting Standards
('IFRS') accounting policies for the year ending 30 April 2006. It includes
financial information for the year ended 30 April 2005 that is derived from the
statutory accounts that were originally prepared under UK Generally Accepted
Accounting Principles ('UK GAAP'). To assist shareholders in understanding the
impact of IFRS, note 11 provides a summary overview of the adjustments from the
previously published UK GAAP statements at 31 October 2004 and 30 April 2005.
Copies of the reconciliation statements and a summary of the main IFRS
accounting policies, along with further information on the transition to IFRS,
are available on the investor relations section of the Company's web site,
www.photo-me.co.uk (the document is referred to as 'Adoption of IFRS'). This
information can also be obtained by writing to the Company Secretary.
IFRS are continuing to evolve; through the issue and endorsement by the European
Commission of new standards and interpretations as well as possible amendment by
the IASB. Whilst the Group expects to use consistent accounting policies for the
preparation of the results for the year ending 30 April 2006, there is, however,
the possibility that accounting policies may have to be updated in order to
reflect new standards and interpretations.
The financial information was approved by the Board on 11 January 2006. The
financial information herein is unaudited and does not comprise the statutory
financial statements within the meaning of section 240 of the Companies Act 1985
(as amended). The UK GAAP figures for the year ended 30 April 2005, as appearing
in the UK GAAP-IFRS Reconciliation Statements (note 11), have been extracted
from the statutory financial statements which have been filed with the Registrar
of Companies. The auditor's report on those financial statements was unqualified
and did not contain a statement under Section 237 (2) or (3) of the Companies
Act 1985.
2 Segment analysis
In accordance with IAS 14 Segment Reporting, the primary reporting segments are
business activities and the secondary reporting segments are geographic areas.
The primary business segments are manufacturing, which consists of the
manufacture and selling of photo-processing equipment, and vending, which
comprises the operation of photobooths and other vending equipment including
digital media kiosks, photocopiers, express printing machines and children's
rides.
Analysis by
business activity
6 months to 6 months to Year to
31 31 30
October 2005 October 2004 April 2005
--------------- -------------- ------------
Revenue Profit Revenue Profit Revenue Profit
£'000 £'000 £'000 £'000 £'000 £'000
Results per
activity
(exc.finance cost)
- Manufacturing
-Total revenue 40,427 2,620 56,902 9,145 119,784 25,639
-Inter segment
eliminations (11,491) - (16,993) - (22,435) -
--------- ------- -------- ------- ------- -------
28,936 2,620 39,909 9,145 97,349 25,639
- Vending 79,534 16,551 75,581 11,850 140,046 16,198
- Group
overheads - (2,662) - (2,666) - (6,552)
--------- ------- -------- ------- ------- -------
108,470 16,509 115,490 18,329 237,395 35,285
--------- -------- -------
Share of profit of 14 25 6
associates ------- ------- -------
Group operating 16,523 18,354 35,291
profit
Net finance
cost (581) (573) (1,350)
Exceptional profit 5,441 - -
on insurance ------- ------- -------
recovery
Profit before tax 21,383 17,781 33,941
Taxation (6,551) (6,539) (11,020)
------- ------- -------
Profit for the 14,832 11,242 22,921
period ------- ------- -------
Analysis by
geographic area
6 months to 6 months to Year to
31 31 30
October 2005 October 2004 April 2005
--------------- -------------- ------------
Revenue by Revenue by Revenue by
origin Profit origin Profit origin Profit
£'000 £'000 £'000 £'000 £'000 £'000
Results per area
(inc.finance cost) ---
- Continental 56,445 10,513 70,245 16,673 142,683 31,028
Europe
- United Kingdom 34,937 11,645 28,648 3,278 60,789 7,667
and Republic of
Ireland
- Asia and 15,649 2,309 14,853 1,150 31,050 2,727
Australia
- United
States of
America 1,439 (237) 1,744 (240) 2,873 (16)
Group
overheads - (2,847) - (3,080) - (7,465)
--------- ------- -------- ------- ------- -------
108,470 21,383 115,490 17,781 237,395 33,941
--------- -------- -------
Taxation (6,551) (6,539) (11,020)
------- ------- -------
Profit for the 14,832 11,242 22,921
period ------- ------- -------
In the year to 30 April 2005, an exceptional item of £821,000 was included in
cost of sales in respect of restructuring in Japan.
The non-operating exceptional profit of £5,441,000 is included above in the
geographic analysis for the United Kingdom and Republic of Ireland.
3 Profits from insurance recoveries
Following the destruction by fire of the Bookham warehouse and workshop in
December 2004, agreement has now been reached on the resulting insurance claims.
The total settlement was for an amount of £17,700,000.
The insurance policy was on a replacement cost basis for non-current assets and
gave rise to a non-operating exceptional profit of £5,441,000 in the period. A
further profit of £3,331,000, relating to insurance settlement for the loss of
inventory held to fulfil a major contract and for business interruption, is
included in operating profit.
The Group's insurers had paid £10,000,000 on account of the claims by April
2005. The final settlement of £7,700,000 was received in November 2005.
A deferred tax charge of £616,000 arose on the exceptional profit of £5,441,000
above. On the £3,331,000 further profit included in operating profit, a tax
charge of £999,000 arose, comprising deferred tax of £835,000 and current tax of
£164,000.
4 Taxation
6 months to 31 6 months to 31 Year to
October 2005 October 2004 30
April 2005
£'000 £'000 £'000
Taxation charged in period
United Kingdom 2,033 113 49
Overseas 4,518 6,426 10,971
--------- --------- --------
6,551 6,539 11,020
--------- --------- --------
5 Earnings per share
6 months to 31 6 months to 31 Year to
October 2005 October 2004 30
April 2005
Basic earnings
per share 3.99p 3.06p 6.18p
Diluted
earnings per
share 3.93p 3.03p 6.12p
Adjusted basic
earnings per
share 2.66p 3.06p 6.18p
Adjusted
diluted
earnings per
share 2.63p 3.03p 6.12p
The calculation of earnings per
share is based on the following:
Earnings
available to
ordinary
shareholders
(£'000) 14,531 11,148 22,528
Adjusted
earnings
available to
ordinary
shareholders
(£'000) 9,706 11,148 22,528
Weighted average number of shares
in issue in the period
- basic ('000) 364,326 364,252 364,25
- including
dilutive share
options ('000) 369,724 367,908 367,95
Basic earnings per share is calculated as the profit for the period attributable
to ordinary shareholders of the Company, divided by the weighted average number
of shares in issue during the period.
The Group has issued a number of share options to
the Group's employees, which are potentially
dilutive.
The additional earnings per share figure is shown to reflect basic earnings per
share after having excluded the post tax impact of the non-operating exceptional
profit on the insurance recovery.
6 Dividends
6 months to 31 6 months to 31 Year to 30
October 2005 October 2004 April 2005
£'000 £'000 £'000
Dividends
charged in
the period
First and final dividend for - - 3,643
year ended 30 April 2004 of
1.0p per share
Interim - - 2,914
dividend for
year ended
30 April
2005 of 0.8p
per share
Final 4,373 - -
dividend for -------- --------- --------
year ended
30 April
2005 of 1.2p
per share
4,373 - 6,557
-------- --------- --------
Dividends proposed for
approval (not recognised as
a liability at period end)
Interim - 2,914 -
dividend for
year ended
30 April
2005 of 0.8p
per share
Final - - 4,371
dividend for
year ended
30 April
2005 of 1.2p
per share
Interim 3,644 - -
dividend for -------- --------- --------
year ended
30 April
2006 of 1.0p
per share
3,644 2,914 4,371
-------- --------- --------
The first and final dividend for the year to 30 April
2004 of 1.0p per share was paid on 22 November 2004.
The interim dividend for the year to 30 April 2005 was paid on 8 April 2005 and the
proposed final dividend was approved at the Annual General Meeting held on 28
September 2005 and was paid on 2 November 2005.
The interim dividend for the year to 30 April 2006 will be paid on 3 May 2006 to
shareholders on the register on 3 March 2006.
7 Non-current assets - intangibles, property, plant and equipment and
investment property.
Goodwill Other Property, plant Investment
intangible & equipment property
assets
£'000 £'000 £'000 £'000
Net book 9,265 17,334 66,022 4,149
value at 1
May 2005
Exchange
adjustment 1 17 (323) 6
Additions
- vending - - 16,111 -
equipment
- other - 3,613 1,665 -
external
additions
- other 317 - 233 -
subsidiaries
acquired
Depreciation
provided in
the period - (2,990) (8,557) (252)
Disposals at
net book - (21) (539) -
value ------- -------- --------- --------
Net book 9,583 17,953 74,612 3,903
value at 31 ------- -------- --------- --------
October
2005
Vending additions include
finance leased assets of
£185,000.
8 Equity Share capital Share Other Profit and loss Total capital
premium reserves account and reserves
£'000 £'000 £'000 £'000 £'000
Balance at 1 2,022 3,487 2,536 80,028 88,073
May 2005
Issue of 1 114 - - 115
shares
Profit for - - - 14,531 14,531
period
Dividends - - - (4,373) (4,373)
paid
Exchange
difference - - (677) - (677)
Other
movements - - (1,486) 1,446 (40)
IFRS 2 Share - - - 163 163
options ------- ------- -------- --------- --------
Balance at 2,023 3,601 373 91,795 97,792
31 October ------- ------- -------- --------- --------
2005
9 Acquisition of business
On 27 May 2005, the Company acquired 100% of the issued share capital of Jolly
Roger (Amusement Rides) Limited, a manufacturer of quality coin-operated
children's rides, for a total consideration of £1.55m, payable in instalments.
As a result of this acquisition, goodwill of £317,000 has been recognised.
In addition, on 8 July 2005, the Company acquired property, plant and equipment
(including more than 3,400 kiddie rides) from R G Mitchell Limited.
As a result of these acquisitions, the Group has significantly strengthened its
presence in the children's ride market.
10 Cash and cash equivalents
31 October 2005 31 October 2004
Cash and cash equivalents 26,615 20,790
Less bank overdraft shown in (11,756) (4,937)
borrowings ---------- ----------
Balance per cash flow 14,859 15,853
---------- ----------
11 Reconciliation of UK GAAP to IFRS
Detailed statements for the income statement (profit and loss account) and
balance sheet reconciling the UK GAAP figures to the IFRS figures are shown in
separate statements, which are published on the Company's web site
www.photo-me.co.uk under the investor relations section.
A summary of the differences is shown below.
Income statement
6 Months to Year to
31 30
October 2004 April 2005
£'000 £'000
Revenue under UK GAAP 117,669 235,972
IFRS adjustment re
exchange rates (2,179) 1,661
IFRS adjustment re joint
venture revenue - (238)
--------- --------
Revenue restated under IFRS 115,490 237,395
--------- --------
Operating profit under UK GAAP 18,515 34,311
IFRS adjustments re
exchange rates (495) 336
IFRS adjustment re goodwill amortisation 295 597
Other IFRS adjustments 39 47
--------- --------
Operating profit restated under IFRS 18,354 35,291
--------- --------
Profit before tax under UK GAAP 18,002 33,037
IFRS adjustment re
exchange rates (492) 330
IFRS adjustment re goodwill amortisation 295 597
Other IFRS adjustments (24) (23)
--------- --------
Profit before tax restated under IFRS 17,781 33,941
--------- --------
Taxation under UK GAAP (6,748) (10,910)
IFRS adjustment re
exchange rates 202 (115)
Other IFRS adjustments 7 5
--------- --------
Taxation restated under
IFRS (6,539) (11,020)
--------- --------
Profit after tax under UK GAAP 11,254 22,127
IFRS adjustments re
exchange rates (290) 215
IFRS adjustments re goodwill amortisation 295 597
Other IFRS adjustments (17) (18)
--------- --------
Profit after tax restated under IFRS 11,242 22,921
--------- --------
The most significant adjustments arising from the transition to IFRS are:
IAS 21 adjustment re exchange rates
Under IFRS the income statements of overseas subsidiaries, associates and joint
ventures are translated at weighted average exchange rates, whereas previously
under UK GAAP they were translated at the balance sheet exchange rate.
IAS 31 adjustment re joint ventures
Under IFRS the Group has consolidated its investment in the joint venture on a
line by line basis for the income statement and balance sheet. IFRS requires an
adjustment to eliminate transactions with the joint venture on a proportionate
basis. Under UK GAAP the Group consolidated the appropriate share of results of
the joint venture.
IFRS 3 adjustment re goodwill
Under IFRS goodwill is no longer amortised, but is subject to impairment
testing, whereas under UK GAAP goodwill was amortised over its estimated useful
life.
11 Reconciliation of UK GAAP to IFRS (continued)
Balance sheet
30 April 31 October 30 April
2004 2005
2004
£'000 £'000 £'000
Total assets (fixed assets and current assets) 173,020 184,737 196,116
under UK GAAP
IFRS adjustment re employee benefits 128 120 132
IFRS adjustment re goodwill amortisation - 295 597
Other IFRS adjustments (88) (93) 103
-------- --------- --------
Total assets (non-current and current assets) 173,060 185,059 196,948
restated under IFRS -------- --------- --------
Total equity (shareholders' funds and minority 71,650 81,398 85,427
interests) under UK GAAP
IFRS adjustment re employee
benefits (299) (280) (309)
IFRS adjustment re
non-equity minority interest (803) (786) (763)
IFRS adjustment re dividends 3,643 6,555 4,371
IFRS adjustment re goodwill - 295 597
Other IFRS adjustments (57) (86) (62)
-------- --------- --------
Total equity restated under IFRS 74,134 87,096 89,261
-------- --------- --------
Total liabilities (creditors and provisions) 101,370 103,339 110,689
under UK GAAP
IFRS adjustment re employee benefits 427 400 441
IFRS adjustment re non-equity minority interest 803 786 763
IFRS adjustment re dividends (3,643) (6,555) (4,371)
Other IFRS adjustments (31) (7) 165
-------- --------- --------
Total liabilities (non-current and current 98,926 97,963 107,687
liabilities) restated under IFRS -------- --------- --------
The most significant adjustments arising form the
transition to IFRS are:
IAS 19 adjustment re employee benefits
The Group has decided to reflect the full deficit on the Company's defined
benefit pension fund in the balance sheet at 30 April 2004, being £427,000 shown
in total liabilities, less the related deferred tax asset of £128,000 shown in
total assets. Subsequent balance sheets reflect the movement in the pension fund
deficit.
IAS 32 and 39 adjustment re non-equity minority
interests
Under the IFRS balance sheet, equity includes shareholders' funds and minority
interests. Non-equity minority interests do not exist under IFRS and have been
reclassified as liabilities.
IAS 10 adjustment re dividends
Under IFRS, dividends proposed at the balance sheet date but not yet approved
are not included in creditors nor charged to the income statement.
11 Reconciliation of UK GAAP to IFRS
(continued)
Explanation of transition to IFRS
The reconciliation of profit for the 6 months ended 31 October 2004 and the
reconciliation of equity as at 31 October 2004, as required by IFRS 1, are
shown below.
Reconciliation of profit
6 months to
31 October 2004
---------------
Operating Net profit
profit
£'000 £'000
Profit for the period under UK GAAP 18,515 11,254
Adjustments:
Exchange difference (IAS21) (495) (290)
Reversal of goodwill amortisation (IFRS 3) 295 295
Other IFRS adjustments 39 (17)
-------- ---------
Profit restated under IFRS 18,354 11,242
-------- ---------
Reconciliation of equity
31 October 2004
£'000
Equity under UK GAAP 81,398
Adjustments:
Employee benefits (IAS19) (280)
Non-equity minority interests (IAS32/39) (786)
Dividends (IAS10) 6,555
Reversal of goodwill amortisation (IFRS 3) 295
Other IFRS adjustments (86)
---------
Equity restated under IFRS 87,096
---------
12 Copies of the Interim Report
Copies of the Interim Report will be mailed to shareholders on 31 January
2006 and from that date will be available from the Company's Registered
Office at Church Road, Bookham, Surrey KT23 3EU (tel:01372-453399).
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