12th Jan 2006 07:01
Photo-Me International PLC12 January 2006 PHOTO-ME INTERNATIONAL PLC - INTERIM ANNOUNCEMENT PMI, the FTSE 250 digital imaging company, announces its results for the halfyear to 31 October 2005 (presented under IFRS), in which Vending, the larger ofPMI's two activities, made progress whilst Manufacturing produced adisappointing 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 ofinventory that was destroyed) and £5.4m is treated as a non-operatingexceptional 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 shareof 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 recordreported 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 andprofit. • The Vending Division (which has an unrivalled network of 33,000 sitesworldwide) increased its revenue by 5.2% to £79.5m and contributed asubstantially increased profit (before Group overheads, non-operatingexceptional credit and tax) of £16.2m (2004: £11.7m). • In the Manufacturing Division, turnover reduced by 27.3% to £29.0mwhilst 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 commercialprogress in Manufacturing, auguring well for the future. This has principallybeen manifested in the exclusive supply agreement for minilabs in calendar 2006with CVS Pharmacy, the sub-contracting agreement with Solectron for the DKS 3minilab, and the acquisition of the assets of the wholesale lab division ofAgfaPhoto. • The digital imaging market is widely predicted to sustain, in theforeseeable future, the strong growth it has consistently achieved since itsestablishment in the late 1990s, to PMI's advantage. Serge Crasnianski, Chief Executive, stated: "Since September, the expectedrecovery from the poor trading by PMI's minilab Manufacturing activity, referredto in the AGM Statement of 28 September 2005, has been delayed and is only nowbeginning, with less than four months of the year outstanding. Whilst the Boardstill expects a successful second half's trading by both Divisions, asanticipated in the AGM Statement, it now believes that the pre-tax profit forthe 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 currentmarket expectations. Prospects for the year to 30 April 2007 will be impacted bystarting 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 ofrisks and uncertainties that could cause actual events or results to differmaterially from these forward looking statements. Presentation: A presentation to investors and brokers' analysts will be given from 09.00 to10.00 today at Regus, CityPoint, 1 Ropemaker Street, London EC2 (approximately200 yards from Moorgate Station). Enquiries: Photo-Me International 01372-453 399Vernon Sankey (Chairman)Serge Crasnianski (CEO)Jean-Luc Peurois (GFD) Bankside ConsultantsCharles 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 twoactivities, made progress whilst Manufacturing's result was disappointingdespite a good performance by the wholesale lab business. This outcome isconsistent with indications of trading for the first four months of the yeargiven in the AGM Statement of 28 September 2005. Since September, the expected recovery from the poor trading by PMI's minilabManufacturing activity, referred to in the AGM Statement, has been delayed andis only now beginning, with less than four months of the year outstanding.Whilst the Board still expects a successful second half's trading by bothDivisions, as anticipated in the AGM Statement, it now believes that the pre-taxprofit for the year to 30 April 2006 (disregarding the non-operating exceptionalcredit) will be 10-15% below last year's record reported result and well belowcurrent market expectations. Meanwhile, in recent months, PMI has made considerable technical and commercialprogress in Manufacturing, auguring well for the future: • the exclusive supply agreement for minilabs in calendar 2006 with CVSPharmacy, the US's largest retail pharmacy, represents the greatest everopportunity for PMI in the USA; • the sub-contracting agreement with Solectron for the DKS 3 minilab willpermit the manufacture of third generation digital minilabs ahead of thecompetition, at a highly competitive price; and • the acquisition of the assets of the wholesale lab division ofAgfaPhoto will materially improve PMI's position in the wholesale lab market. FINANCIAL REVIEW The accompanying interim consolidated financial statements, for the half-year to31 October 2005, are presented in accordance with International FinancialReporting Standards ("IFRS"). Since this is the first period in respect of whichthe Group has reported under IFRS, comparative figures for the half year to 31October 2004 and for the year to 30 April 2005 have been restated. The effect onboth last year's interim Income Statement and the opening Balance Sheet has beenimmaterial. 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 canbe viewed on the Company's website, www.photo-me.co.uk (Investor Relationssection - 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 by10.0% 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 thenon-operating exceptional credit explained below, adjusted pre-tax profit was10.3% lower at £15.9m (2004: £17.8m). On this basis, adjusted earnings per sharedeclined by 13.1% to 2.66p (2004: 3.06p). The insurance credit, which was in respect of the destruction by fire of theBookham warehouse and workshop in December 2004, totalled £8.7m, before tax, andis 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 ofinventory, held to fulfil a major contract, and to business interruption. Afurther amount of £5.4m (2004: nil) is included below the operating profit lineas an exceptional non-operating credit. This relates to the destruction ofbuildings and other tangible fixed assets, the profit arising due to theinsurance policy providing for replacement cost of assets. Together, the two insurance credits gave rise to increases of 20.2% in thereported pre-tax profit to £21.4m (2004: £17.8m), an interim record, and of30.4% in reported basic earnings per share to 3.99p (2004: 3.06p). This higherpercentage also reflects a decrease in the effective tax rate to 30.6% from36.8% as a result of the non-operating exceptional credit on the insurance claimhaving 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 stillsubstantial. 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 cashequivalents less current borrowing decreased to £4.5m (30 April 2005: £10.9m; 31October 2004: £7.9m), but non-current borrowing was slightly lower at £14.8m (30April 2005: £16.7m; 31 October 2004: £17.6m). Consequently, gearing (defined asnet debt as a percentage of total equity) was 10.4% (30 April 2005: 6.5%; 31October 2004: 11.1%). The increase in net debt in the period reflected capitalexpenditure of £21.2m, payments to acquire businesses of £1.5m, and changes inworking capital of £14.3m (partly as a result of a debtor of £7.7m in respect ofthe insurance claim, this amount being received in November 2005). Dividend Reflecting the Board's confidence in PMI's prospects and the record reportedinterim pre-tax profit, an interim dividend per share of 1.0p (2004: 0.8p), up25%, has been declared. The dividend will be paid on 3 May 2006 to shareholderson 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 £mVending 79.5 75.6 16.2 11.7Manufacturing 29.0 39.9 2.6 9.2Group 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 digitalmedia kiosks in France and kiddie rides in the UK. The 38% increase in Vendingprofit also reflected cost savings in Japan following restructuring in the prioryear. The 27% reduction in Manufacturing revenue is principally explained by theconsiderable 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%) ofGroup profit (before Group overheads). Geographical Analysis of Revenue and Profit Revenue Profit +6 months to 31 Oct 2005 2004 2005 2004 £m £m £m £mContinental Europe 56.5 70.2 10.5 16.7UK & Republic of Ireland 34.9 28.7 6.2 3.3Asia & Australia 15.7 14.9 2.3 1.1USA 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 ContinentalEurope were both attributable to the Manufacturing activity. The 22% increase in revenue in the UK & the Republic of Ireland derives mainlyfrom acquisitions of kiddie ride businesses. The 89% increase in profit in thisterritory 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 vendingequipment. Over the past 12 months, the total number of Vending sites worldwideincreased by approximately 6,000 (including 4,100 coin-operated kiddie rides andother amusement equipment) to 33,000, including 20,400 photobooths. PMI is aglobal company, operating in some 20 countries, with three major Vendingterritories: France, the UK & the Republic of Ireland, and Japan - in all ofwhich it continues to enjoy a leading market position. Geographical Analysis Vending turnover in France (with 10,000 sites, including 6,100 photobooths, ofwhich 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. Theintroduction of photographs on the national health identification card, givingrise 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%. Theincrease in the number of sites of 4,200 relative to a year earlier mainlyreflects expansion in the area of kiddie rides, where PMI is now by far the UK'sleading manufacturer and operator, with over 5,300 rides sited. This follows theacquisitions of Jolly Roger (Amusement Rides) Limited in May 2005 and certainassets of RG Mitchell Limited in July 2005 for an aggregate consideration (netof cash balances) of £4.5m. The two businesses acquired benefit from PMI'sphotobooth maintenance infrastructure and site owner contacts. Vending turnover in Japan (with 4,900 sites, including 4,800 photobooths, ofwhich 90% are digital) was unchanged, despite an increase of 500 in the numberof sites and an increase in the proportion of digital machines from 79%. Profitswere boosted by the related reduction in the maintenance workforce of one-thirdduring the previous financial year. The introduction in April 2006 of a newgeneration of passports will represent a substantial opportunity (as allpassport holders in Japan will be obliged to seek immediate renewal), as willthe requirement from April 2007 for an ID card to purchase cigarettes fromvending machines which will affect Japan's 20 million smokers. Digital Media Kiosks Digital media kiosks are capable of printing from both digital cameras anddigital camera phones. They provide vending machine convenience and can be sitedat PMI's unrivalled network of locations worldwide or at retail locations. During the period, manufacture was transferred to a sub-contractor in China, ViaSystem, reducing cost and permitting additional features. This, however, causeda planned hiatus in the rollout, as a result of which machines in operation atthe period end totalled 2,300 (including 1,600 in France), compared to 900 ayear earlier. Revenues are satisfactory, despite the time taken to build uptakings from individual machines following their installation. By the year end,it is expected that 4,500 digital media kiosks will be in operation within theGroup (including 3,000 in France). Manufacturing Manufacturing turnover primarily derives from the sale to third parties ofphoto-processing equipment manufactured by PMI or by sub-contractors on itsbehalf. PMI has a unique and comprehensive range covering all market segments,from wholesale labs, to professional labs, to end-consumer vending kiosks. Inoutputting 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 inSwitzerland, is involved in the development, manufacture, sale and technicalsupport of equipment and systems for high volume photo-finish laboratories (upto 20,000 prints per hour). In the half year, Imaging Solutions increased its turnover by 33% to £8.5m andits profit, despite temporarily competitive market conditions. With effect from the beginning of December 2005, PMI acquired from the Receiverof AgfaPhoto the assets of its Munich-based wholesale lab division for a cashconsideration of £6.1m. Subsequently, AgfaPhoto's production line has beenclosed and the remaining business is being run in tandem with Imaging Solutions.The full benefit of the acquisition is expected to materialise in the nextfinancial year. Professional Labs A substantial majority of Manufacturing turnover is represented by sales of theDKS 15xx range of minilabs. These minilabs, which since January 2004 have beenmanufactured by the sub-contractor Flextronics in Poland, have an output rangingfrom 800 to 1,500 prints per hour. For the last three years, unprecedently, theyhave received the leading global trade show award for quality. Typically,minilabs are sited in specialist photographic outlets, supermarkets andpharmacies. In the period, the global market for minilabs was extremely weak, to thesurprise of the industry, resulting in a c.40% reduction in its volumes. Thisarose for two principal reasons: • some major chains, in particular in the USA, deferred their capitalexpenditure decisions since they were still operating substantial quantities ofanalogue minilabs which were not fully depreciated; and • the increased range of digital printing solutions available toconsumers gave rise to a price war in the market for digital prints. In thiscontext, many potential minilab buyers are awaiting the introduction of thirdgeneration minilabs which they expect will give them improved payback. In this temporarily depressed market, unit sales of minilabs in the half yearwere considerably below those achieved in the half year to 31 October 2004. In October, PMI signed a manufacture and supply agreement with SolectronCorporation, a leading global provider of high-quality electronicsmanufacturing. Under the agreement, whose minimum term is three years, Solectronwill manufacture, principally in Singapore, PMI's third generation DKS 3 digitalminilab. Volume production is expected to start in mid-2006. The agreement withSolectron will permit the manufacture of an outstanding model - in terms ofmaximum productivity (2,000 prints per hour), maximum format (12 x 18) andminimum 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 digitalminilabs in calendar 2006 with CVS, the largest retail pharmacy chain in theUSA, which operates over 5,400 retail and speciality pharmacy stores in 36states. The agreement with CVS represents a major step in PMI's plannedpenetration of the North American minilab market. PMI expects further progressin this important market. THE DIGITAL IMAGING MARKET The digital imaging market is widely predicted to sustain in the foreseeablefuture the strong growth it has consistently achieved since its establishment inthe late 1990s, to PMI's advantage: • The number of digital cameras, in particular camera phones, in useworldwide is expected to continue its strong growth. The projected increase isfrom c.0.5 billion in 2005 to over 1.0 billion - equal to the number of analoguecameras 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 andwill continue to increase. 5 mega pixels is the current standard for digitalcameras, whilst over 3 mega pixels is estimated for more than half of cameraphones in 2008 (source: InfoTrends). • Camera phones and digital cameras generate many more pictures perhousehold than analogue cameras - by factors of five and three, respectively, inFrance in 2004 (source: API/Image Markets). • The worldwide market for digital prints has increased from c. 1 billionunits in 2000 to c. 10 billion in 2005. A further increase to c. 30 billionunits in 2010 is projected (source: PMA Marketing Research). • The steep decline in home printing of digital photographs (for reasonsof convenience, quality and price) is expected to continue. Usage in the USA hasalready 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 2000and c.39% in 2005, is expected to continue its advance (source: PMA MarketingResearch). 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 ofphotobooths and other imaging equipment, with the related maintenanceinfrastructure. PMI's Manufacturing activity offers a complete range of highquality, reasonably priced equipment targeted at each market segment, with alimited number of competitors. Vending In the second half, Vending is expected to continue to trade successfully bothoverall and in its three principal markets of France, the UK & Republic ofIreland, and Japan. Manufacturing In the second half, a much improved performance is anticipated from minilabManufacturing, in large part reflecting the agreement with CVS. Following theAgfaPhoto acquisition, the wholesale lab business is expected to generateincreased profits. Overall As indicated and explained at the beginning of my Statement, while the Boardstill expects a successful second half's trading by both Divisions, it nowbelieves that the pre-tax profit for the year to 30 April 2006 (disregarding thenon-operating exceptional credit) will be 10-15% below last year's recordreported result and well below current market expectations. Prospects for the year to 30 April 2007 will be impacted by starting from alower base than hitherto expected, but remain encouraging. Serge CrasnianskiChief 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 activitiesOperating profit 16,523 18,354Non-operating exceptional item 5,441 -Share ofoperatingprofit ofassociates (14) (25)Depreciation and amortisation 11,799 12,137Loss on saleof assets (241) (172)Other non-cash movements 312 281Exchangedifferences (220) 733Changes inworkingcapital (14,266) (14,966)-------------------------- ------ ---------- ----------Cash generated from operations 19,334 16,342Interest paid (856) (780)Income taxpaid (10,707) (4,983)-------------------------- ------ ---------- ----------Net cash generated from operating activities 7,771 10,579-------------------------- ------ ---------- ---------- Cash flows from investing activitiesPurchase ofintangibleassets (3,613) (3,074)Proceeds from sale of intangible assets - 98Purchase ofproperty,plant andequipment (17,591) (18,394)Proceeds from sale of property, plant and 640 931equipmentPayments toacquirebusinesses (1,549) (2,462)Interest received 247 216Dividends received 47 55-------------------------- ------ ---------- ----------Net cash usedin investingactivities (21,819) (22,630)-------------------------- ------ ---------- ---------- Cash flows from financing activitiesProceeds from issue of ordinary shares 115 -Increased capital contributed by minorities - 11Net movementin borrowings (2,873) 1,852Finance leaserepayments - (634)Decrease in monetary funds 8,806 11,558Dividends paidto minorities - (19)-------------------------- ------ ---------- ----------Net cash from financing activities 6,048 12,768-------------------------- ------ ---------- ---------- (Decrease)/increase in cashand cashequivalents (8,000) 717-------------------------- ------ ---------- ---------- Opening cash and cash equivalents (net of 22,958 14,673overdrafts)(Decrease)/increase in cashand cashequivalents (8,000) 717Effect offoreignexchange ratechanges (99) 463-------------------------- ------ ---------- ----------Closing cashand cashequivalents(net ofoverdrafts) 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 losson definedbenefitpension scheme - - (68)Cash flow hedge gain - - 56Cash flowhedgetransferred toincomestatement (41) - -Taxation on items taken directly 15 - -to, or transferred from, equity ---------- --------- --------Net expenserecogniseddirectly inequity (26) - (12)Profit for period 14,832 11,242 22,921 ---------- --------- --------Total recognised income for the 14,806 11,242 22,909period ---------- --------- -------- Attributable to- Equity shareholders of the 14,505 11,148 22,516parent- 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 preparedunder the Group's anticipated International Financial Reporting Standards("IFRS") accounting policies for the year ending 30 April 2006. It includesfinancial information for the year ended 30 April 2005 that is derived from thestatutory accounts that were originally prepared under UK Generally AcceptedAccounting Principles ("UK GAAP"). To assist shareholders in understanding theimpact of IFRS, note 11 provides a summary overview of the adjustments from thepreviously published UK GAAP statements at 31 October 2004 and 30 April 2005. Copies of the reconciliation statements and a summary of the main IFRSaccounting 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"). Thisinformation can also be obtained by writing to the Company Secretary. IFRS are continuing to evolve; through the issue and endorsement by the EuropeanCommission of new standards and interpretations as well as possible amendment bythe IASB. Whilst the Group expects to use consistent accounting policies for thepreparation 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 toreflect new standards and interpretations. The financial information was approved by the Board on 11 January 2006. Thefinancial information herein is unaudited and does not comprise the statutoryfinancial 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 appearingin the UK GAAP-IFRS Reconciliation Statements (note 11), have been extractedfrom the statutory financial statements which have been filed with the Registrarof Companies. The auditor's report on those financial statements was unqualifiedand did not contain a statement under Section 237 (2) or (3) of the CompaniesAct 1985. 2 Segment analysis In accordance with IAS 14 Segment Reporting, the primary reporting segments arebusiness activities and the secondary reporting segments are geographic areas. The primary business segments are manufacturing, which consists of themanufacture and selling of photo-processing equipment, and vending, whichcomprises the operation of photobooths and other vending equipment includingdigital media kiosks, photocopiers, express printing machines and children'srides. Analysis bybusiness 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 £'000Results peractivity(exc.finance cost) - Manufacturing-Total revenue 40,427 2,620 56,902 9,145 119,784 25,639-Inter segmenteliminations (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- Groupoverheads - (2,662) - (2,666) - (6,552) --------- ------- -------- ------- ------- ------- 108,470 16,509 115,490 18,329 237,395 35,285 --------- -------- -------Share of profit of 14 25 6associates ------- ------- -------Group operating 16,523 18,354 35,291profitNet financecost (581) (573) (1,350)Exceptional profit 5,441 - -on insurance ------- ------- -------recoveryProfit before tax 21,383 17,781 33,941Taxation (6,551) (6,539) (11,020) ------- ------- -------Profit for the 14,832 11,242 22,921period ------- ------- ------- Analysis bygeographic 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 31,028Europe- United Kingdom 34,937 11,645 28,648 3,278 60,789 7,667and Republic ofIreland- Asia and 15,649 2,309 14,853 1,150 31,050 2,727Australia- UnitedStates ofAmerica 1,439 (237) 1,744 (240) 2,873 (16)Groupoverheads - (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 22,921period ------- ------- ------- In the year to 30 April 2005, an exceptional item of £821,000 was included incost of sales in respect of restructuring in Japan. The non-operating exceptional profit of £5,441,000 is included above in thegeographic 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 inDecember 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 andgave rise to a non-operating exceptional profit of £5,441,000 in the period. Afurther profit of £3,331,000, relating to insurance settlement for the loss ofinventory held to fulfil a major contract and for business interruption, isincluded in operating profit. The Group's insurers had paid £10,000,000 on account of the claims by April2005. 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 £5,441,000above. On the £3,331,000 further profit included in operating profit, a taxcharge 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 £'000Taxation charged in period United Kingdom 2,033 113 49Overseas 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 earningsper share 3.99p 3.06p 6.18pDilutedearnings pershare 3.93p 3.03p 6.12p Adjusted basicearnings pershare 2.66p 3.06p 6.18pAdjusteddilutedearnings pershare 2.63p 3.03p 6.12p The calculation of earnings pershare is based on the following: Earningsavailable toordinaryshareholders(£'000) 14,531 11,148 22,528Adjustedearningsavailable toordinaryshareholders(£'000) 9,706 11,148 22,528 Weighted average number of sharesin issue in the period- basic ('000) 364,326 364,252 364,25- includingdilutive shareoptions ('000) 369,724 367,908 367,95 Basic earnings per share is calculated as the profit for the period attributableto ordinary shareholders of the Company, divided by the weighted average numberof shares in issue during the period. The Group has issued a number of share options tothe Group's employees, which are potentiallydilutive. The additional earnings per share figure is shown to reflect basic earnings pershare after having excluded the post tax impact of the non-operating exceptionalprofit 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 £'000Dividendscharged inthe period First and final dividend for - - 3,643year ended 30 April 2004 of1.0p per shareInterim - - 2,914dividend foryear ended30 April2005 of 0.8pper shareFinal 4,373 - -dividend for -------- --------- --------year ended30 April2005 of 1.2pper share 4,373 - 6,557 -------- --------- -------- Dividends proposed forapproval (not recognised asa liability at period end)Interim - 2,914 -dividend foryear ended30 April2005 of 0.8pper shareFinal - - 4,371dividend foryear ended30 April2005 of 1.2pper shareInterim 3,644 - -dividend for -------- --------- --------year ended30 April2006 of 1.0pper share 3,644 2,914 4,371 -------- --------- -------- The first and final dividend for the year to 30 April2004 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 theproposed final dividend was approved at the Annual General Meeting held on 28September 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 toshareholders on the register on 3 March 2006. 7 Non-current assets - intangibles, property, plant and equipment andinvestment property. Goodwill Other Property, plant Investment intangible & equipment property assets £'000 £'000 £'000 £'000 Net book 9,265 17,334 66,022 4,149value at 1May 2005Exchangeadjustment 1 17 (323) 6Additions- vending - - 16,111 -equipment- other - 3,613 1,665 -externaladditions- other 317 - 233 -subsidiariesacquired Depreciationprovided inthe period - (2,990) (8,557) (252)Disposals atnet book - (21) (539) -value ------- -------- --------- --------Net book 9,583 17,953 74,612 3,903value at 31 ------- -------- --------- --------October2005 Vending additions includefinance 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 88,073May 2005Issue of 1 114 - - 115sharesProfit for - - - 14,531 14,531periodDividends - - - (4,373) (4,373)paidExchangedifference - - (677) - (677)Othermovements - - (1,486) 1,446 (40)IFRS 2 Share - - - 163 163options ------- ------- -------- --------- --------Balance at 2,023 3,601 373 91,795 97,79231 October ------- ------- -------- --------- --------2005 9 Acquisition of business On 27 May 2005, the Company acquired 100% of the issued share capital of JollyRoger (Amusement Rides) Limited, a manufacturer of quality coin-operatedchildren'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 itspresence in the children's ride market. 10 Cash and cash equivalents 31 October 2005 31 October 2004 Cash and cash equivalents 26,615 20,790Less 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) andbalance sheet reconciling the UK GAAP figures to the IFRS figures are shown inseparate statements, which are published on the Company's web sitewww.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 117,669 235,972IFRS adjustment reexchange rates (2,179) 1,661IFRS adjustment re jointventure revenue - (238) --------- --------Revenue restated under IFRS 115,490 237,395 --------- -------- Operating profit under UK GAAP 18,515 34,311IFRS adjustments reexchange rates (495) 336IFRS adjustment re goodwill amortisation 295 597Other IFRS adjustments 39 47 --------- --------Operating profit restated under IFRS 18,354 35,291 --------- -------- Profit before tax under UK GAAP 18,002 33,037IFRS adjustment reexchange rates (492) 330IFRS adjustment re goodwill amortisation 295 597Other IFRS adjustments (24) (23) --------- --------Profit before tax restated under IFRS 17,781 33,941 --------- -------- Taxation under UK GAAP (6,748) (10,910)IFRS adjustment reexchange rates 202 (115)Other IFRS adjustments 7 5 --------- --------Taxation restated underIFRS (6,539) (11,020) --------- -------- Profit after tax under UK GAAP 11,254 22,127IFRS adjustments reexchange rates (290) 215IFRS adjustments re goodwill amortisation 295 597Other 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 ratesUnder IFRS the income statements of overseas subsidiaries, associates and jointventures are translated at weighted average exchange rates, whereas previouslyunder UK GAAP they were translated at the balance sheet exchange rate. IAS 31 adjustment re joint venturesUnder IFRS the Group has consolidated its investment in the joint venture on aline by line basis for the income statement and balance sheet. IFRS requires anadjustment to eliminate transactions with the joint venture on a proportionatebasis. Under UK GAAP the Group consolidated the appropriate share of results ofthe joint venture. IFRS 3 adjustment re goodwillUnder IFRS goodwill is no longer amortised, but is subject to impairmenttesting, whereas under UK GAAP goodwill was amortised over its estimated usefullife. 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) 173,020 184,737 196,116under UK GAAPIFRS adjustment re employee benefits 128 120 132IFRS adjustment re goodwill amortisation - 295 597Other IFRS adjustments (88) (93) 103 -------- --------- --------Total assets (non-current and current assets) 173,060 185,059 196,948restated under IFRS -------- --------- -------- Total equity (shareholders' funds and minority 71,650 81,398 85,427interests) under UK GAAPIFRS adjustment re employeebenefits (299) (280) (309)IFRS adjustment renon-equity minority interest (803) (786) (763)IFRS adjustment re dividends 3,643 6,555 4,371IFRS adjustment re goodwill - 295 597Other IFRS adjustments (57) (86) (62) -------- --------- --------Total equity restated under IFRS 74,134 87,096 89,261 -------- --------- -------- Total liabilities (creditors and provisions) 101,370 103,339 110,689under UK GAAPIFRS adjustment re employee benefits 427 400 441IFRS adjustment re non-equity minority interest 803 786 763IFRS adjustment re dividends (3,643) (6,555) (4,371)Other IFRS adjustments (31) (7) 165 -------- --------- --------Total liabilities (non-current and current 98,926 97,963 107,687liabilities) restated under IFRS -------- --------- -------- The most significant adjustments arising form thetransition to IFRS are: IAS 19 adjustment re employee benefitsThe Group has decided to reflect the full deficit on the Company's definedbenefit pension fund in the balance sheet at 30 April 2004, being £427,000 shownin total liabilities, less the related deferred tax asset of £128,000 shown intotal assets. Subsequent balance sheets reflect the movement in the pension funddeficit. IAS 32 and 39 adjustment re non-equity minorityinterestsUnder the IFRS balance sheet, equity includes shareholders' funds and minorityinterests. Non-equity minority interests do not exist under IFRS and have beenreclassified as liabilities. IAS 10 adjustment re dividendsUnder IFRS, dividends proposed at the balance sheet date but not yet approvedare not included in creditors nor charged to the income statement. 11 Reconciliation of UK GAAP to IFRS(continued) Explanation of transition to IFRSThe reconciliation of profit for the 6 months ended 31 October 2004 and thereconciliation of equity as at 31 October 2004, as required by IFRS 1, areshown below. Reconciliation of profit 6 months to 31 October 2004 --------------- Operating Net profit profit £'000 £'000Profit for the period under UK GAAP 18,515 11,254Adjustments:Exchange difference (IAS21) (495) (290)Reversal of goodwill amortisation (IFRS 3) 295 295Other IFRS adjustments 39 (17) -------- ---------Profit restated under IFRS 18,354 11,242 -------- --------- Reconciliation of equity 31 October 2004 £'000Equity under UK GAAP 81,398Adjustments:Employee benefits (IAS19) (280)Non-equity minority interests (IAS32/39) (786)Dividends (IAS10) 6,555Reversal of goodwill amortisation (IFRS 3) 295Other 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 January2006 and from that date will be available from the Company's RegisteredOffice at Church Road, Bookham, Surrey KT23 3EU (tel:01372-453399). 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