Excellent first half performance
Photo-Me International plc (‘Photo-Me” or “the Group”), the instant service equipment group, announces its results for the six-month period ended 31 October 2014.
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Turnover returned to growth of 0.9% on a constant currency basis.
Underlying pre-tax profits up 10% to a record £25.3m; up 17.3% in constant currency.
Underlying turnover and pretax growth restrained by a further decline in minilab business – effect expected to be much smaller going forward.
Net cash position of £64.7 million, despite increased capex and combined tax and dividend payments of £14.5m (net of sale of land).
Interim dividend increased by 30% to 2.34p in line with the Group’s commitment.
Photobooth estate growth of 5.2% year-on-year, with growth above 5% in all major operating territories.
744 Revolution laundry units deployed at end-October – 374 retained operating units performing well.
Laundry manufacturing expansion remains on track.
Promising new product pipeline including new digital printing kiosk and supermarket carwash.
John Lewis, Non-executive Chairman, said:
“Against a global economic background which remains uncertain, and despite large adverse movements in our major trading currencies, the Group has produced another very strong performance and delivered another record profit.
Significantly, after a number of years of declining turnover due to the rapid downturn of the minilab business, this half-year saw a return to underlying top-line growth. This was principally due to a 5% expansion in photobooth numbers and also our still small – but rapidly growing – laundry business, which at the half-year comprised some 3% of Group turnover.
Our profits once again moved ahead strongly. Our estate enjoys high operational gearing and as previously described, we have made good progress on costs especially in reducing significantly the manufacturing costs of both our photobooths and laundry units, by outsourcing to China and Hungary respectively.
Our cash generation remains a key strength and the net cash position at the end of October 2014 was £64.7 million, an increase of some £1.6 million since the end of April 2014 after financing (net of sale of land) tax and dividends of £14.5 million and increased capital expenditure. We are therefore increasing the interim dividend by 30%, in line with the commitment that we made at the time of our preliminary results.
The momentum in the business is good and it is performing very much in line with the Board’s expectations. The Board remains confident for the outlook of the business over the rest of the year and remains optimistic about future prospects especially in relation to the opportunities for our laundry business supported by our new product development.”
Headline turnover declined by 4.9%, again principally due to the adverse impact of exchange rates and to the continuing decline in minilab sales, but on a constant currency basis rose by 0.9%, helped by a particularly strong performance from our Japanese business. The increase in underlying turnover is the first the Group has recorded for some time and the Board is confident this can be maintained going forward as the Group expands its laundry business in particular, which contributed £2.9 million of turnover in the half year.
Profits rose strongly – up on a reported basis by 10.0% to £25.3 million – and this was after adverse currency movements against the euro and yen amounting to £1.7 million. Underlying profits thus rose by 17.3% helped by the operational gearing inherent in the business as lower manufacturing and corporate costs continued to feed through.
Our strategy is focused on the development of new complementary products that build upon the strength of the ID photobooth business and offer diversified revenue and profit streams for the future. This has produced the Philippe Starck-designed photobooth and the Revolution laundry units in the recent past and our new product pipeline, detailed below, is looking promising.
We have also sought to reduce our costs progressively to improve margins and cashflow. We have made strong progress on this in 2014 following the outsourcing of manufacturing of our Revolution laundry units and photobooths to Hungary and China respectively.
We are now focusing on rolling out our Revolution laundry product aggressively and will increasingly focus on developing new markets for the photobooths, facilitated by the reduction in manufacturing costs.
In line with the commitment that we made at the time of our preliminary results in June 2014, the Board is declaring an interim dividend of 2.34 pence per share, an increase of 30% over the interim dividend of 1.8 pence per share paid last year.
The interim dividend will be paid on 14 May 2015 to shareholders on the register on 7 April 2015, with an ex-dividend date of 2 April 2015.
The momentum in the business is good and it is performing very much in line with the Board’s expectations. The Board remains confident for the outlook of the business over the rest of the year and remains excited about future prospects especially in relation to the opportunities for our laundry business supported by our new product development”.
CHIEF EXECUTIVE’S BUSINESS AND FINANCIAL REVIEW
Photo-Me’s principal activity is the operation of unattended vending equipment, primarily photo booths and laundry units, and also digital printing kiosks, photobook makers and amusement machines. At the end of October 2014 the Group’s estate comprised 44,306 units (2013: 43,404) of which photobooths comprised 60%. Growth in the overall estate was 2.1% with the Group continuing to reduce its number of bouly machines in the UK (which produce minimal revenue), but growth in the photobooth estate overall was 5.2%.
The business is international in its reach and focused on three main geographic regions at present: Continental Europe, UK & Republic of Ireland, and Asia & Rest of World.
This division contributed 56% (2013: 58%) of Group revenue and 73% (2013:79%) of operating profit. At the end of October 2014, 49.5% (2013: 48.0%) of the Group’s estate was sited in Continental Europe. There were 21,914 (2013: 20,863) units in total of which 12,280 (2013: 11,691) were photobooths. The Group operates in nine countries, with the latest addition being Poland.
Reported revenue was 7.8% lower, but on a constant currency basis declined by 1.7%. Stripping out the effects of the continuing decline in the minilab business (previously reported under “Sales and Servicing”) underlying revenue grew by 1.0%. Operating profits fell by 1.2% on a reported basis but rose by 5.5% on a constant currency basis.
The European photobooth estate increased by 5% year-on-year with the main areas for growth being France, Germany and Switzerland. The Group continues its rollout of higher-margin Starck booths and there are now 2,118 deployed across Europe.
The roll-out of the Group’s laundry product – branded Revolution – predominantly utilising the same sites as the photobooth estate, continues to progress well. At the end of the half-year, cumulatively (across the Group) Photo-Me had sold 370 of these units (53 during the period) and operated 374 (an increase of 172 during the period). Going forward, it remains the Group’s intention to move the operating/sale ratio towards 80/20.
The results from the units in operation in France and Belgium remain extremely encouraging with monthly takings averaging €1,500 during the period across the operating estate and the more established machines seeing takings increase by some 22% year-on-year. In the six-month period ended 31 October 2014, the turnover of the laundry business units was £2.9m (2013: £1.6m) and represented 7% of total turnover in France and 10% in Belgium.
The Group now has laundry units in nine countries, with the most significant exposure being in France and Belgium. The Group continues to be encouraged by potential demand in other locations like campsites, riding stables, universities and military barracks, all of which have demand for heavy-duty laundry, and considers that prospects for the product in Portugal and Ireland are good. For example, since introducing the product in Portugal earlier in 2014 laundry revenues have grown rapidly to represent 19.1% of total Portuguese revenues currently. While the country is small in overall terms for Photo-Me it demonstrates the transforming potential of the product.
The manufacturing facilities for the laundry business are in Hungary and the gradual planned expansion of capacity is proceeding according to plan.
The Group continues to operate in Europe over 4,700 digital printing kiosks- primarily in France and Switzerland. The Group is currently upgrading the estate to the latest technology to accept all models of memory cards and other media. A brand new and very modern Starck-designed kiosk has also recently been unveiled at the photo fair in Paris. This is a new generation of kiosk with no real comparator and the Group considers the potential worldwide to be very promising; the Group’s target is to launch this product in the next fiscal year.
Europe remains the centre of the Group’s R&D efforts and new product development. Aside from the new digital printing kiosk (see above), a new chrome finished Starck photobooth has been developed for higher-end locations and the Group continues to develop other models, occasionally in conjunction with major brands like Evian. Work continues on the 3D figurine photobooth as well as an upgraded poster machine.
The Group is also trialing a carwash concept, targeted initially at the main supermarket chain in France, which would have some overlap in terms of location as the standalone Revolution units and utilize the same fleet of engineers. Early results are encouraging and Photo-Me is optimistic that the concept can be rolled out, but will report further on its plans for this concept in 2015.
ASIA & R.O.W.
This division contributed 20% (2013: 19%) of Group revenue and 14% (2013: 10%) of operating profit. At the end of October 2014, 18.2% (2013: 17.7%) of the Group’s estate was sited in Asia & ROW. There were 9,707 (2013: 9.399) units in total of which 8,066 (2013: 7,683) were photobooths. The Group operates in eight countries, with the latest additions being Vietnam and the USA. The Group is still testing in Thailand.
The largest territory by far is Japan where performance was outstanding in the first half. Revenues were up by 6.5% (at CC) with profits (at CC) over 50% higher. The medium-term outlook for Japan is good with the Government introducing new e-ID cards (with facial photo) for every resident in Japan from 2016 to be used primarily for tax and social security purposes.
Asia is seen as a promising market for the laundry product in the medium-term and the Group plans to trial two units in Japan in early 2015.
Gradual progress continues to be made in China where turnover rose by 40% (at CC). The Group has deliberately slowed down its rollout in the last few months to concentrate on a programme of resiting unprofitable units into better locations. As a result, China made a useful contribution to profits compared with losses last year.
UK & IRELAND
This division contributed 24% (2013: 23%) of Group revenue and 20% (2013: 19%) of operating profit. At the end of October 2014, 33.4% (2013: 34.8%) of the Group’s estate was sited in UK & Ireland. There were 12,685 (2013: 13,142) units in total of which 6,415 (2013: 6,071) were photobooths. Growth in photobooth numbers was 5.7% year-on-year while there was a 29% reduction on bouly/amusement machines which generate little revenue. The UK business is around 95% of the total for the division.
Turnover in the UK grew by 2.3% and profit by 20% driven in part by the growth in the photobooth estate resulting from the absorption of the Wm Morrison estate into the portfolio. There also continues to be a strong focus on costs.
There were 32 laundry units operating at the end of the period of which 18 were in Ireland, where results to date have been promising.
STATEMENT OF FINANCIAL POSITION
Shareholders’ equity as at 31 October 2014 totalled £99.4 million (30 April 2014: £103.1 million), equivalent to 26.7 pence (30 April 2014: 27.8 pence) per share.
The Group’s net financial position continued to improve, reporting a net cash balance of £64.7 million at the end of the period (30 April 2014: £63.1million).
RISKS AND UNCERTAINTIES
Like all businesses, the Group faces risks and uncertainties that could impact on the Group’s strategy. The Board recognizes that the nature and scope of these risks can change and regularly reviews the risks faced by the Group and the systems and processes to mitigate such risks.
The principal risks and uncertainties affecting the continuing business activities of the Group were outlined in detail in the Strategic Report section of the annual report covering the year ended 30 April 2014.
In preparing this interim report for the six months ended 31 October 2014, the Board has reviewed these risks and uncertainties and considers that there have been no changes since the publication of the 2014 Annual Report.
Chief Executive Officer
Photo-Me International plc
Surrey KT23 3EU
Tel: +44 (0)1372 453399
Fax: +44 (0)1372 459064