Photo Me International : Results for the year ended 30 April 2018 – Investment in Laundry continues to drive growth

CHAIRMAN'S STATEMENT

In the 2018 financial year, the Group delivered further financial and operational progress. Our Laundry business has once again been the growth driver of the Group, with revenues increasing 69% over the 12 month period, and we have continued to deliver growth in our Identification business across all of Photo-Me's countries of operation apart from Japan.

Results

Reported revenue increased by 7.1% to £229.8 million (5.9% at constant currency). This growth was driven by further expansion of our Laundry operations, continued deployment of secure photo ID services and progress in the unattended digital photo printing kiosk business.

Reported EBITDA increased by 2.8% to £71.0 million (2017: £69.0 million)

Reported profit before tax rose by 4.4% to £50.2 million, including a one-off investment gain of £3.7 million relating to the Group's shareholding in Max Sight Group Holdings Limited. In addition, these results recognise a £2.3 million profit on the sale of the head office building in Bookham and a one-off £2.6 million Photo-Me Retail restructuring cost. At constant currency profit before tax increased by 2.5% to £50.2 million (2017: £49.0 million).

Underlying profit before tax, which is 2018 profit before tax adjusted to exclude the gain on the Group's shareholding in Max Sight Holdings Limited, the profit on disposal of the former head office building, and restructuring costs relating Photo-Me Retail, was stable at £46.8 million (2017: £46.6 million, excluding the translation reserve taken to profit on disposal of a subsidiary). At constant currency, the underlying profit before tax decreased by 1.6%. A reconciliation of underlying profit before tax to reported profit before tax is provided in note 4 to the financial statements.

During the period the Group achieved a significant increase in profit after tax, up 14.7%, supported by a reduction of Photo-Me's tax rate.

The Group remains highly cash generative, with £61.0 million of its cash generated from operations in the period. This supports the Group's ongoing investment in innovation and its future growth.

Higher capital expenditure year-on-year supported investment in key laundry acquisitions as part of the Group's strategy to deliver substantial growth in the medium and long-term, as well as the restructuring of Photo-Me Retail. This resulted in a Group net cash position as at 30 April 2018 of £26.7 million, compared with net cash of £39.2 million as at 30 April 2017. This net cash position is after the 20% uplift in dividend payments, of £26.5 million, reflecting the Group's progressive dividend policy (2017: £32.6 million), and investments of £43.6 million (2017: £43.5 million) as part of the Group's ongoing investment in expansion of its existing services and new product innovation in the 2018 financial year.

Strategy

Photo-Me operates, sells, and services a wide range of instant-service equipment. Our operations are focused on three principal business areas: Identification, Laundry, and Digital printing kiosks which we currently operate in 18 countries.

The Group's growth strategy is centred on diversifying operations in these three principal business areas by developing new technologies with multiple applications, which can be speedily deployed across new and existing territories and provide a rapid return on investment.

The stable cash flow from our established photobooth business supports our investment plans, including in-house technological innovation. Furthermore, the scale of our operations and low fixed cost base enables us to deploy new products and services at a relatively low cost to the business.

During the year, we continued to make excellent progress in the expansion of our Laundry business and the deployment of our photobooth identification solutions. In addition, we invested in technological innovation and the commercialisation of new products. Details of our strategic progress are set out in the Business Review.

Restructuring of Japanese subsidiary

The Japanese photo-identification market continues to be highly competitive, with the highest density of photobooth units per person of any country worldwide. The number of photobooths increased significantly following the launch of the Japanese government's My Number ID card programme. However, this card programme is not compulsory and has not gained the momentum photobooth operators initially anticipated.

During the financial year ending 30 April 2019, the Group will invest in a thorough restructuring of its Japanese subsidiary which is expected to improve profitability in FY19 and beyond.

The planned restructuring will involve a management reorganisation, rationalisation of administrative functions, the re-location of low revenue machines, and removal of unprofitable units. In addition, the Group will introduce a new photobooth to the country, the production of which is significantly cheaper than previous units deployed. We expect these decisive initiatives to enable our Japanese business to return to growth in the medium term. Our underlying profit expectations for the financial year ending 30 April 2019 take into consideration thisrestructuring cost.

Dividends

Photo-Me is committed to creating value for its shareholders. The business is both highly cash-generative and lowly leveraged, enabling the Board to constantly invest in the ongoing and future growth of the business, whilst also delivering very attractive returns to our shareholders.

In 2016, the Board pledged to increase the ordinary dividend by 20% for the financial years ending 30 April 2017 and 30 April 2018. In line with this pledge, the Board is proposing a final dividend payment of 4.73 pence per share (2017: 3.94 pence per share). When combined with the interim dividend of 3.71 pence per ordinary share, this brings the total dividend for the year ended 30 April 2018 to 8.44 pence per ordinary share, representing a 20.1% year-on-year increase (2017: 7.03 pence per ordinary share).

Subject to approval at the Annual General Meeting, the final dividend will be paid on 9 November 2018 to shareholders listed on the register on 19 October 2018. The ex-dividend date will be 18 October 2018.

For the current financial year ending 30 April 2019, the Board intends to maintain a total dividend of 8.44 pence per ordinary share.

The Board

On 2 May 2018, after the year end, Eric Mergui was appointed an Executive Director of the Group. He will continue in his role as Chief Operating Officer. Eric Mergui joined the Group in 1995 and was appointed Chief Operating Officer in 2015. Before this, he headed up Photo-Me's European operations and oversaw the development of Photo-Me's business in China.

The Board looks forward to working with Eric and benefiting from his breadth of industry knowledge and expertise.

Colleagues

Our management team and employees around the world have worked extremely hard in the financial year. On behalf of the Board, I would like to thank them for their continued dedication and contribution.

Current trading and outlook

The Laundry business grew significantly in the 2018 financial year (revenue up 69% year on year) underpinning our confidence that our Laundry operations will contribute an increasingly significant share of Group profits as we expand within existing markets and penetrate new ones. Alongside this, we expect our Identification business to maintain its strong performance and our main focus will be on increasing our government partnerships for our secure ID upload technology. We expect our photobooth estate to continue to deliver steady cash flows to support our ongoing investment in innovation and the international expansion of our vending estate.

In the UK, whilst there is a risk that departure from the European Union may affect photo ID market growth, in the short to medium term the Group may benefit from an influx of blue passport renewals requiring photo ID. Furthermore, the Group would benefit from foreign exchange translation if sterling were devalued against the euro.

As previously announced, taking into account the restructuring of our Japanese subsidiary, the Board now believes that profit before tax for the year ending 30 April 2019 will be at least £44 million, which includes the reorganisation cost in Japan.

The Board remain confident about the Group's prospects.

John Lewis
Non-executive Chairman
10 July 2018

To register for the Photo-Me International PLC - Annual Results for the year ended 30 April 2018 - Analyst & Investor Presentation, Tuesday, 10th July, 2018, 10:30 AM (BST), click here: http://webcasting.brrmedia.co.uk/broadcast/5b360ae2dde14b462fff894b