Photo-Me International
Annual Report 2016

Plain-text annual report

Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 1 Photo-Me International plc Annual Report & Accounts 2016 Technological Integration Photo-Me International plc Church Road, Bookham Surrey KT23 3EU Tel: +44 (0)1372 453399 Fax: +44 (0)1372 459064 Web: www.photo-me.co.uk Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 3 About Photo-Me Our principal activity is the operation of non-food unattended vending equipment aimed primarily at the consumer market. The largest part of the estate comprises photobooths and digital printing kiosks, with the remainder including laundry units, amusement machines and business service equipment. Strategic Report Financial Statements 01 Our Highlights 04 Our Strategy 05 Where We Operate 06 Our Products 08 Chairman’s Statement 09 Overview of the Year 11 Strategic Overview 13 Financial Review 16 Corporate Responsibility Statement 19 Viability Statement Corporate Governance 22 Board of Directors & Company Secretary 23 Report of the Directors 26 Corporate Governance Statement 30 Remuneration Report 43 Statement of Directors’ Responsibilities 44 Independent Auditor’s Report 48 Group Statement of Comprehensive Income 49 Statements of Financial Position 50 Group Statement of Cash Flows 51 Company Statement of Cash Flows 52 Group Statement of Changes in Equity 53 Company Statement of Changes in Equity 54 Notes to the Financial Statements 101 Five Year Summary 102 Company Information & Advisors 103 Shareholder Information Find out more about Photo-Me at www.investor.photo-me.com Our Highlights The strength of our cash flow is allowing us both to finance the capital expenditure programme and to raise returns to shareholders by way of dividends. John Lewis Non-executive Chairman i S t r a t e g c R e p o r t Underlying Pre-tax Profit £40.1m +14.6% Ordinary Dividends Per Share Cash Generated from Operations 5.86p* +20.1% £51.4m +4.5% 2014 2015 2016 30.1m 35.0m 2014 2015 3.75p 4.88p 2014 2015 40.1m 2016 5.86p 2016 * Excluding special dividend of 2.815p 45.6m 49.2m 51.4m Share Price at 30 April 167.25p +20.3% Underlying EBITDA £56.7m +9.5% 2014 2015 2016 135.0p 139.0p 2014 2015 47.8m 51.8m 167.25p 2016 56.7m 3 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 01 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 2 Strategic Report Integrated security... We are integrating highly secured biometric solutions needed to address today’s security issues into our photobooths. i S t r a t e g c R e p o r t ...helping to make our world safer. 02 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 03 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 4 Our Strategy Customer Focused Photo-Me’s business strategy is centred around utilising the cash flow from our long-established photobooth operations to develop new and complementary products, driving future growth, combined with the penetration of new geographic markets. Where We Operate Geographical Spread The Group has operations in 17 countries, with a strong sales and servicing network. We serve markets that are well positioned to deliver long-term profitable growth, as well as strong and stable cash-flows. i S t r a t e g c R e p o r t Location Attractiveness Ease of Use Location Attractiveness Ease of Use We maintain strong relationships with site owners and try to ensure optimum positioning of our machines. The Group has a strong history of innovation and is constantly looking for ways to update and modernize its estate, while introducing new products to the marketplace. The Starck photobooth and the Revolution laundry units are examples of this. Traditionally, units have been coin-operated in simple denominations (e.g. £5, €5) but the Group is intensifying its contactless payment systems deployment programme to improve the customer offering and to enhance customer opportunity. Reliability Quality Value Reliability Quality of Product Value for money Combined with the Telemetry connected technology, we employ an extensive network of experienced engineers to minimize downtime and maintain appearance. Photobooths produce ICAO-compliant photos and constant investment in technology ensures the estate in general offers the consumer a satisfying experience. Historically, the Group has been cautious in raising its prices and believes it offers a competitively priced range of products. Machine usage statistics support this view. UK & Ireland Continental Europe Asia & RoW Vending Units 12,500 Revenue £45.8m Underlying Operating Profit £8.0m Geograhic spread United Kingdom, Ireland Vending Units 22,800 Revenue £93.7m Underlying Operating Profit £24.2m Geograhic spread Austria, Belgium, France, Germany, Netherlands, Poland, Portugal, Spain, Switzerland Vending Units 10,200 Revenue £44.5m Underlying Operating Profit £10.6m Geograhic spread China, Japan, Singapore, South Korea, U.S.A., Vietnam 04 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 05 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 6 Our Products For more than 50 years, Photo-Me has been the world’s largest operator of photobooths, with market-leading photographic quality and innovative technology. Bringing innovation to our customers Photography Photo Processing Laundry Machines PhotoLight Children’s Rides ANTS i S t r a t e g c R e p o r t Photobooths SpeedLab Revolution® Smart Solar Lighting Children’s Rides ANTS State-of-the-art cameras, tactile control screens and continually developing designs have helped to cement Photo-Me’s position at the head of the field. Benefiting from the photographic expertise and excellence in self-service systems, Photo-Me’s digital printing kiosks offer a wide range of print formats with a user-friendly interface. A solution to the problem of washing and drying large laundry items Economical and eco-friendly, these solar street lights offer variable lighting depending on light intensity and the time of day. Photo-Me offers the latest in interactive character rides, exciting new simulator rides and a selection of other coin-operated amusement machines. In France, Photomaton have negotiated the first agreement with the French authorities to deliver digitized photos and signatures for the driver licence pre-application service. Units in operation 27,654 Units in operation 5,053 Units in operation 1,411 Units sold 480 Units in operation 5,500 Units in operation 2,000 Included within Photobooths figure 06 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 07 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 8 Chairman’s Statement Overview of the Year It has been another strong year for the Group with a 14.6% increase in reported underlying pre-tax profits to a record £40.1million. Dividends Last year we stated that we intended to increase the annual dividend by 10%p.a. over the following three years. We also stated that any net cash on the balance sheet at April 30 in each year in excess of £50m would be available to shareholders as a special dividend, provided that the business had no immediate needs for the capital, for example acquisitions or specific investments. The Group delivered a solid financial performance, as illustrated by the strong increase in profits. Results At constant currency, Group Revenue was 6.3% higher over the year with a 3.8% improvement on a reported basis. Group reported underlying EBITDA increased by 9.5% during the period, to £56.7m, with underlying EBITDA margins improving to 30.8% from 29.2% in 2015. Strategy Our stated strategy is to use the significant cash flow generated from our long-established photobooth business to develop new and complementary products which will drive our future growth. Alongside this, we are keen to penetrate new geographic markets, which offer the potential of long-term growth. It is also part of our strategy to be financially independent as far as we can be, and to concentrate on increasing our returns to shareholders. We have continued to make good progress with this strategy. The expansion of our Revolution laundry product is proceeding in line with our plan and is producing strong returns. Our photobooth business is expanding gradually into new markets and our product development pipeline – including the enhanced security technology in the photobooths - is promising. The strength of our cash flow is allowing us both to finance the capital expenditure programme and to raise returns to shareholders by way of dividends. We are therefore pleased to confirm that the proposed total annual dividend of 5.86 pence per share and the proposed special dividend of 2.815 pence per share reflect the commitment made last year. We have decided to increase the returns through ordinary dividends following feedback received from our investors. We are also committing to increase the ordinary dividend by 20% for the next two financial years. If approved at the Annual General Meeting on 20 October 2016, the final dividend and the special dividend will be paid on 10 November 2016 to shareholders on the register at the close of business on 7 October 2016. The ex-dividend date will be 6 October 2016. Employees On behalf of the Board, I would once again like to thank our management and employees for all their individual hard work, dedication and loyalty throughout the year. Current trading and Outlook Whilst uncertainties remain, in particular in relation to currency, the Board anticipates another year of good growth. Revenue Year to 30 April Continental Europe UK & Republic of Ireland Asia & ROW 2016† £m 97.9 45.9 44.6 188.4 2016 £m 93.7 45.8 44.5 184.0 2015 Change† % £m +3.8% 94.3 +2.7% 44.7 38.2 +16.8% +6.3% 177.2 Underlying Operating profit* Year to 30 April Continental Europe UK & Republic of Ireland Asia & ROW Corporate 2016† £m 25.3 8.0 10.7 44.0 (3.0) 40.1 2016 £m 24.1 8.0 10.7 42.8 (3.1) 39.7 2015 Change† % £m 22.0 +15.0% 8.4 -4.8% 6.9 +55.1% 37.3 +18.0% (2.5) 34.8 +17.8% † 2016 trading results of overseas subsidiaries converted at 2015 exchange rates. * excluding profit on sale of land in 2015 John Lewis Non-executive Chairman Serge Crasnianski Chief Executive Officer & Deputy Chairman i S t r a t e g c R e p o r t Vending units Continental Europe UK & Republic of Ireland Asia & ROW Total 2016 2015 Change 22,800 12,500 10,200 45,500 22,400 12,400 9,800 44,600 +1.8% +0.8% +4.1% +2.0% Continental Europe This division contributed 51% of Group revenue (2015: 53%) and 61% of underlying operating profit (2015: 63%). At the end of April 2016, 50% (2015: 50%) of the Group's estate was sited in Continental Europe. There were 22,800 (2015: 22,400) units in total of which 12,500 (2015: 12,400) were photobooths. The Group operates in nine countries. Reported revenue was 0.6% lower than last year, but on a constant currency basis increased by 3.8%. Operating profits increased by 9.5% on a reported basis, due to the reduction in siting costs and continued focus on operating costs reduction. The European photobooth estate increased by 0.5% year-on-year with the main areas for growth being France, Germany and Switzerland. The Group continues its roll-out of higher-margin Starck booths and there are now 3,780 deployed across Europe, an increase of 567 over the year. The Group continues to assess the price increases in its photobooth estate and is now running trials in two countries – Switzerland and the Netherlands. The roll-out of the Group's main laundry product - branded Revolution - predominantly using the same sites as the photobooth estate, continues to progress well. Total (including UK & Ireland) 2016 2015 2014 Change 1,411 Owned and operated (total) 737 Sold (cumulative total at year end) Ave. revenue per owned unit (€)† 15,382 644 440 14,396 202 317 13,887 +119% +68% +7% † Average calculated only on machines in France, Ireland and Portugal with full month takings The results from the units in operation in France, Ireland and Portugal remain extremely encouraging with takings during the period averaging €1,282 per unit per month across the operating estate. For the full year, the turnover of the entire laundry business units was £11.8m (including a contribution of £1.2m from Fowler(UK)) (2015: £6.3m), which was more than trebled since 2014. Laundries represented 13% of total turnover in France, 47% in Ireland and 52% in Portugal. 08 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 09 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 10 Overview of the Year continued The Group now has laundry units in twelve countries globally, with the most significant coverage being in France, Belgium, Portugal and Ireland. Besides supermarket locations, the Group continues to be encouraged by potential demand in sites like campsites, universities and military barracks, all of which have demand for heavy-duty laundry capability. The product has continued to perform extremely well in Portugal and in Ireland where an agreement with Tesco (Ireland) means that the number of operated units in that country should increase to 120 over the next 12 months. The profit in these two countries has climbed rapidly since the units were first introduced in those markets in 2014 and is expected to approach €1m in the coming year. The Group continues to target 6,000 laundry units by 2020 and as the business grows, it is expected that the majority of these will be owned/operated. The Group remains focused on ensuring that only the best locations are targeted for the machines, given the investment and logistics involved and the speed of the roll-out programme is dictated by the availability of suitable venues. The Group has been trialling a number of launderettes in towns across France and Belgium over the past three years. The vast majority of these have achieved the desired return on capital and the Group now considers it appropriate to roll out the concept more aggressively, targeting towns where there is no large supermarket nearby and where competition within the town is limited. The stores (all short leaseholds) again will benefit from leading edge design and are expected to cost around €32,000 each to equip fully. The Group’s ambition is to develop in that segment rapidly and reach a sizeable base of locations. Photo-Me also announced the development of “Revolution 2”, which would only have a footprint of 5sqm compared with the 10sqm of existing units. One principal advantage of these smaller units is that they avoid planning restrictions and in addition may be attractive in markets where space is more limited. Production of these units is expected to commence fully in September 2016. The expansion of the Revolution estate continues to represent an opportunity for a material increase in Group revenue and with an attractive cash generation and EBIT profile they provide an opportunity to enhance returns to shareholders in future years. The Group continues to operate over 5,000 digital printing kiosks, primarily in France and Switzerland, and is currently upgrading the estate to the latest technology to accept all models of memory cards and other media. The new range of Starck-designed kiosks are gradually being introduced and good progress is being seen with the Speedlab Cube in particular. The Group considers the potential worldwide to be very promising over the medium-term. Europe remains the centre of the Group's R&D efforts and new product development. The Group is increasingly focusing on new technologies, like 3D digital photos and is investing with the aim of becoming a leader in the field. One of the targets is to develop enhanced ID security standards through 3D technology which the Group believes will be increasingly attractive to Governments. The Group has already introduced biometric standards into a number of its booths in Germany, Switzerland and China and the addition of 3D photo capture would represent a major step forward in security. Photobooths are therefore progressively being enabled digitally and in February 2016, the Group announced that it had obtained the first agreement with ANTS (National Agency of Secure Documents in France) to allow the delivery of a digitized e-photo and signature for the purposes of driving licence application with the document being sent from the photobooths via a secure server. The Group has some 7,800 units in France and the entire estate will be enabled rapidly. Similarly, in September 2015 Photo-Me signed a five-year agreement with Moneygram under which money transfer services would be made available in its booths worldwide, beginning in France. The Group is still trialling its carwash concept and Photo-Me will report further on its plans for this concept at the end of the next financial year. Asia & R.O.W. This division contributed 24% of Group revenue (2015: 22%) and 27% of operating profit (2015: 20%). At the end of April 2016, 22% (2015: 22%) of the Group's estate was sited in Asia & ROW. There were 10,200 (2015: 9,800) units in total of which 8,600 (2015: 8,200) were photobooths. Growth in photobooth units was 4.6% year on year, mainly deploying machines in Japan in order to respond to the increased demand created by the roll-out of a new photo ID. The Group operates in six countries, with the latest addition being the USA. The largest territory by size of the machine estate and revenue by far is Japan where performance was outstanding. Revenues were up by 16% with profits 69% higher. Performance here has benefited from the first stage of adoption of the new ID card regulation which came into force in 2016. Under this system all Japanese citizens may apply to be issued with their own personal 12-digit number (My Number) which will in due course require an accompanying photo ID card. The system is not currently compulsory, but brings a significant number of administrative benefits to both the private user and the public sector and widespread adoption is expected. Owing to technical and administrative problems at local government level, the implementation of this plan to date has not gone as smoothly as planned, after a strong start, but the Japanese government is committed to the programme and is increasing financial resource to ensure swifter issuance. Based on the official roadmap issued by the Japanese administration, it is expected that by March 2019, 87 million cards will be issued, while the scope and functionality of the card will be expanded although the speed of issuance will be reliant upon promotion of the scheme by the Japanese government. Ultimately the card will become the Japanese photo ID card, branded One Card. This is likely to lead to a steady and substantial increase in photobooth volumes over the period but, due to the uncertainty over timing, we have not included any profits related to My Number in our forecasts for the current year. Gradual progress continues to be made in China where turnover rose by 24% (at constant currency) with a good increase in profitability. UK & Ireland This division contributed 25% of Group revenue (2015: 25%) and 20% of operating profit (2015: 24%). At the end of April 2016, 28% (2015: 28%) of the Group's estate was sited in UK & Ireland. There were 12,500 (2015: 12,400) units in total of which 6,600 (2015: 6,400) were photobooths. Growth in photobooth numbers was 2.9% year-on-year. In a market background remaining difficult, the turnover in the UK and Ireland increased by +2.5% (constant currency) due to the resilience of the photographic business in the UK and the fast expansion of the laundry business in Ireland. Profits contracted by -4.8% reflecting the increase in depreciation and some site costs. The Group’s progress in rolling out its Revolution laundries in Ireland has been good and is covered in the Continental Europe section (above). Strategic Overview What we do Photo-Me’s current principal activity is the operation of unattended vending equipment aimed primarily at the consumer market. The largest part of this estate currently comprises photobooths and digital printing kiosks, with the balance comprising laundry units, amusement machines (including kiddie rides) and business service equipment. Photo-Me owns these units and pays the site owner a fixed fee or a commission based on turnover. This commission varies by country and location. Photo-Me is responsible for collecting the takings from, and the service and maintenance of, the units and employs a network of engineers to perform these tasks. To further its diversification, the ambition of the Group is to expand the laundry business to all segments (supermarket car parks Revolution units, town centre launderettes, B2B equipment sales and rentals), as well as aggressively move into offering security management solutions to governments leveraging 3D identification technology and secured digital transmission of identification data. Where we operate Photo-Me has three principal areas of operation geographically – UK & Ireland, Continental Europe and Asia. Its most important territory in Continental Europe is France, and in Asia it is Japan. With photobooths historically being its core business, Photo-Me has chosen to operate in areas offering a strong and consistent demand for identity photos, in particular passports and driving licences. It has also chosen areas where it is able to establish a strong market share and where business practices maintain a high ethical standard. The Group does not operate (although for differing reasons) in South America, Africa or Australasia. Our business model Customers The majority of our business is consumer-oriented and our units must therefore have certain characteristics. These are: good location, attractiveness, ease of use, reliability, quality of product and value for money. (cid:129) Location We maintain strong relationships with site owners and try to ensure optimum positioning of our machines. (cid:129) Attractiveness The Group has a strong history of innovation and is constantly looking for ways to update and modernize its estate, while introducing new products to the marketplace. The Starck photobooth, the Revolution laundry units and the newly redesigned photo printing kiosks are recent examples of this. (cid:129) Ease of use Traditionally, units have been coin-operated in simple denominations (e.g. £5, €5) but the Group is progressively introducing alternative payment systems to improve the customer offering and to enhance customer opportunity. (cid:129) Reliability Combined with the telemetry connected technology, we employ an extensive network of experienced engineers to minimize downtime and maintain appearance. (cid:129) Quality of product Photobooths produce ICAO (International Civil Aviation Organisation)- compliant photos and constant investment in technology ensures the estate in general offers the consumer a very satisfactory experience. Units are generally sited in areas of high footfall and/or where there may be ambient demand for identity photos. Thus supermarkets, shopping malls (indoors and outdoors) and public transport venues are prime locations. (cid:129) Value for money Historically, the Group has been cautious in raising its prices and believes it offers a competitively priced range of products. Machine usage statistics support this view. i S t r a t e g c R e p o r t From an operational perspective, the Group has three main aims: 1. To increase the number of units in operation 2. To increase takings per unit 3. To minimize production and operational costs Key performance indicators The Group measures its performance using a mixture of financial and non-financial indicators. The main objective of these KPIs is to ensure that the Group remains highly cash generative, delivers sustained long-term profitability, preserves the value of its assets and provides high returns to shareholders. Description Relevance Performance April 2016 April 2015 April 2014 Group total revenue at actual rate of exchange £184.0m £177.2m £186.6m Group total revenue excluding minilab The turnover at constant rate of exchange excluding business at constant rate of exchange minilabs indicates the underlying growth of the core business £195.9m £183.7m £181.6m Group profit before tax £40.1m £38.5m £30.1m Underlying profit before tax £40.1m £35.0m £30.1m EBITDA margin The EBITDA margin is a good indicator of our improvements in profitability 30.8% 31.2% 25.6% Underlying EBITDA The underlying EBITDA margin is a good indicator of our improvements in profitability excluding major one-off items 30.8% 29.2% 25.6% Gross takings (including VAT) Gross takings are an important indicator of the trend in our core vending business +3.7% +2.5% +1.9% Increase in number of photobooths The increase in number of photobooths is always a priority and a main driver for growth +611 +916 +1,261 Increase in number of laundry units The increase in number of laundry units measures (operated or sold) our penetration in this market where there is a huge potential for growth and large profits +1,064 +417 +235 10 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 11 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 12 Strategic Overview Financial Review 1. Unit expansion The Group’s estate can be grown in the following ways: a. Adding further units within existing territories b. c. Entering new markets Introducing new products within existing territories a. Adding further units The Group has strong market positions in the established countries in which it operates, therefore adding further units within these territories is generally quite difficult to achieve. However, the Group managed a 2% increase over the year and will be expanding its estate in Japan significantly to take advantage of new photo ID card legislation which comes into force in 2016. b. Introducing new products With its history of innovation, the Group has been very successful at introducing new products and modernizing its portfolio. The last four years have seen the introduction of the Philippe Starck- designed photobooth range as well as the launch of the brand-new Revolution laundry units, which are now being extended into a laundrette format in 2016. In addition, the Group has further products on trial. This includes the carwash system, the photolight and the new Starck designed digital printing kiosks. The Group is also focussing heavily on developing next-generation technology in its photobooths encompassing biometry and 3D photography, which it believes will provide solutions to national and local governments in the area of increased security. Biometric applications are already in use in Germany, Switzerland and China and during the year the Group signed a deal with ANTS in France in relation to digital driving licence applications. c. Entering new markets The Group takes an opportunistic approach to investments in new markets, and constantly assesses new potential markets. In the last twelve months, very positive progress has been made in South Korea, where some 100 photobooths have been sited. Small operations have been launched in Poland. 2. Increase takings per unit Over the last few years the Group has generally chosen not to raise prices in light of both the generally difficult economic background globally as well as a desire to ensure that the offering remains very competitive. However, in 2014, a price rise was effected in the Japanese booths to offset VAT increases and the prices on kiddie rides and amusement machines have been raised from low levels in the UK. Going forward, however, the increasing introduction of contactless payment across the estate should allow more price flexibility. The Group is trialling in two countries currently and planning a phased rollout of price increases over the next two years. Besides price initiatives, the introduction of attractive new offerings on the existing estate as well as active resiting of machines to more attractive locations are also strategies to increase takings. 3. Minimizing production and operational costs The principal operating cost – other than depreciation – is the commission paid to site owners. Thanks to sophisticated telemetry inside all of its operating units and robust internal controls, the Group suffers virtually no fraud and the costs of operating its network of engineers are also low as a percentage of the total cost base. The Group seeks to reduce commissions where possible - it has achieved some success with the introduction of its Starck booths – and it remains an ongoing strategic management target. The commission payable on its Revolution laundry units is significantly less than the photobooths as they use external space that would normally produce no value for the site owners. Over the last three years, the Group has transferred its production of photobooths to China and the production of the laundry units to Hungary. The facility in each country is operated by a large, listed European manufacturer with very high production standards and capability. In both cases this has significantly reduced production costs. The Group reviews regularly its supply chain and endeavours to further reduce production costs. Financial Performance The Group delivered a strong financial performance, as illustrated by the significant increase in profits. Reported revenue increased by 3.8% to £184.0m as the result of the consistently sustained roll-out of the new laundry business line, the increased volumes in the ID photo business in Asia, and to a lesser extent its resilience in Europe. April 2016 April 2015 £m £m Revenue 184.0 177.2 Underlying EBITDA * 56.7 51.8 Underlying Operating Profit * 39.7 34.8 Underlying Profit before tax * 40.1 35.0 Profit after tax 29.2 28.0 * Excludes the profit on sale of land of £3.5m in 2015 The movements in turnover are outlined in the following table: £m April 2015 Turnover 177.2 Change in core business revenue UK & Ireland +1.2 Continental Europe +3.8 Asia +6.4 Decline in the minilab business -0.2 Impact of exchange rates -4.4 April 2016 Turnover 184.0 The increase in the underlying profit before tax can be explained as follows: £m April 2015 – PBT 38.5 Profit on disposal of land -3.5 April 2015 – Underlying PBT 35.0 Changes in Revenue +6.8 Changes in Costs -1.9 Increase in depreciation and amortization – Increase in net finance revenue +0.2 April 2016 – PBT 40.1 Review of operating costs Operating costs amounted to £144.3m (2015: £138.8m). Staff costs amounting to £40.9m increased by 1.5% compared with the previous year and represented 22.2% of revenue (2015: 22.7%). The increase is in line with the salary inflation across the Group. The reduction in inventory costs is the direct result of both the winding down of the parts and consumable intensive minilab division as well as the costs reductions achieved through enhanced efficiencies in the supply chain. April 2016 April 2015 £m £m Staff costs 40.9 40.3 Inventory costs 11.5 12.6 Other operating costs 75.2 69.0 127.6 121.9 Depreciation and Amortization 16.9 16.9 Profit / (loss) on disposal of fixed assets * (0.2) – Operating costs 144.3 138.8 * Excluding a profit of £3.5m on the disposal of land in 2015 Taxation The Group tax charge of £10.9m corresponds to an effective tax rate of 27.2% (2015: 27.2%). The Group undertakes business in over 17 countries worldwide, with most of the tax charge arising in France, Japan and the United Kingdom. In each jurisdiction in which the Group operates, operations are organised so that the Group pays the correct and appropriate amount of tax at the right time according to the local regulations and ensure compliance with the Group’s tax policy and guidelines. Dividends During the year, the Group paid dividends totalling £18.2m in respect of the interim and final dividend for the year ended 30 April 2015. The interim dividend for the year ended 30 April 2016 (2.575p per share) declared in December 2015 was paid in May 2016 and amounted to £9.7m. i S t r a t e g c R e p o r t 12 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 13 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 14 Financial Review continued Financial Review Statement of Financial position The Group balance sheet can be summarised as follows: Cash flow and net cash position April 2016 April 2015 £m £m Non-current assets (excl. deposits) 84.5 71.5 Current assets (excl cash and deposits) 32.4 23.9 Non-current liabilities (excl. borrowings) (8.4) (7.5) Current liabilities (excl. borrowings) (48.2) (44.2) Net Cash 62.4 60.7 Total Equity 122.7 104.4 Minority interests (1.1) (0.9) Total Shareholders’ funds 121.6 103.5 Following the payment of dividends of £18.2m, the Shareholders funds at 30 April 2016 amounting to £121.6m increased by £18.1m compared with the previous year end. The non-current assets detail is outlined in the following table: April 2016 April 2015 £m £m Goodwill 11.6 10.2 R&D costs 4.7 2.6 Other intangible assets 4.0 3.9 Operating equipment 49.8 43.1 Plant and machinery 5.1 3.8 Land and buildings 1.3 1.3 Investment property 0.6 0.5 77.1 65.4 Investments 1.7 0.9 Deferred tax asset 4.2 3.5 Trade and other receivables 1.5 1.7 Total non-current assets (excl. deposits) 84.5 71.5 The goodwill mainly relates to the Japanese subsidiary. The addition corresponds to the acquisition of Fowler UK. With a net book value of £49.8m, the operating equipment is largely the main component of the Group’s total non-current assets. The Group owns some 45,500 machines operated worldwide. The change in the net book value reflects the Group’s capital expenditure of £25.3m net of depreciation and exchange differences. April 2016 April 2015 £m £m Opening net cash 60.7 63.1 Cash generated from operations 51.4 49.1 Taxation (10.8) (9.1) Net cash generated from operations 40.6 40.0 Net cash used in investing activities (24.8) (18.1) Dividends paid and other financing activities (17.8) (21.1) Net cash generated (2.0) 0.8 Impact of exchange 3.7 (3.2) Net cash inflow 1.7 (2.4) Closing net cash 62.4 60.7 The increase in the EBITDA, coupled with optimised working capital mitigated the impact of increase tax payments leading to the increase in net cash generated from operations by £0.6m. The cash generation was still substantial and enabled the Group to finance its capital expenditure program as well as to pay out to shareholders dividends amounting to £18.2m. Taking advantage of very advantageous fixed interest rates, the Group raised over the year £10.1m of long term external debt, aimed at financing the acquisition of town centre launderettes. The outstanding debt was deducted from the closing net cash at 30 April 2016. The total cash and cash equivalents at 30 April 2016 amounted to £71m (2015: £58.6m). At the end of April 2016, the Group’s net financial position amounting to £62.4 m could be split as follows: Net Cash and Financial deposits Borrowings Position £m £m £m Balance at 30 April 2015 60.9 (0.2) 60.7 Cash flow 8.6 (10.6) (2.0) Non-cash movements 3.7 – 3.7 Balance at 30 April 2016 73.2 (10.8) 62.4 i S t r a t e g c R e p o r t Principal risks Like all businesses, the Group faces risks and uncertainties that could impact the achievement of the Group’s strategy. These risks are accepted as being part of doing business and the Board recognises that the nature and scope of these risks can change and so regularly reviews the risks faced by the Group as well as the systems and processes to mitigate them. The table below sets out what the Board believes to be the principal risks and uncertainties, their impact, and actions taken to mitigate them. Nature of the risk Description and impact Mitigation Nature of the risk Description and impact Mitigation Economic Global economic conditions Economic growth is a major influence on The Group focuses on maintaining the consumer spending. A sustained period of characteristics and affordability of its economic recession could lead to a decrease needs-driven products. in consumer expenditure in discretionary areas. Volatility of foreign exchange rates The majority of the Group’s revenue and profit The Group hedges its exposure to currency is generated outside of the UK, and the Group fluctuations on transactions, as relevant. results could be adversely impacted by an However, by its nature, in the Board’s opinion, increase in the value of sterling relative to it is very difficult to hedge against currency those currencies. fluctuation arising from translation in consolidation in a cost-effective manner. Regulations Centralisation of production of ID photos In many European countries where the Group The Group is developing new systems that operates, if governments were to implement could respond to this situation, including the centralised image capture for biometric passport introduction of 3D technology in ID security and other applications, the Group’s revenues and standards.The Group also ensures that its ID profits could be seriously affected. product remains affordable and of high quality. The Group is also conducting lobbying activities. Strategic Identification of new business opportunities Failure to identify new business areas may impact The Management teams constantly review the ability of the Group to grow in the long term. demand in existing markets and potential new opportunities. The Group continues to invest in research for new products and technologies. Inability to deliver anticipated benefits from The realisation of long-term anticipated benefits The Group regularly monitors the performance the launch of new products depends mainly upon the successful launch of of newly installed machines, which are heavily the “Revolution” laundry unit. trialled before launch. Market Commercial relationships The Group has well-established long-term The Group’s major key relationships are relationships with a number of site-owners. supported by medium-term contracts. The deterioration in the relationship with, We actively manage our site-owner relationships or ultimately the loss of, a key account would at all levels to ensure a high quality of service. have an adverse albeit contained, impact on the Group’s results, considering how the Group’s turnover is spread over a large client base and none of the accounts representing more than 1% of the Group turnover Operational Reliance on foreign manufacturers The Group sources most of its products from outside Extensive research is conducted into quality and the UK. Consequently, the Group is subject to risks ethics before the Group procures products from associated with international trade. any new country or supplier. The Group also maintains very close relationships with both its suppliers and shippers to ensure that risks of disruption to production and supply are managed appropriately. Reliance on one single supplier The Group currently buys all its paper for The Board has decided to hold a strategic stock of consumables photobooths from one single supplier. The failure of paper, allowing for 6 to 10 months’ worth of of this supplier could have a dramatic effect. paper consumption, to give enough time to put in place alternative solutions. Reputation The Group’s brand is a key asset of the The protection of the Group’s brand in its core business. Failure to protect the Group’s markets is sustained by products with certain reputation and brand could lead to a loss of unique features and offerings as well as regular trust and confidence. This could result in a maintenance to maintain appearance. decline in the customer base. Product and service quality The Board recognises that the quality and safety The Group continues to invest in its existing of both its products and services is of critical estate, to ensure that it remains contemporary, importance and that any major failure will affect and in constant product innovation to meet consumer confidence. customer needs. The Group also has a programme to regularly train its technicians. Technological Failure to keep up with the advances The Group operates in fields particularly in The Group mitigates this risk by continual in technology relation to photography where upgrades to focus on R&D. new technologies are mission critical. 14 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 15 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 16 Corporate Responsibility Statement (forming part of the Report of the Directors) Our approach to corporate responsibility The Group recognises its responsibilities to the community and the environment and believes that health, safety and environmental issues are integral and important components of best practice in business management. Our management of corporate responsibility can influence our ability to create long-term financial and non-financial value, and impacts on our relationship with shareholders and other stakeholders. We believe that effective management of corporate responsibility can reduce risks and also help us identify business opportunities. We prioritise our corporate responsibility activities based on three main drivers: (cid:129) (cid:129) (cid:129) legal requirements and future policy trends; customer, employee and investor preferences for corporate responsibility; and cost savings and business efficiency. We aim at ensuring that our approach is consistent with the directors’ duty to promote the success of the Company, a legal requirement included in the UK Companies Act 2006. This duty is based on the principle of ‘enlightened shareholder value’. How we manage corporate responsibility The Board is ultimately accountable for corporate responsibility. The Chief Executive Officer has specific responsibility for risk management and health, safety and environmental matters, with delegated authority through line management. The Group operates in highly differentiated national markets with differing national laws, preferences and cultures. As a result, operational direction and management of corporate responsibility lie primarily with national business managers, who are best placed to ensure compliance with national legislation and market expectations. The Group internal audit programme operates on a risk-based assessment process, including corporate responsibility issues. The Board reviews Group-wide performance on corporate responsibility within the assessment and review process. Where necessary, Group-wide policies are developed or revised to address specific risks and opportunities, or new information. Products The development, use and disposal of our products represent a main area of both risk and opportunity. We ensure that our products and services are designed to meet existing legislation and customer expectations. Increasingly, this includes environmental, health and safety, and accessibility issues. To ensure that products manufactured by KIS SAS (the Group’s manufacturing subsidiary, based in France, which subcontracts this function to third parties) consistently satisfy our stringent quality requirements, certification to the ISO 9001 standard has been achieved. Being conscious of the global issues with the disposal of waste and having regard to increasing metal prices and landfill costs, we have paid more attention to the re-use and recycling of our retired products. Currently, at the end of their useful lives more than 90% by weight of the materials used in our photobooths is recycled, most of this being steel and other metals. In response to our concerns about the increase in energy costs and man-made contributions to climate change, we have also embraced technological advances by investing in energy-saving improvements to our products, which are explained further under “Environment”, below. The needs of all our customers are important. This drives a continual review of our products and the development of solutions to meet these needs. For example, we have improved the service provided to our disabled customers and at the same time complied with the requirements of the Equality Act 2010 by introducing within our photobooths on-screen instructions for the hard of hearing and voice instructions as well as carefully selected screen colours and font sizes to assist those with visual impairments. In addition the development of the Universal photobooth enables access for users confined to a wheelchair. Employees Employee communication, engagement and involvement The Company’s employees are a valued integral part of the business and the Company’s achieving success in key business objectives. As such it is the Company’s policy to provide colleagues with appropriate financial and other information about the business, encouraging employee engagement, and to enthuse and inspire its workforce through a network of media such as: (cid:129) (cid:129) business networking tools whereby we encourage synergies among colleagues and the businesses, sharing ideas and best practices; the notification internally of vacancies and policy updates; and (cid:129) monthly operational meetings for business leaders across the Group to engage with colleagues, providing business and local updates, and encouraging interactive feedback to ensure they are kept informed of the Group’s performance and of the financial and economic factors affecting the Company’s and the Group’s performance. Despite the Group’s de-centralised approach, the Company ensures that it has a common culture among the workforce throughout the entire Group achieved through openness, honesty and a common goal, focused on core values. We support and protect human rights wherever we can. As a responsible company with operations across the world, we believe that strong ethics and good business go hand-in-hand and we are committed to complying with the laws and regulations of the countries and jurisdictions in which we operate. Equal opportunities and diversity The Company is an equal opportunities employer and is committed to the equality of career opportunities for all of its employees without discrimination, with fair and equitable policies and procedures for recruitment, training and development. Full consideration is accorded to all applications from disabled persons, having due regard to their aptitudes and abilities. The Company ensures that wherever possible the continued employment of those employees who become disabled during their engagement is retained through a supportive mechanism of retraining, redeployment and reasonable adjustments, enabling them to remain within the Group. Opportunities for training, career development and progression into and within the Group do not operate to the detriment of disabled persons. i S t r a t e g c R e p o r t Health and safety We are committed to ensuring that customers, site-owners and employees are free from risk from products operated by the Group. In addition to these moral and ethical considerations, we believe that the effective management of health and safety is an essential ingredient for successful business performance. The commitment to the safety of our customers and business partners is achieved through a network of trained service operatives who routinely service installed equipment on customers’ sites as well as conducting periodic safety inspections and tests. Customers and site-owners are able to raise any safety concerns directly through our own call centres, which will immediately inform management and direct an operative to the site within 24 hours. New products from external suppliers are assessed to ensure that they meet the relevant safety standards before being placed on the market. Where appropriate, we will work with our suppliers, sharing the benefit of our many years’ experience to develop products with the greatest level of safety. Photobooth security is managed by a multipoint locking system with either one or two security padlocks depending on the actual model. Our photobooths meet current electrical standards through a declaration of conformity (DOC) and Conformité Européene (CE) marking confirming Restriction of Hazardous Substances (RoHS2) product compliance. Our experienced engineers also test equipment regularly to ensure it meets both Portable Appliance Testing (PAT) and ADIPS (Amusement Device Inspection Procedures Scheme) standards. Children’s rides manufactured by Jolly Roger (Amusement Rides) Limited, a subsidiary company in the UK, are produced in accordance with the industry guidance issued by BACTA (British Amusement and Catering Trades Association). This supplements the various British, European and International standards that apply to children’s rides and ensures a minimum standard of quality and safety. The Company is also a registered inspection body within the UK of the ADIPS Scheme administered by BACTA and enables its qualified operatives to inspect children’s rides and issue the required safety certification. Within the UK, the general manager fully supports the Health and Safety policy and has ensured that there is provision within the agenda of regular senior executive meetings to address health and safety matters. The policies and procedures developed over the years continue to be reviewed and adjusted as part of the process of continual improvement as well as keeping pace with legislative change. We believe that it is important to empower individuals at all levels and give them the tools and skills they require, through providing relevant training and information, if we are to achieve the standard of health and safety performance to which the Company aspires. The Company also continues to improve the employee induction process and has introduced an alternative on-line training system supplied by Essential Skillz in 2014 to train and refresh employee skills as required with the database now showing over 2,300 training sessions. The Company continues to maintain its membership with the British Safety Council and is also a member of the CE Marking Association. As well as demonstrating our commitment to safety and environmental best practice and continual improvement, these continued partnerships provide us with access to expert advice and quality training resources which assist us in achieving these goals. In the UK, the Company is accredited under the SAFEcontractor scheme and has also received an Altius assured Vendor award. This accreditation is reviewed annually and requires that all of our Health and Safety policies and procedures are audited by the scheme. Environment The Company recognises its responsibilities towards the environment and the impact of its business activities. The main risks to the business in this area arise from increasing legislation and the cost of waste disposal. The Company has mitigated the exposure to these risks by: (cid:129) (cid:129) consistently reducing, in previous years, the amount of obligated waste produced. During the current year, the UK operations were able to maintain the gains previously achieved; and the recovery, refurbishment and resale of electrical equipment such as children’s rides which promote the principle embodied in recent legislation of reuse before recycling. This not only produces cost savings but also creates a source of income. Where possible we endeavour to embrace technological advances to reduce the impact of our operations on the environment. Such initiatives include: (cid:129) (cid:129) (cid:129) (cid:129) the ability to automatically shut down (and restart) photobooths during closing hours which saves around 30% of power consumption on site; the use of remote telemetry systems to minimise the number of service visits and reduce wastage of consumables; the substitution of old-technology lighting with new low-energy lamps in all photobooths. The new Photobooth by Starck uses the latest LED lighting which also eliminates the hazardous waste associated with fluorescent tubes; the replacement of the majority of old CRT monitors with new flat-screen technology which is more energy-efficient and also eliminates the associated hazardous waste; and (cid:129) the development of equipment that uses solar power. Although we are not presently exposed to material risks related to climate change, we are taking proactive steps to ensure that our energy use and demand on natural resources are reduced wherever possible. In addition to the examples highlighted above, the Company operates a green fleet policy which specifies that vehicles are sourced according to practicality and environmental impact as defined in terms of CO2 emissions. We have achieved the target set last year of further reducing vehicle CO2 ratings by 3%, to a total of 19% compared with the 2008 fleet, which will save 139 tonnes of CO2 from entering the atmosphere each year. This is supported by the Company’s Road Risk Policy which assists in reducing fuel consumed as well as an overall reduction in the number of miles driven. Greenhouse gas (GHG) emissions Reporting of GHG emissions As of 1 October 2013, all quoted companies have to report their GHG emissions in their annual report as required by the Large and Medium- sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). In accordance with the disclosure requirements for listed companies, the table below shows the Group’s greenhouse gas emissions for the current and preceding financial year. The requirement is for the Group to report the emissions that it is responsible for (as defined below), and to provide at least one ‘intensity ratio’, together with an explanation of the methodology used. We recognise that all employees have an important contribution to make in the ongoing development and implementation of our Health and Safety policies and procedures. This is reflected in the representation from all levels of the business on the Health and Safety Committee. In the table below the Group has not reported fugitive emissions (which includes leakages from refrigerants used in air conditioning units, etc.) because no data were available and based on the low number of such units in the Group, management deemed such emissions not to be material. 16 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 17 Viability Statement The directors have assessed the viability and prospects of the Group in accordance with the requirements of the 2014 revision of the UK Corporate Governance Code. In doing so, the directors have considered and taken into account the Group’s present position and the principal risks facing it the latter being set out in the Strategic Report. The directors have carried out their assessment by: (i) considering the potential repercussions of those principal risks at least annually as well as the risk impact of each major event or transaction; (ii) examining the effectiveness of the actions taken to mitigate the principal risks; (iii) continually reviewing strategy and market developments through regular executive briefings; and (iv) taking into account the Group’s operational processes and financial resources. Based on this robust assessment, the directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities over a three-year period to June 2019. The directors decided that a three-year period is appropriate for this assessment because it enables a good level of confidence due to a number of factors including: (i) the Group’s considerable financial resources including the high cash generation of its operations; (ii) the inherent unlikelihood of all or even most of the identified potential principal risks materialising simultaneously; (iii) the length of major operating contracts; (iv) the Group’s diverse geographical operations plus its established business relationships with many customers and suppliers in countries throughout the world; and (v) its proven track record in R&D development and its ability to adapt to market trends. The directors have no reason to believe the Group will not be viable over a longer period, however, given the inherent uncertainty involved in looking at longer time frames, the period over which the directors consider it possible to form a reasonable expectation as to the Group’s longer-term viability is three years. By order of the Board Del Mansi Company Secretary 21 June 2016 i S t r a t e g c R e p o r t Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:30 Page 18 Corporate Responsibility Statement (forming part of the Report of the Directors) continued Greenhouse gas (GHG) emissions Year ended Year ended 30 April 2016 30 April 2015 Tonnes Tonnes of CO2e of CO2e Emissions from Scope 1 4,372.99 4,985.92 Scope 1 – travel costs 3,882.59 4,681.04 Scope 1 – gas 490.40 304.88 Scope 2 18,324.59 17,564.97 Scope 2 – operating estate 17,789.42 16,825.27 Scope 2 – electricity, heat, steam or cooling 535.17 739.70 Total emissions 22,697.58 22,550.89 Intensity ratio Per number of units of operating equipment 0.4986 0.5048 There has been a slight increase (0.65%) in the Group’s total Greenhouse Gas emissions during the year ended 30 April 2016 compared with that of the year ended 30 April 2015. There is a reduction in scope 1 emissions - mainly travel costs, reflecting the Group’s policy to use efficient Co2 car fleets offset by an increase in scope 2 emissions - mainly electricity used in the operating estate. The increase in scope 2 emissions is due in part to an increase in the number of laundry units in operation. The Group continues to invest in efficient energy-saving equipment. The Group’s intensity measure, based on the average number of units of operating equipment, shows a reduction in the year ended 30 April 2016 compared with the preceeding year from 0.5048 to 0.49858. in addition, the Company complies with its obligations under the Government’s Energy Savings Opportunity Scheme. The Group’s long-term aim is to reduce its carbon footprint, but it has not set any specific targets. Assessment parameters Consolidation approach The figures above are based on subsidiary companies owned by Photo-Me, with the exception of those non-material subsidiary companies, each of whose vending estate comprises less than 50 machines, being mainly new start-up ventures. For those investments where the Group has less than 50% of the issued share capital, the Group does not have operational control for day-to-day activities and these entities are not included in the above figures. Boundary summary The Group has included its vending estates which are owned by the Group even though it does not directly control the operational use (i.e. period of operation) for these assets. Emission factor source DEFRA (2014) (2014: DEFRA (2013)) Guidelines to DEFRA/DECC’s GHG Conversion Factors for Company Reporting. Methodology Photo-Me followed the Greenhouse Gas Protocol Corporate Standard. Materiality threshold As mentioned above, subsidiary companies with less than 50 units of operating equipment have been excluded, as have depots and other property units where the total amount spent on heat, light and power is less than £50,000 per annum per site. Intensity ratio As explained below. Scope 1 emissions The main components of these emissions are: (cid:129) Emissions from motor vehicles operated by the Group, including service and installation personnel (servicing and maintaining the operational estate etc.) and administrative staff. (cid:129) Natural gas consumption on the Group’s premises. Scope 2 emissions The main components of these emissions are: (cid:129) Purchased electricity for use in the Group’s premises. This is mainly for heating and lighting. The Group’s property estate largely consists of administrative offices and storage depots. Most manufacturing of vending equipment and products are outsourced to third parties, where emissions are controlled by third parties. (cid:129) Emissions from vending equipment. The Group’s chosen intensity ratio for external reporting is total emissions divided by the average number of units of operating equipment during the year for the reporting companies. 18 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 19 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 20 Corporate Governance Personal identification... Assisting the Japanese Government by developing a new ID system in our photobooths, utilising a QR code reader, for the new My Number card. C o r p o r a t e G o v e r n a n c e ...helping to manage social administration. 20 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 21 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 22 Board of Directors & Company Secretary John Lewis OBE Non-executive Chairman Serge Crasnianski Chief Executive Officer & Deputy Chairman Appointed to the Board in 2009. Previously served on the Board from 1990 to 2007; until 1994 as a Non-executive Director, from 1994 as an Executive Director and as Chief Executive Officer from 1998 to 2007. Founded KIS in 1963. Joined the Board in 2008 and appointed Chairman in 2010. Chairman of the Nomination Committee and a member of the Audit and Remuneration Committees. Currently a consultant to Messrs Eversheds and a Director of AIM market company, Prime People plc as well as various private companies. Previously a practising solicitor and partner in Lewis Lewis and Co which became part of Eversheds after a series of mergers. Also previously served as Chairman of Cliveden Plc and Principal Hotels plc and as Vice Chairman of John D Wood & Co plc and Pubmaster Group Ltd. Françoise Coutaz-Replan Non-executive Director Yitzhak Apeloig Non-executive Director Emmanuel Olympitis Non-executive Director Appointed to the Board in 2009. Retired from her executive role as Group Finance Director on 27 August 2015, continuing as a Non- executive Director. Joined KIS in 1991. Appointed to the Board in 2012. A qualified accountant and Managing Partner of ATE Technology Equipment B.V., a private equity firm active mainly in Israel. Chairman of Leader Holdings and Investments Ltd and Director of Leader Capital Markets Ltd (all quoted on the Israeli Tel Aviv Stock Exchange). Chairman or Director of a number of other private companies. Previously Executive Chairman of Telit Communications plc, having led its flotation on the London AIM market in 2005. Jean-Marcel Denis Non-executive Director Del Mansi Company Secretary Appointed to the Board in 2009. Senior Independent Non-executive Director, Chairman of the Remuneration Committee and a member of the Nomination and Audit Committees. Previous directorships include China Cablecom Holdings Limited (NASDAQ), Canoel International Energy Limited (Canada), Matica plc, Secure Fortress plc, Bulgarian Land Development plc, Norman 95 plc, Pacific Media plc (Executive Chairman) and Bella Media plc (Chairman). Early career in merchant banking and financial services, including as Executive Director of Bankers Trust International Ltd, Group Chief Executive of Aitken Hume International plc and Executive Chairman of Johnson & Higgins Ltd. Appointed to the Board in 2012. Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees. Founded his own auditing firm in 1970 in Paris; Auditeurs & Conseils Associes (ACA) and sold his interest in ACA in 2005. Subsequently a consultant in Finance & Conseils Associes, which specialises in business valuations. Joined the Group in 2006. A qualified solicitor. Served as interim Company Secretary from April to July 2008. Appointed Group General Counsel in 2009, a role retained upon being appointed Company Secretary in May 2013. Report of the Directors The directors submit to the shareholders their report, the audited consolidated financial statements of the Group and such audited financial statements of Photo-Me International plc as required by law for the year ended 30 April 2016. The Corporate Governance Statement and the Corporate Responsibility Statement should be read as forming part of this report. In this document, references to “The Group”, “The Company”, “we”, or “our”, refer to Photo- Me International plc, its subsidiary companies and, where applicable, its associated undertakings, or any of them as the context may require. Principal activities The principal activities of the Group continue to be the operation, sale and servicing of a wide range of instant-service equipment. The Group operates coin-operated automatic photobooths for identification and fun purposes, and a diverse range of vending equipment, including digital photo kiosks, amusement machines, business service equipment and laundry machines. The Company’s subsidiary and associated undertakings are shown on page 99. Results and dividends The results for the year are set out in the Group Statement of Comprehensive Income on page 48. The directors recommend a final dividend of 3.285p per ordinary share which, if approved at the Annual General Meeting on 20 October 2016, will be paid on 10 November 2016 to shareholders on the register at the close of business on 7 October 2016. The ex-dividend date will be 6 October 2016. This, together with the interim dividend of 2.575p per ordinary share paid on 12 May 2016 makes a total dividend for the year of 5.86p per ordinary share. In addition, a special dividend of 2.815p per ordinary share will be paid on the same date as the final dividend, above. Review of the business and future developments The Strategic Report describes the activities of the business during the financial year, recent events (including any important events affecting the Group which have occurred since the financial year end), and gives an indication of likely future developments in the Group’s business. A discussion of the key risks facing the Group and an analysis of key performance indicators are also provided in the Strategic Report. The Strategic Report also contains the Board’s Long-term Viability Statement. Research and development The Group is committed to its research and development programme in order to maintain its introduction of innovative products to the market. The expenditure incurred on the development of new products is shown in notes 4 and 11 to the financial statements. Employees Information on the Company’s employment practices including its policy regarding applications for employment by disabled persons, for the continuing employment of employees who have become disabled, and the training, career development and promotion of disabled persons employed by the Company, as well as employee communication and involvement, is contained within the Corporate Responsibility Statement on pages 16 to 18 forming part of this report. Corporate responsibility A summary of the Company’s approach to corporate social responsibility and environmental matters, including a report on the Group’s greenhouse gas emissions for the financial year ended 30 April 2016, can be found in the Corporate Responsibility Statement on pages 16 to 18. Board of directors and their interests The current directors of the Company are: John Lewis (Chairman, member of the audit and remuneration committees, and chairman of the nomination committee); Serge Crasnianski (Chief Executive Officer and Deputy Chairman); Emmanuel Olympitis (Senior Independent Non- executive Director, Chairman of the Remuneration Committee and a member of the Nomination and Audit Committees); Françoise Coutaz- Replan (Non-executive Director); Jean-Marcel Denis (Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees); and Yitzhak Apeloig. Further details, together with a brief biography of each director, can be found on page 22. All directors served on the Board throughout the year under review. In addition to the powers conferred on the directors by law, the Company’s Articles of Association also set out powers of the directors; in particular, under these powers, the directors may, subject to any statutory provision requiring prior shareholder approval, exercise all powers of the Company to borrow money, issue shares, appoint and remove directors and recommend dividends and pay interim dividends. A copy of the Articles of Association can be found on the Company’s website. The director retiring by rotation and being put forward for re-appointment at the Annual General Meeting this year is Mr Emmanuel Olympitis. Details of the directors’ contracts, emoluments and interests in shares and share options are given in the Remuneration Report on pages 30 to 42. Directors’ and officers’ liability insurance The Company maintained directors’ and officers’ liability insurance cover throughout the financial year. This insurance cover extends to directors and officers of subsidiary undertakings and remains in force. Article 191 of the Company’s Articles of Association allows the indemnification of directors of the Company and associated companies and of directors of a company that is the trustee of an occupational pension scheme for employees of the Company or an associated company against liability incurred by them in certain situations, and would, if granted, constitute a “qualifying indemnity provision” within the meaning of Section 236 (1) of the Companies Act 2006. No such indemnities have been granted. C o r p o r a t e G o v e r n a n c e 22 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 23 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 24 Report of the Directors continued Substantial shareholders As at 21 June 2016, the Company has been notified of the following disclosable interests in the ordinary shares of the Company: Number of % of total Nature ordinary shares voting rights of holding Serge Crasnianski (director) 79,783,450 21.25 * Direct/indirect Schroders plc 56,298,107 14.99 Indirect Dan David Foundation 45,579,318 12.14 Direct FIL Limited 29,660,825 7.90 Indirect * Except for 63,750 Ordinary shares held in his own name, the interest in which is direct, the remaining shares are registered in the name of Tibergest S.A., and Mr Crasnianski’s interest in those remaining shares is indirect. Except for the above, the Company has not been advised of any shareholders with interests of 3% or more in the issued ordinary share capital of the Company as at such date. Share capital The issued share capital of the Company, plus details of the movements in the Company’s issued share capital during the year, is shown in note 20 to the financial statements. Each ordinary share of the Company carries one vote at general meetings of the Company. Authority to purchase shares Pursuant to a resolution passed at its 2015 Annual General Meeting, the Company is authorised to purchase its own shares in the market. The Company will seek approval at the 2016 Annual General Meeting to renew the authority for the Company to make market purchases of up to 10% of its own ordinary shares at a maximum price per share of not more than the higher of: (a) an amount which is not more than 5% above the average of the closing middle market quotations for an ordinary share (derived from the London Stock Exchange Daily Official List) for the five business days immediately before the date on which that ordinary share is contracted to be purchased, or (b) the higher of the price of the last independent trade or the highest current independent bid on the London Stock Exchange at the time the purchase is carried out. This authority will expire on the earlier of 18 months from the passing of the relevant special resolution or the conclusion of the following Annual General Meeting. The Company made no repurchases of shares in the year ended 30 April 2016. Additional information Where not provided elsewhere in the Report of the Directors, the following provides the additional information required to be disclosed in the Report of the Directors. The structure of the Company’s share capital including the rights and obligations attaching to the shares is set out within note 20 to the financial statements. No person holds securities carrying special rights with regards to control of the Company. There are no restrictions on the transfer of ordinary shares in the capital of the Company other than certain restrictions which may from time to time be imposed by law, for example, insider trading law. In accordance with the Listing Rules of the Financial Conduct Authority, certain employees are required to seek the approval of the Company to deal in its shares. On a show of hands at a general meeting of the Company, every holder of ordinary shares entitled to vote and who is present in person or by proxy shall have one vote and on a poll, every member present in person or by proxy and entitled to vote shall have one vote for every ordinary share held (except as otherwise stated in Article 81 of the Company’s Articles of Association). Any notice of general meeting issued by the Company will specify deadlines for exercising voting rights and in appointing a proxy or proxies in relation to resolutions to be passed at the general meeting. All proxy votes are counted and the numbers for, against or withheld in relation to each resolution are announced at the general meeting and published on the Company’s website after the meeting. Proxy appointment and voting instructions must be received by the Company’s registrars not less than 48 hours before a general meeting. Under its Articles of Association, unless the Board otherwise determines, no member shall be entitled to vote in respect of any share unless all calls or other sums presently payable by them in respect of that share shall have been paid. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of shares or on voting rights. The rules governing the appointment of directors are set out in the Corporate Governance Statement on pages 26 to 29. The Company’s Articles of Association may only be amended by a special resolution at a general meeting of shareholders. The Company is party to a number of agreements with site-owners (such as major supermarket chains) which could be terminable by the site-owners following a change of control of the Company. There are no agreements between the Company and its directors or employees which provide for compensation for loss of office or employment (whether through resignation, purported redundancy or otherwise) that occurs because of a takeover bid. The Company is not aware of any contractual or other agreements which are essential to its business which ought to be disclosed in this Report of the Directors. Related-party transactions Details of related-party transactions are set out in note 28 to the financial statements. Financial instruments Details of the financial risk management objectives and policies of the Group and exposure of the Group to foreign exchange risk, interest rate risk and liquidity risk are given in note 15 to the financial statements. Political donations No member of the Group made any political donations during the year ended 30 April 2016. Going concern Having reviewed forecasts, cash flow, financial resources and financing arrangements and after making enquiries, the directors consider that the Company and the Group have adequate resources to remain in operation for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the financial statements. Disclosure of information to the auditor The directors who held office at the date of approval of this Report of the Directors confirm that: so far as they are each aware, there is no relevant audit information of which the Company’s auditor (KPMG LLP) is unaware; and each director has taken all the steps that he or she ought to have taken as a director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Auditor In accordance with section 489 of the Companies Act 2006, a resolution for the re-appointment of KPMG LLP as auditor of the Group is to be proposed at the forthcoming Annual General Meeting. Annual General Meeting The Company’s Annual General Meeting this year will be held at noon on 20 October 2016 at The Thatcher’s Hotel, Guildford Road, East Horsley, Surrey KT24 6TB. Notice of the Annual General Meeting is sent to all shareholders of the Company, as well as to persons nominated by a shareholder of the Company to enjoy information rights. The Notice convening the meeting provides full details of all the resolutions to be proposed, together with explanatory notes for both the ordinary and special business. Copies of this Annual Report are sent only to shareholders who have requested or request a copy. By order of the Board Del Mansi Company Secretary 21 June 2016 C o r p o r a t e G o v e r n a n c e 24 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 25 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 26 Corporate Governance Statement (forming part of the Report of the Directors) Statement of compliance with the UK Corporate Governance Code The Financial Conduct Authority requires listed companies incorporated in the United Kingdom to include in their annual financial report (i) a statement of how they have applied the main principles set out in the UK Corporate Governance Code (the “Code”) and (ii) a statement as to whether they have complied throughout the accounting period with all relevant provisions set out in the Code. The directors consider that the Company has, throughout the year ended 30 April 2016, complied with those provisions of the September 2014 edition of the Code that are applicable to it. The Code and associated guidance are available on the Financial Reporting Council website at www.frc.org.uk. Explanations of how the principles have been applied and the provisions complied with are set out below. The Group’s business model and strategy The Group’s business model and strategy are summarised on pages 4 to 5, and describe, amongst other things, how the Company generates and preserves value over the longer term and the strategy for delivering the objectives of the Company. The Board Board composition Throughout the year under review, the Board comprised the same six directors, being the Non-executive Chairman, the Chief Executive Officer, and four Non-executive Directors, three of whom the Board considers to be independent, namely Emmanuel Olympitis, Jean-Marcel Denis and Yitzhak Apeloig, and one whom the Board considers to be non- independent because of her previous employment by the Company, namely Françoise Coutaz-Replan. Ms Coutaz-Replan resigned as an employee of the Group in August 2015. The Chairman The Chairman has the overall responsibility for managing the Board. The Chief Executive Officer has responsibilities for strategy, operations and results. Clear division of responsibility exists such that no one individual or group of individuals can dominate the Board’s decision-making process. Throughout the year under review, John Lewis served as Chairman and Serge Crasnianski served as Chief Executive Officer and Deputy Chairman. Director independence The Board structure has complied with the Code provision that, as a “smaller company” (as defined by the Code), the Company has three independent Non-executive Directors excluding the Chairman. On his appointment in March 2012, the Nomination Committee took the view (out of caution) that because of Mr Apeloig’s then current and previous business relationships with the Dan David Foundation and Mr Philippe Wahl, both of whom either directly or indirectly were major shareholders in the Company, he should not be considered as independent (the Dan David Foundation remains a major shareholder). These relationships of Mr Apeloig were indirect through his association with other entities. This view was reached even though (i) Mr Apeloig held no mandate from either of those shareholders, (ii) would not be representing them, and (iii) would not be reporting back to them (a state of affairs which has never changed throughout his tenure of office as a director of the Company). Since Mr Apeloig’s appointment, the Group has transacted business with one entity of which Mr Apeloig is a director, and in which the Dan David Foundation and Mr Philippe Wahl have ownership interests, namely Fomat Limited, a company incorporated in Israel. The business which Fomat Limited transacted with the Group has been minimal (the total value of such business transactions for the financial years ended 30 April 2013 and 2014,was £23,098, and £17 respectively, and £nil for both of the financial years ended 30 April 2015 and 2016). Accordingly, given the above the Nomination Committee reassessed Mr Apeloig’s status in 2015 and concluded that he should be considered as being an independent Non-executive director. The Committee keeps the situation under observation in case of any change but it is not expecting any such change. The Senior independent director Emmanuel Olympitis has served as the Company’s Senior Independent Non-executive Director throughout the period. If a new director were to be appointed, the Board would ordinarily appoint someone who it believes has sufficient knowledge and experience to fulfil the duties of a director. If this were not the case, an appropriate training course would be provided. An appropriate induction programme is undertaken for all newly-appointed directors. All directors have access to the advice and services of the Company Secretary. Any director wishing to do so in furtherance of his or her duties, may take independent advice at the Company’s expense. All directors are required to stand for re-election every three years and newly appointed directors are subject to election by shareholders at the first Annual General Meeting after their appointment. Directors’ conflicts of interest During the year, directors completed questionnaires in respect of their interests. The Board will continue to monitor and review actual or potential conflicts of interest on a regular basis and will consider whether or not it is appropriate to authorise any such conflicts. Board evaluation The Chief Executive Officer and the Chairman review the performance of other Executive Directors. The Chairman reviews the performance of the Chief Executive and each Non-executive Director. The Non-executive Directors, led by the Senior Independent Non-executive Director, evaluate the performance of the Chairman taking into account the views of the Executive Directors. During the year, the Chairman met with the Non- executive Directors without the Executive Directors being present. An internal process to assess the effectiveness of the Board was undertaken during the year, consisting of a confidential survey. Areas that were identified in which there was considered to be room for improvement, will be addressed by the Board during the current year. The Board had five meetings during the year under review. The attendance of directors at those meetings and meetings of Board Committees is set out below. Audit Remuneration Nomination Board Committee Committee Committee Number of meetings held 5 3 2 0 Number of meetings attended (maximum possible) Director J Lewis 5 (5) 3 (3) 2 (2) 0 (0) S Crasnianski 5 (5) n/a n/a n/a Y Apeloig 5 (5) n/a n/a n/a F Coutaz-Replan 4 (5) n/a n/a n/a J-M Denis 5 (5) 3 (3) 1 (2) 0 (0) E Olympitis 5 (5) 3 (3) 2 (2) 0 (0) External auditor The Audit Committee meets with the external auditor, without executive directors present, at least once a year. On behalf of the Board, the Committee reviews the Group’s accounting and financial reporting practices, the reports of the internal auditor and external auditor, and compliance with policies, procedures and applicable legislation. In addition, the Committee monitors the effectiveness of both the external and internal audit functions and reviews the Group’s internal financial control systems and reporting processes, and risk management procedures. The Committee considers the appointment of the external auditor and makes a recommendation on the audit fee to the Board; it assesses the effectiveness of the external auditor by means of an internal review process assisted by a confidential questionnaire; it sets a policy for safeguarding the independence of the external auditor and reviews the external auditor’s work outside of the audit itself, taking into account the nature of the work, the size of the fees and whether it is appropriate for the external auditor to carry out such work. Details of audit and non-audit fees are provided in note 4 to the financial statements. KPMG LLP has been the external auditor of the Group since the Annual General Meeting in September 2013. The Audit Committee is satisfied with the effectiveness, objectivity and independence of the external auditor. Accordingly, a resolution will be proposed at the forthcoming Annual General Meeting for KPMG LLP’s re-election as auditor for the coming year. From the year ended 30 April 2009 until the Annual General Meeting in September 2013, KPMG Audit Plc was auditor, having been selected as a result of a competitive tender in 2008. The Board is committed to putting the audit contract out to tender at least once every ten years. C o r p o r a t e G o v e r n a n c e Operation of the Board The Board is normally scheduled to meet four or five times a year, with ad hoc meetings convened to deal with urgent matters. The Board has a formal schedule of matters reserved to it for decision. These include approval of the financial statements, dividend policy, major acquisitions and disposals and other transactions outside delegated limits, significant changes in accounting policies, the constitution of Board Committees, risk management and corporate governance policy. The Board has delegated various matters to Committees, as detailed below. These Committees of the Board meet regularly (the Nomination Committee meets as required) and deal with specific aspects of the management of the Company. The Board has delegated authority to the Committees and they have defined terms of reference which are available on the Company’s website (www.photo-me.co.uk). Decision making relating to operational matters is delegated to senior management. Board and Committee papers are circulated in advance of each meeting and are supplemented by reports and presentations to ensure that Board members are kept fully informed. Board Committees The Audit Committee The Audit Committee consists entirely of Non-executive directors. For the whole of the year under review, Jean-Marcel Denis (Committee Chairman), Emmanuel Olympitis (Senior Independent Director) and John Lewis (Chairman of the Board) served on the Committee. The composition of the Committee was compliant with the Code, which permits a smaller company’s Chairman to be a member of the Audit Committee providing he was considered independent on appointment as Chairman. The Board considers that both Emmanuel Olympitis and Jean-Marcel Denis have suitable recent and relevant financial experience to satisfy the requirements of the Code. Meetings are normally held at least twice a year. Three meetings were held during the year under review. Other directors (the Chief Executive Officer, Ms Coutaz-Replan (the Group’s former Finance Director), Yitzhak Apeloig, who is a qualified accountant) together with the Chief Financial Officer and representatives of the external auditor are generally invited to attend meetings, as is the Group’s internal auditor when required. The Group’s internal auditor is in regular contact with the Chairman of the Audit Committee and delivers regular reports. The minutes of the meetings are available to all directors. 26 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 27 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 28 Corporate Governance Statement (forming part of the Report of the Directors) continued Key matters considered During the last financial year, the Committee met to review the results of the external audit for the previous financial year, the external auditor’s half- year review and the audit plan for the audit for the year ended 30 April 2016. In June 2016, the Committee met to review this annual report and to receive the external auditor’s update and report on its audit activity. The Committee’s primary areas of focus have been: (cid:129) The carrying value of operating equipment and the potential impairment of these assets. How this was addressed: the Committee reviewed the assumptions made for the assessment of future discounted cash flows of the operating assets per country and per category. The review included the discount rate applied, the achievability of the forecasts as compared with the past performance, as well as the impact of external changes in markets or regulations. the integrity, completeness and consistency of financial reporting, including the adequacy, clarity and appropriateness of disclosures; The Committee’s Terms of Reference are available on the Company’s website. (cid:129) (cid:129) (cid:129) the areas where significant judgments and estimates are required in the financial statements; the scope and programme of audits, along with the quality and effectiveness of audit processes so that they complement the other risk management activities within the Group; (cid:129) the materiality level to apply to the audit; and (cid:129) whether the going-concern basis of accounting should continue to apply in the preparation of the annual financial statements. The preparation of financial statements requires management to make assumptions, judgments and estimates which are detailed in note 1 to the financial statements. The key areas of assumptions, judgments and estimates that have been monitored and considered by the Committee were: (cid:129) The carrying value of the GBP denominated goodwill in connection with the Japanese subsidiary and the potential impairment of this asset. How this was addressed: the determination of whether or not goodwill has to be impaired requires a review of the value in use of the asset. The main judgments in relation to the review were considered to be the achievability of the budget, the discount rate being applied to projected future cash flows and the potential impact of the volatility of the Japanese Yen. The calculation of the value in use was undertaken in April 2016 and the Committee considered the conclusions and sensitivity calculations that had been undertaken as part of the review. (cid:129) The appropriateness and valuation of provisions. How this was addressed: provisions for termination of employment: the main judgments were considered to be the average potential claim per person and the period of lapse for the claims. The Committee reviewed all the legal documentation and the methodology of calculation. Provision for litigation: the main judgments were considered to be the probable outcome of claims, including the potential exposure. The Committee has reviewed the arguments contained in the documents initiating the legal processes and the correspondence with the lawyers. The Remuneration Committee During the year under review, the Remuneration Committee comprised Emmanuel Olympitis (Committee Chairman), Jean-Marcel Denis and John Lewis (Chairman of the Board). Thus the composition of the Committee was compliant with the provisions of the Code which require the Remuneration Committee of a smaller company to comprise at least two independent Non-executive directors with the Chairman of the Board additionally being permitted to serve as a member providing that he was considered independent on his appointment as Chairman. The Committee meets at least once per year. Two meetings were held in the year ended 30 April 2016. The Committee makes recommendations to the full Board in respect of the Group’s remuneration policy. The Committee also keeps under review the remuneration of the Chairman, the Group’s Executive directors and senior executives, to ensure that they are rewarded fairly for their contribution. The Committee also makes awards under the Executive Share Option Scheme. The Committee’s Terms of Reference are available on the Company’s website. The Remuneration Report on pages 30 to 42 provides details of how the Committee applies the directors’ remuneration principles of the Code. The Nomination Committee During the year under review, the Nomination Committee comprised John Lewis (Committee Chairman), Emmanuel Olympitis and Jean-Marcel Denis. Thus the composition of the Committee was compliant with the applicable provision of the Code which requires the Nomination Committee of a smaller company to have a majority of independent Non-executive directors with the Chairman of the Board additionally being permitted to serve on the Committee as a member or as Chairman. The Committee, which meets as required, makes recommendations to the Board on the appointment of new directors. The Committee had several discussion sessions during the year ended 30 April 2016, but as no new candidates were considered for appointment to the Board during that period, the Committee held no formal meetings. The Nomination Committee is committed to the pursuit of diversity, including gender diversity, throughout the business. Appointments to the Board are made on merit, against objective criteria and with due regard for the benefits of diversity on the Board, including gender diversity. The Nomination Committee does not commit to any specific targets. The Group’s Diversity Policy also recognises the benefits of diversity. The Nomination Committee will also ensure that its development in this area is consistent with the Group’s current and future requirements, enhances Board effectiveness and reflects the Company’s UK listing and the international activity of the Group. Internal control and risk management in relation to the financial reporting process The Group has a thorough assurance process in place in respect of the preparation, verification and approval of periodic financial reports. This process includes: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) the involvement of qualified, professional employees with an appropriate level of experience (both in Group Finance and throughout the business); formal sign-offs from appropriate business segment managing directors and finance directors; comprehensive review and, where appropriate, challenge from key internal Group functions; a transparent process to ensure full disclosure of information to the external auditor; engagement of a professional and experienced firm as external auditor; (ii) oversight by the Audit Committee, involving (amongst other duties): (i) a detailed review of key financial reporting judgments which have been discussed by management; review and, where appropriate, challenge on matters including: the consistency of, and any changes to, significant accounting policies and practices during the year; significant adjustments arising as a result of the external audit; the going concern assumption; and the Company’s statement on internal control systems, before endorsement by the Board. The above process, together with the review by the Audit Committee of a comprehensive note that sets out the details of the preparation, internal verification and approval process for the Annual Report and Accounts, provide comfort to the Board that the Annual Report and Accounts, taken as a whole, are fair, balanced and understandable, and give the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. C o r p o r a t e G o v e r n a n c e Shareholder communication and engagement The Chief Executive Officer has regular meetings with the Company’s major institutional shareholders to help ensure, amongst other things, that the Board develops an understanding of the views of major shareholders about the Company and the Group. The Chairman also meets with major shareholders and has contact with them, as and when required. The Senior Independent Non-executive Director and, where appropriate, other Non-executive directors, are also made available to meet with major shareholders on request. Any pertinent feedback arising from such meetings is reported to the Board at its regular meetings and/or by correspondence or dialogue. Private investors are encouraged to attend the Annual General Meeting and have the opportunity to question the Board. All members of the Board usually attend the Annual General Meeting. The notice of the meeting is sent to shareholders at least 20 working days before the meeting. Shareholders are given the opportunity to vote on each separate issue. The number of proxy votes lodged is given at the meeting after the vote on a show of hands for each resolution and is published on the Company’s website after the meeting. Accountability and internal control The Board is ultimately responsible for the Group’s systems of internal control and risk management, and for reviewing their effectiveness. This is effected by receiving reports from the Audit Committee following its review. The Board confirms that it has reviewed the effectiveness of the systems of internal control and risk management for the year under review. The Board is satisfied generally that such systems have operated adequately throughout the period. The system of internal control is designed to manage, rather than eliminate, the risk of failure to achieve business objectives. Such a system can, however, provide only reasonable and not absolute assurance against material misstatement or loss. The Group has in place processes for identifying, evaluating and managing the significant risks which are applicable to the business. The Board regularly reviews these processes. The Chief Executive Officer is ultimately responsible for risk management. Executive managers of individual Group companies are responsible for the identification, evaluation and management of the key risks applicable to their areas of responsibility. The risks are assessed on a regular basis. The managers of Group companies are aware of their responsibility to operate systems of internal control which are effective and efficient for their businesses, to provide reliable financial information and to ensure compliance with local laws and regulations. The Group has a comprehensive budgeting system with an annual budget approved by the Board. Actual results are reported monthly through the Group’s financial systems, and variances are reviewed. The Audit Committee receives reports from the internal auditor and from the external auditor and reports its conclusions to the Board. A whistle-blowing procedure by which staff may raise concerns about possible improprieties in matters of financial reporting or other matters was in place throughout the year. The Whistle Blowing policy can be found on the Company’s website. 28 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 29 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 30 Remuneration Report Annual Statement Dear Shareholder, I am pleased to present the Directors’ Remuneration Report for the year ended 30 April 2016, which has been prepared by the Remuneration Committee (‘the Committee’) and approved by the Board. This is the Company’s third year of reporting in line with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). The report has been divided into three sections: – – – This Annual Statement, which summarises remuneration outcomes in 2015/16 and the intended policy for 2016/17. The Company’s policy on the remuneration of executive and non- executive directors which outlines the Group’s remuneration policy approved by shareholders at the 2014 annual general meeting (AGM). We will ask shareholders to vote on a number of changes to that remuneration policy at the 2016 AGM ahead of a more fundemental review of the policy in 2017 (i.e. the end of the three year policy). The amended policy, as it would be if shareholders approve those changes at the 2016 AGM, is set out below. The Annual Report on Remuneration, which discloses details of the Remuneration Committee, how the remuneration policy was implemented in the year ended 30 April 2016, and how the policy will operate for the year ending 30 April 2017. This Remuneration Report (other than the part containing the Directors’ Remuneration Policy) will be subject to an advisory vote at the forthcoming 2016 AGM. The Remuneration policy amendments will be subject to a binding vote. Remuneration outcomes in 2015/16 For the year under review, the Remuneration Committee considers the remuneration of the executive directors to reflect both the performance of the Group and their individual performance. As pre-tax profit exceeded the prior year adjusted pre-tax profit by more than 5%, 100% of salary bonus is payable to the Chief Executive Officer (CEO). The Remuneration Committee decided not to pay out any bonus to Françoise Coutaz-Replan as she stepped down from her executive role on 27 August 2015. However, the Remuneration Committee would like to take this opportunity of acknowledging the excellent work that Françoise has done over the years she has been with the Group and in particular during the time she served as Group Finance Director. Françoise continues to serve the Group as a non-executive director, bringing her skill, experience and deep knowledge of the business to bear in this role. Remuneration policy for 2016/17 For 2016/17 and following extensive consultation with major investors: – the base salary payable to the Chief Executive Officer (CEO) was increased by 10% effective 1 May 2016. This followed a review of both individual and Group performance in addition to taking account of: (i) a desire to re-establish and maintain an appropriate salary differential between the CEO and below-Board executives, which has been reducing in recent years; (ii) the size and complexity of the role; and (iii) relevant market data. This increase is within the shareholder approved remuneration policy. – Shareholder approval will be sought at the 2016 AGM to amend the remuneration policy to, amongst other things, accommodate an increase in the CEO’s annual bonus potential from 100% to 150% of salary, effective 1 May 2016, with the additional potential subject to challenging performance targets based on financial performance. 100% of base salary bonus potential will be payable for exceeding the previous year’s pre-tax profit by 5%, increasing to 150% of base salary bonus potential payable for exceeding the previous year’s pre-tax profit by 10%. 75% of base salary will be payable as a bonus if pre-tax profit for the year is not less than that of the previous year. If the Group’s pre-tax profit is less than that of the previous year, any bonus will be entirely at the discretion of the Committee. This change reflects the Committee’s desire to remunerate the CEO fairly and at market levels for his responsibility levels and role performed, particularly given that, as explained below, he does not receive share awards. No share deferral will operate given the CEO’s significant equity holding. Consistent with best practice, clawback provisions will be introduced. In addition, the Remuneration Committee will provide full retrospective disclosure in respect of the performance targets and performance against those targets in the Remuneration Report published immediately following the relevant year end. – Consistent with best practice, the policy in respect of shareholding guidelines for executive directors will be increased from 100% to 200% of salary. – No changes will be made to the policy in respect of benefit and pension provision and long-term incentives will continue to be provided through the Photo-Me 2014 Executive Share Option Scheme approved at the 2014 AGM. Awards are granted over market value options which normally vest three years from grant, subject to continued employment and performance conditions based on earnings per share targets. However, the committee considers that the CEO is already significantly aligned to the share price given his shareholding, therefore he will not receive long-term incentive awards during 2016/17. Market value options over shares worth up to 150% of salary will be granted to selected senior executives (excluding the CEO) which will normally vest three years from grant, subject to continued employment and earnings per share (“EPS”) performance targets. However, to the extent that any executive director receives awards under the Photo-Me 2014 Executive Share Option Scheme in the future, a two-year holding period will operate whereby to the extent that the individual exercises vested awards within two years of the vesting date, they will be required to retain the net-of-tax shares until the second anniversary of vesting (i.e. five years from grant). As the above changes are amendments to the existing remuneration policy rather than the introduction of a new policy, the Committee still intends to conduct a full review of the remuneration policy before the 2017 AGM (i.e. three years from the adoption of the first remuneration policy) to take recent investor feedback into account. Major investors and representitive bodies will be consulted where appropriate. Shareholder engagement The Committee continues to take an active interest in shareholder views on our executive remuneration policy and is mindful of the concerns of shareholders and other stakeholders. This is reflected in our voting result at the 2015 AGM, which was over 91% in favour of the Directors’ Remuneration Report resolution, and no significant issues were raised. In conclusion, we remain firmly of the view that our remuneration policy continues to be appropriately aligned with the Company’s strategic objectives of delivering shareholder value and supporting the long-term success of the Company. Yours faithfully, Emmanuel Olympitis Chairman of the Remuneration Committee 21 June 2016 Remuneration Report Remuneration Policy Report This part of the Directors’ Remuneration Report sets out the remuneration policy for the Company since 1 May 2014 subject to a number of amendments which will be put to shareholders for approval at the 2016 AGM. The original policy was approved by shareholders at the Company’s Annual General Meeting held on 23 October 2014 with 98.59% of all votes cast in favour and became effective formally following that date. If shareholders approve this amended policy, it will take effect from 1 May 2016. The Committee’s remuneration policy for the executive directors is to have regard to the directors’ experience and the nature and complexity of their work in order to provide a competitive remuneration package that attracts, retains and motivates high-calibre executives from whom first-class performance is expected. The remuneration policy is also intended to be consistent with the Company’s business objectives, risk profile and shareholder interests. The Committee also ensures that, when determining the executive directors’ remuneration packages, due account is taken of pay and general employment conditions elsewhere in the Company, liaising with the Human Resources department where appropriate. In order to align the interests of shareholders and executive directors, a significant proportion of the remuneration of executive directors is performance- related through an annual bonus plan and the grant of share options. The Committee will ensure that the incentive structures for executive directors and senior managers will not raise environmental, social or governance (“ESG”) risks by inadvertently motivating irresponsible behaviour. More generally, with regard to overall remuneration structures, there is no restriction on the Committee which prevents it from taking into account ESG matters, nor do these remuneration structures encourage inappropriate operational risk-taking. The remuneration packages of the executive directors can comprise the following main elements: – Base salary Annual bonus – Share options – – Pensions – Other benefits Remuneration scenarios for executive directors The chart below shows how the composition of the CEO’s remuneration package varies at three performance levels; namely, at minimum (i.e. fixed pay), target and maximum levels, under the policy set out in the table below. Value of remuneration package at different levels of performance £1,461 56% £1,055 38% £649 100% 62% 44% 1600 1280 960 0 0 0 ’ £ 640 320 0 Minumum On-target Maximum Basic salary, benefits & pension Bonus The chart above is based on the following: – – – – – Salary level effective on 1 May 2016 An approximate value of benefits for the financial year to 30 April 2017 An annualised pension contribution and/or salary supplement (as a % of salary) for the year to 30 April 2017 A maximum bonus of 150% of salary (with target assumed to be 50% of the maximum). The CEO will not receive share option awards during the 2016/2017 financial year. C o r p o r a t e G o v e r n a n c e 30 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 31 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 32 Remuneration Report Remuneration Policy Report continued Summary remuneration policy table The table below summarises the remuneration policy for directors: Element Salary1 Benefits Performance measures – N/A Purpose and link to strategy Operation Maximum – Reflects the value of the individual and their role – Reflects skills and experience over time – Provides an appropriate level of basic fixed income avoiding excessive risk arising from over reliance on variable income – Normally reviewed annually, effective 1 May – Normally paid in cash on a monthly basis; pensionable – Comparison against companies with similar characteristics and comparators taken into account in review – There is no prescribed maximum annual base salary or salary increase – The Committee is guided by the requirements of the Company and prevailing market levels but may decide to award a lower increase or a higher increase for executive directors to recognise, for example, an increase in the scale, scope or responsibility of the role and/or to take account of relevant market movements – Provides insured benefits to support the individual and their family during periods of ill health or death – Gives allowances to support individuals in their relevant roles – Includes company car, – N/A – N/A Private medical insurance and may include an overseas housing allowance for a director working outside of his or her country of normal residence – Other benefits may be offered where appropriate Annual bonus – Incentivises delivery of specific Company, divisional and personal annual goals – Maximum bonus only payable for achieving specified targets – Normally payable in – Up to 150% of base salary p.a. cash – Non-pensionable – Committee has the discretion to defer up to 50% of the bonus in shares for 3 years – Company profit before tax will apply to the majority – Personal and strategic KPIs may be applied to a minority of the bonus – One-year performance period – Clawback provisions are operated Element Executive Share Option Scheme Purpose and link to strategy – Aligns executive directors’ interests with those of shareholders – Retention Share ownership guidelines – Provides alignment of interests between executive directors and shareholders Non-executive directors – Provides fees reflecting time commitments and responsibilities, in line with those provided by similarly sized companies Operation Maximum Performance measures – Annual awards of market value options may be granted – The Committee reviews the quantum of awards annually and monitors the continuing suitability of the performance measures – Executive directors are required to build and maintain a shareholding equivalent to at least one year’s base salary through the retention of 50% of the net-of-tax vested share awards or through open-market purchases – Cash fee paid on a monthly basis – Fees are reviewed annually – Not entitled to participate in any Group pension scheme, nor will awards be granted under the annual bonus or ESOS – No non-executive directors receive any benefits in kind (other than in respect of the expenses relating to the performance of that individual’s duties, such as travel to/from Board meetings) – Up to 150% of base – Financial (EPS) metrics salary p.a. will apply – Up to 25% vests at threshold increasing to 150% vesting at maximum – Clawback provisions are operated – At least 200% of base – N/A salary – N/A – There is no prescribed maximum fee or fee increase – The Committee is guided by market rates, time commitments and responsibility levels – The Board may request that a non-executive director undertake services not within the normal scope of his/her role. Should this be the case in the future, a commercial rate would be paid and full disclosure would be provided in the relevant Directors’ Remuneration Report C o r p o r a t e G o v e r n a n c e Pension – Provides competitive retirement benefits – Defined contribution – Executive directors may be offered cash in lieu of pension – Up to 15% of base – N/A salary p.a. For the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority was given to the Company to honour any commitments entered into with current or former directors (such as the payment of the prior year’s annual bonus or the vesting/exercise of share awards granted in the past). Details of any payments to former directors will be set out in the Annual Report on Remuneration for the relevant financial year. 1 Where considered appropriate, the Committee may allow the Company to pay salaries to a director and/or fees to a service company that supplies a director’s services to the Company. 32 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 33 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 34 Remuneration Report Remuneration Policy Report continued Choice of performance measures The Committee has given careful consideration to the performance measures applicable to both the annual bonus and the 2014 Executive Share Option Scheme. The choice of the performance metrics applicable to the annual bonus scheme reflects the Committee’s belief that any incentive compensation should be appropriately challenging with the majority (or the entirety) linked to the achievement of profit-related targets. The Committee may also link a proportion of the annual bonus to personal objectives if it deems this appropriate with regard to the Company’s key objectives. The EPS performance condition applicable to the 2014 Executive Share Option Scheme was selected by the Remuneration Committee on the basis that it incentivises the delivery of sustainable long-term financial performance and rewards management for growing the Company whilst retaining an appropriate profit margin. The use of share options retains a robust link between management and shareholders by incentivising management to deliver long-term growth in the Company’s share price. The Committee retains discretion over the calculation of EPS in order to appropriately adjust for any material one-off items including (but not limited to): major acquisitions, changes in accounting policies and major share issues. The Committee operates the 2014 Executive Share Option Scheme in accordance with the plan rules, the Listing Rules and HMRC legislation, and the Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plan. How employees’ pay is taken into account Pay and conditions elsewhere in the Group were considered when finalising the current policy for executive directors and continue to be considered in relation to implementation of this policy. Whilst employees were not directly consulted, the Committee seeks to ensure that the underlying principles which form the basis for decisions on executive directors’ pay are consistent with those on which pay decisions for the rest of the workforce are taken. In order to do so, the Committee regularly interacts with the HR function and senior operational executives. How the executive directors’ remuneration policy relates to the Group The remuneration policy described above provides an overview of the structure that operates for the most senior executives in the Group. Employees below executive level have a lower proportion of their total remuneration made up of incentive-based remuneration, with remuneration driven by market comparators and the impact of the role of the employee in question. Long-term incentives are reserved for those judged as having the greatest potential to influence the Group’s earnings growth and share-price performance. How shareholders’ views are taken into account The Committee continues to take an active interest in shareholder views on our executive remuneration policy and is mindful of the concerns of shareholders and other stakeholders. This is reflected in our voting result at the 2015 AGM, which was over 91% in favour of the Directors’ Remuneration Report resolution. Major shareholders and representative bodies were consulted in 2014 in respect of the 2014 Executive Share Option Scheme described in the Annual Statement and Annual Report on Remuneration. Approach to recruitment and promotions The remuneration package for a new executive director would be set in accordance with the terms of the Company’s prevailing approved remuneration policy at the time of appointment and takes into account the skills and experience of the individual, the market rate for a candidate of that experience, and the importance of securing the relevant individual. Salary would be provided at such a level as required to attract the most appropriate candidate, and may be set initially at a below mid-market level on the basis that it may progress towards the mid-market level once expertise and performance have been proven and sustained. The annual bonus potential would be limited to 150% of salary and grants under the 2014 Executive Share Option Scheme would be limited to 150% of salary. In addition, the Committee may offer additional cash and/or share-based elements to replace deferred or incentive pay forfeited by an executive leaving a previous employer. It would seek to ensure, where possible, that these awards would be consistent with awards forfeited in terms of vesting periods, expected value and performance conditions. For an internal executive director appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its original terms. For external and internal appointments, the Committee may agree that the Company will meet certain relocation and/or incidental expenses as appropriate. Fee structure and quantum for non-executive director appointments will be based on the prevailing non-executive director fee policy. Service contracts Details of the executive director’s service contract are as follows: Executive director Date of contract Notice period Serge Crasnianski 01/05/2010 12 months All non-executive directors are appointed for specified terms subject to re-election at the AGM immediately following their appointment and every three years thereafter. None of the non-executive directors will ordinarily be entitled to compensation upon termination of their involvement with the Company. However, if a non-executive director should be removed as a result of a resolution duly proposed and resolved by members of the Company during the non-executive director’s normal term of appointment, he will be entitled to compensation equal to three months’ fees, six months in the case of the Chairman. Relevant appointment letter and term dates of the non-executive directors are set out below: Expected year Non-executive Appointment Year of of expiry of director letter date last election current term John Lewis1 26/07/2010 2014 2017 Yitzhak Apeloig 08/03/2012 2015 2018 Françoise Coutaz-Replan2 27/08/2015 2015 2018 Jean-Marcel Denis 01/03/2012 2015 2018 Emmanuel Olympitis 11/11/2009 2013 2016 1 First appointed to the Board on 3 July 2008. 2 First appointed to the Board as Group Finance Director on 24 September 2009, and resigned as an executive director on 27 August 2015. External appointments The Board may allow executive directors to accept appropriate outside commercial non-executive director appointments provided the aggregate commitment is compatible with their duties as executive directors. Whether or not the executive directors concerned may retain fees paid for these services will be considered on a case-by-case basis and will be subject to approval by the Board. Details (if any) of non-executive directorships held by executive directors will be disclosed in the Annual Report on Remuneration. Approach to leavers No executive director has the benefit of provisions in his or her service contract for the payment of pre-determined compensation in the event of termination of employment. It has been the Committee’s general policy that the service contracts of executive directors (none of which is for a fixed term) should provide for termination of employment by giving notice or by making a payment of an amount equal to base salary (and in the case of the CEO, an additional amount equal to the cost of providing any benefits for the period of notice) in lieu of any unserved notice period, together with any accrued bonus entitlement. It is the Committee’s general policy that no executive director should be entitled to a notice period or payment on termination of employment in excess of the levels set out in his or her service contract. In determining amounts payable on termination, the Committee also considers, where it is able to do so, appropriate adjustments to take into account accelerated receipt and the executive director’s duty to mitigate his loss. An annual bonus may be payable with respect to the period of the financial year served although it will be pro-rated for time served and paid at the normal payout date. The treatment of any share awards granted to an executive director will be determined based on the relevant plan rules. The default treatment under the 2004 Executive Share Option Scheme is that any outstanding awards or unexercised options lapse on cessation of employment. However, in certain prescribed circumstances (e.g. death, ill-health, disability, redundancy, or other circumstances at the discretion of the Committee) ‘good leaver’ status is applied. In this scenario, other than in the case of a retirement, any outstanding options will normally be exercisable on the date of cessation and remain exercisable for a period of 6 months (or 12 months in the case of death). On a retirement, options vest at the normal vesting date and remain exercisable for a period of 6 months. The default treatment under the 2014 Executive Share Option Scheme is that any outstanding awards or unexercised options lapse on cessation of employment. However, in certain prescribed circumstances (e.g. death, injury, disability or other circumstances at the discretion of the Committee) ‘good leaver’ status can be applied at the discretion of the Committee or shall apply in relation to HMRC tax-favoured options as relevant. In this scenario, any outstanding options will normally be exercisable on the date of cessation and remain exercisable for a period of 6 months (or 12 months in the case of death). Alternatively, in the case of non-tax favoured options, the Committee has the discretion to determine that good leavers’ awards should continue to be exercisable based on the normal timetable. The extent to which outstanding option awards become exercisable for good leavers will depend on the satisfaction of any applicable performance conditions (over a curtailed or full performance period as relevant). Time pro-ration of options will apply to good leavers’ awards unless the Committee determines that time pro-ration is inappropriate. C o r p o r a t e G o v e r n a n c e 34 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 35 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 36 Remuneration Report Annual Report on Remuneration Implementation of the Remuneration Policy for year ending 30 April 2017 Base salary The base salary for each executive director is reviewed annually by the Committee and the current applicable base salaries are as follows: Single Total Figure of Remuneration * The detailed emoluments received by the executive and non-executive directors for the year ended 30 April 2016 are shown below. No payments were made for loss of office, and no payments were made to past directors. Executive director Serge Crasnianski Françoise Coutaz-Replan1 1 May 2016 £ 540,887 n/a 1 May 2015 £ 491,715 189,000 % Increase 10 – 1 Resigned as Group Finance Director on 27 August 2015, continuing as non-executive director Pension and benefits Mr Crasnianski will continue to receive a pension contribution equal to 15% of base salary in the form of a salary supplement. Benefits Executive directors will be provided with a company car, private medical insurance and an accommodation allowance. Annual bonus The executive directors are eligible for annual bonuses based upon the financial performance of the Group and the attainment of personal objectives. Consent will be sought at the 2016 AGM to increase the maximum bonus payable for Serge Crasnianski from 100% to 150% of base salary such change to be effective as of 1 May 2016. In respect of Serge Crasnianski, 100% of base salary bonus potential will be payable for exceeding the previous year’s pre-tax profit by 5% increasing to 150% of base salary bonus potential payable for exceeding the previous year’s pre-tax profit by 10%. 75% of base salary will be payable as a bonus if pre-tax profit for the year is not less than that of the previous year. If the Group’s pre-tax profit is less than that of the previous year, any bonus will be entirely at the discretion of the Committee. Long-term incentives No options will be granted to the CEO under the 2014 Executive Share Option Scheme this year. Non-executive directors The fees for non-executive directors are reviewed at least every three years and the current applicable fee levels for the roles below are as follows: Non-executive director John Lewis Emmanuel Olympitis Françoise Coutaz-Replan Jean-Marcel Denis Yitzhak Apeloig Role Chairman Senior Independent director Non-executive director Non-executive director Non-executive director Committee Chairman role Chair of Nomination Committee Chair of Remuneration Committee – Chair of Audit Committee – 1 May 2016 £ 120,000 50,000 40,000 45,000 40,000 1 May 2015 £ 120,000 50,000 n/a 45,000 40,000 Executive directors Serge Crasnianski5 Françoise Coutaz-Replan6 Non-executive directors John Lewis7 Yitzhak Apeloig Françoise Coutaz-Replan6 Jean-Marcel Denis Emmanuel Olympitis Year 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Salary/Fees £ Benefits1 £ 491,715 468,300 63,000 189,000 120,000 120,000 40,000 40,000 27,701 n/a 45,000 45,000 50,000 50,000 27,397 24,783 9,220 21,958 – – – – – n/a – – – – Bonus2 £ 491,715 468,300 30,725 – Long-Term Incentives3 £ 568,703 – 154,120 225,000 Pension4 £ 73,757 70,245 6,300 18,900 – – – – – n/a – – – – – – – – – n/a – – – – – – – – – n/a – – – – Total £ 1,653,287 1,031,628 263,365 549,358 120,000 120,000 40,000 40,000 – n/a 45,000 45,000 50,000 50,000 1 Taxable benefits comprise the provision of a car or car allowance, private medical insurance and an accommodation allowance (where appropriate). 2 Bonus is that awarded in respect of performance in the financial year, the calculation for the 2016 annual bonus is shown on page 38. 3 The vesting calculation for the ESOS awards granted in July 2013 to Serge Crasnianski (738,000 shares) and Françoise Coutaz-Replan (200,000 shares), each with an exercise price of 90.63p which had a performance period which ended on 30 April 2016 is set out on page 38. The awards do not vest until 9 July 2016 and the intrinsic values have been estimated using the 3-month average share price ended on 30 April 2016 being 167.69p. These figures will be revised in the subsequent year using the actual intrinsic values on the vesting date. 4 The Company contributed 5% (2015: 5%) of base salary to the Company’s Group Personal Pension Plan on behalf of Françoise Coutaz-Replan until she resigned as an executive director on 27 August 2015. Additional contributions were paid as salary supplements to Serge Crasnianski and Françoise Coutaz-Replan of £73,757 (2015: £70,245) and £3,150 (2015: £9,450) respectively. These supplements were based on basic salary at the rate of 15% for Mr Crasnianski and 5% for Ms Coutaz-Replan. 5 The emoluments of Serge Crasnianski shown above, include fees and bonus totalling £770,373 (2015: £733,688) payable to a third party in respect of making available the services of Serge Crasnianski to the Company. 6 Françoise Coutaz-Replan stepped down as an executive director on 27 August 2015, continuing as a non-executive. 7 The emoluments of John Lewis shown above, include fees of £45,000 (2015: £45,000) paid to a third party in respect of making available the services of John Lewis to the Company. * Subject to audit C o r p o r a t e G o v e r n a n c e 36 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 37 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 38 Remuneration Report Annual Report on Remuneration continued Additional information in respect of the single total figure table * Annual bonus For the year ended 30 April 2016, the maximum bonus opportunity for Serge Crasnianski and for Françoise Coutaz-Replan was 100% of salary and 50% of salary respectively, in the case of Ms Coutaz-Replan’s maximum bonus opportunity was subject to pro-rating to reflect that she stepped down as an executive part way through the year. Serge Crasnianski’s full bonus for that year was determined by performance against profit-before-tax targets established at the start of the financial year. Françoise Coutaz-Replan did not receive an annual bonus for the year ended 30 April 2016 given she switched to non-executive director on 27 August 2015. Details of the performance against the profit-before-tax targets for the 2016 annual bonus are set out below. Profit-before-tax target Target1 Maximum Actual Bonus payout (% of salary) 2016 Profit Serge before tax £m Crasnianski 75% 100% 100% 35.0 36.8 40.1 Françoise Coutaz-Replan 25% 35% Nil 1 Equivalent to the 2014/15 adjusted profit before tax, excluding the one-off £3,484,000 profit on the sale of land. Summary 2016 Maximum bonus payout (% of salary) 2016 Actual bonus payout (% of salary) Executive director Serge Crasnianski Françoise Coutaz-Replan Profit before tax 100% 35% Personal objectives1 – 15% Total 100% 50% Profit before tax 100% n/a Personal objectives2 n/a n/a 2016 Actual bonus payout (£) 491,715 n/a Total 100% n/a 1 The figures presented are based upon a full year. In practice, no bonus was payable to Françoise Coutaz-Replan for the year ended 30 April 2016. 2 Based on the Committee’s assessment of a number of pre-specified financial-related objectives. Executive Share Option Scheme (ESOS) The ESOS awards granted to Serge Crasnianski and Françoise Coutaz-Replan on 9 July 2013 completed their performance period on 30 April 2016 and accordingly have been included in the 2016 single total figure of remuneration. These awards are fully based on performance against an EPS target. Details of the EPS performance target, the level of achievement against the target and the resultant level of vesting are set out in the table below. Performance condition Actual * Subject to audit EPS for 2016 Below 5.3p 5.3p 6.2p 6.8p Between 5.3p and 6.8p 7.77p Vesting (% of participant’s salary at date of grant) None 25% 100% 150% Between 25% and 150% on a straight-line basis 150% Scheme interests awarded in the year * Executive Share Option Scheme On 9 July 2015, one executive director was granted an award over options under the ESOS with an exercise price of 133.33p. Executive director Françoise Coutaz-Replan Number of ESOS awards 212,600 Basis 150% of base salary Face value1 £283,460 1 Based on a share price of 133.33p which was the average share price over three dealing days immediately prior to grant. The awards will vest in 2018 subject to the achievement of EPS targets which are detailed below. EPS for 2018 Below 6.5p 6.5p 7.7p 8.5p Between 6.5p and 8.5p Vesting (% of participant’s salary at date of grant) None 25% 100% 150% Between 25% and 150% on a straight-line basis Directors’ interests in shares * According to the records kept by the Company, the directors had interests in the share capital of the Company as shown below. There have been no changes to these holdings between 30 April 2016 and the date of signing the financial statements. Executive directors Serge Crasnianski Françoise Coutaz-Replan5 Non-executive directors John Lewis Yitzhak Apeloig Françoise Coutaz-Replan5 Jean-Marcel Denis Emmanuel Olympitis Beneficially owned at 30 April 2016 79,783,4504 n/a 1 May 2015 79,783,450 161,800 Vested ESOS awards1 – – Unvested ESOS awards2 738,000 – Shareholding requirement (% of salary) 200% n/a Current shareholding (% of salary)3 23,681% n/a Guideline achieved Yes n/a – 161,800 – 45,000 – – – 45,000 – – 776,093 – – 407,600 – – – – – – – – – – – – – – 1 Options with no further performance conditions attached that have not been exercised. 2 Options with outstanding performance conditions attached. 3 Executive directors are required to build and maintain a shareholding equivalent to at least 100% of base salary (200% from the 2016 AGM, if approved by shareholders) through the retention of 50% of the net of tax vested share awards or through open-market purchases. Calculated using the closing share price on 30 April 2016 being 167.25p. The shareholding guideline is calculated using only beneficially owned shares. 4 Of the shares beneficially owned by Serge Crasnianski, 79,719,900 (2015: 79,719,900) were registered in other names. 5 Françoise Coutaz-Replan stepped down as an executive director on 27 August 2015, continuing as a non-executive. * Subject to audit C o r p o r a t e G o v e r n a n c e 38 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 39 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 40 Remuneration Report Annual Report on Remuneration continued Directors’ interests in share options * Number of options As at Date As at Granted Exercised Lapsed 30 April Exercise from which Expiry Date of grant 1 May 2015 during year during year during year 2016 price exercisable date Serge Crasnianski 9 July 20131 738,000 – – – 738,000 90.63p 9 July 2016 8 July 2020 Françoise Coutaz-Replan 20 Jan 2010 44,093 – – – 44,093 36.67p 20 Jan 2013 19 Jan 2017 4 July 2011 50,000 – – – 50,000 65.25p 4 July 2014 3 July 2018 13 Dec 2011 250,000 – – – 250,000 53.50p 13 Dec 2014 12 Dec 2018 4 July 2012 232,000 – – – 232,000 39.17p 4 July 2015 3 July 2019 9 July 20131 200,000 – – – 200,000 90.63p 9 July 2016 8 July 2020 10 July 20142 195,000 – – – 195,000 145.33p 10 July 2017 9 July 2021 9 July 20153 – 212,600 – – 212,600 133.33p 9 July 2018 8 July 2022 1 The 9 July 2013 ESOS award ended its performance period in the year ended 30 April 2016 and will vest subject to the performance conditions as outlined on page 38. 2 The 10 July 2014 ESOS awards are subject to the same performance conditions and vesting schedule as the 2013 ESOS awards, but the threshold 2017 EPS target is set at 5.5p with full vesting for an EPS of 7.2p or greater. 3 The 9 July 2015 ESOS award is subject to the performance conditions as outlined on page 39. * Subject to audit Relative importance of the spend on pay The following table sets out the percentage change in distributions to shareholders and employee remuneration costs. Employee remuneration costs (£’000)1 Dividends (£’000)2 2016 32,653 18,217 2015 32,031 21,381 % Change 1.94% (14.80%) 1 Based on the figure shown in note 5 to the Financial Statements. 2 Based on the cash returned to shareholders in 2016 through dividends as shown in note 9 to the Financial Statements. Percentage increase in the remuneration of the Chief Executive Officer The table below shows the change in the salary, benefits and annual bonus for the Chief Executive Officer between the current and previous financial year compared with the change for a comparator group of selected employees of the Group. Element of remuneration Salary Benefits Annual bonus Chief Executive Officer % change +5% +10.5% +5% Employees % change1 +3.1% +7.97% +21.0%% 1 The Committee chose to use a comparator group comprising employees from the major operating territories, namely UK (excluding main board directors of the Company), France and Japan as being a representative group of employees for these purposes. Performance graph The graph below shows the Company’s performance, measured by total shareholder return (share price growth plus dividends reinvested) (TSR), compared with the performance of the FTSE SmallCap Index (calculated on the same basis) over the past seven years. As the Company has been a constituent of the FTSE SmallCap Index for all of the relevant period, this index is considered an appropriate form of ‘broad equity market index’ against which the Company’s performance should be compared. Total Shareholder Return Source: Datastream (Thomson Reuters) FTSE SmallCap Photo-Me International plc 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0 April 2009 April 2010 April 2011 April 2012 April 2013 April 2014 April 2015 April 2016 This graph shows the value, by 30 April 2016, of £100 invested in Photo-Me International plc on 30 April 2009 compared with the value of £100 invested in the FTSE SmallCap Index. The table below shows the total remuneration for the Chief Executive Officer over the same seven-year period as the TSR chart above. All share awards are valued at the date of vesting. Year ended 30 April 2016 2015 2014 2013 2012 2011 2010 2010 Chief Executive Officer Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski2 Thierry Barel3 Total Annual Long-term remuneration bonus incentives (£) (% of max) (% of max)1 1,653,287 100% 100% 1,031,628 100% – 914,278 100% – 899,487 100% – 898,693 100% – 893,312 100% – 739,548 100% – 90,327 0% – C o r p o r a t e G o v e r n a n c e 1 Shows the number of share options which vested as a percentage of the maximum number of share options which could have vested. For the years ended 30 April 2011 to 30 April 2016, Serge Crasnianski did not have any outstanding share option awards that could have vested in the relevant years. 2 Serge Crasnianski was appointed to the role of Chief Executive on 3 July 2009 having previously served as a non-executive director from 6 May 2009. The total remuneration figure shown includes all payments received following his appointment as Chief Executive Officer but excludes any fees paid (£5,429) for performing the role of non-executive director. 3 Thierry Barel resigned from the role of Chief Executive Officer on 3 July 2009. The total remuneration figure shown includes all payments received prior to his resignation as Chief Executive Officer, but excludes a termination payment of £92,800. 40 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 41 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 42 Remuneration Report Annual Report on Remuneration continued Committee role and membership The Remuneration Committee comprises three non-executive directors: Emmanuel Olympitis (Committee Chairman, member of the Audit and Nomination Committees and Senior Independent Director), John Lewis (Chairman of the Board and the Nomination Committee and member of the Audit Committee) and Jean-Marcel Denis (Chairman of the Audit Committee and member of the Nomination Committee). They are all considered by the Board to be independent. Biographies of the members of the Committee are set out on page 22. Details of their membership of the Committee and attendance at the meetings during the year are as follows: Name Emmanuel Olympitis John Lewis Jean-Marcel Denis Position Appointment date Committee Chairman Non-executive Chairman Non-executive Director 7 December 2009 3 July 2008 1 March 2012 Number of meetings attended (maximum possible) 2 (2) 2 (2) 1 (2) It remains the Committee’s policy that it shall be available to meet on an ad hoc basis when the needs of the Company require it. At the invitation of the Chairman, the Chief Executive Officer may attend meetings of the Committee, except when his own remuneration is under consideration. No director is involved in determining his or her own remuneration. The Company Secretary acts as the secretary to the Committee. The members of the Committee can, where they judge it necessary to discharge their responsibilities, obtain independent professional advice at the Company’s expense. Statement of Directors’ Responsibilities The directors of the Company, who are named on page 22, are responsible for preparing the Annual Report, the Report of the Directors and the Group and Company financial statements in accordance with applicable law and regulations. Responsibility statement of the directors in respect of the annual financial report Each of the directors of the Company, whose names and functions are listed on page 22, confirms that, to the best of his or her knowledge: Company law requires the directors to prepare financial statements for the Group and the Company for each financial year. Under that law the directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and applicable law and have elected to prepare the Company’s financial statements on the same basis. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of their profit or loss for that period. In preparing each of the Group and the Company’s financial statements, the directors are required to: (cid:129) (cid:129) the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and the Strategic Report, which is incorporated into the Report of the Directors, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. Fair, balanced and understandable In accordance with the principles of the UK Corporate Governance Code, the directors have arrangements in place to ensure that the information presented in the Annual Report is fair, balanced and understandable; these are described on page 29. The Board considers, on the advice of its Audit Committee, that the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s and the Group’s position and performance, business model and strategy. Significant accounting policies, critical estimates and key judgments Our significant accounting policies are set out on pages 54 to 61 of the consolidated financial statements and conform with IFRS as adopted by the EU. These policies and applicable estimation techniques have been reviewed by the directors who have confirmed them to be appropriate for the preparation of the 2015/2016 consolidated financial statements. By order of the Board John Lewis Non-executive Chairman 21 June 2016 C o r p o r a t e G o v e r n a n c e The Committee’s terms of reference are published in the ‘Investor Relations’ section of the Company’s website at www.photo-me.co.uk. (cid:129) select suitable accounting policies and then apply them consistently; Advisors The Committee is advised by New Bridge Street, part of Aon plc, which has been appointed by the Committee and which advises it on various matters relating to the remuneration of the Chairman, executive directors and senior executives. New Bridge Street also provides advice to the executive directors in respect of the remuneration of non-executive directors. Under long-standing relationships, other Aon plc subsidiary companies provided pension scheme management, actuarial services and general insurance broking services to the Company, during the year. Following a review by the Remuneration Committee, the Committee is satisfied that the additional services provided by the wider Aon plc network do not prejudice the independence of the remuneration advice provided to it by New Bridge Street. During the financial year, fees paid to New Bridge Street totalled £14,250 in respect of advice given to the Remuneration Committee. The Committee also receives advice from the Chief Executive Officer in relation to the remuneration of certain senior executives (but not in relation to his own remuneration). Statement of shareholder voting At last year’s AGM, the Directors’ Remuneration Report received the following votes from shareholders: Resolution Directors’ remuneration report (excluding the Remuneration policy) Votes cast in favour % Votes cast against % Total votes cast (excludes withheld votes) % Votes1 withheld 301,692,164 91.50 28,008,187 8.50 329,700,351 100.00 21,366 1 A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast “for” and “against” a resolution. By order of the Board Emmanuel Olympitis Chairman of the Remuneration Committee 21 June 2016 (cid:129) make judgments and accounting estimates that are reasonable and prudent; (cid:129) (cid:129) state whether they have been prepared in accordance with IFRSs as adopted by the EU; and prepare the financial statements on the going-concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that their financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and as regards the Group’s financial statements, Article 4 of the IAS Regulation. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 42 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 43 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 44 Independent Auditor’s Report to members of Photo-Me International plc only Opinions and conclusions arising from our audit 1 Our opinion on the financial statements is unmodified We have audited the financial statements of Photo-me International plc for the year ended 30 April 2016 set out on pages 48 to 100. In our opinion: Estimation of provisions £4,113,000 (2015: £5,557,000) Risk vs 2015: ◄ ► Refer to page 28 (Audit Committee Report), page 60 (accounting policy) and pages 94 to 95 (financial disclosures) The components within the scope of our work accounted for the following percentages of the group's results: the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 April 2016 and of the group’s profit for the year then ended; (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) the group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. 2 Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit, in decreasing order of significance, were as follows (unchanged from 2015): Recoverability of Japan goodwill £7,245,000 (2015: £7,245,000) Risk vs 2015: ◄ ► Refer to page 28 (Audit Committee Report), page 56 (accounting policy) and pages 68 to 69 (financial disclosures) (cid:129) The risk - Goodwill in relation to Nippon Auto-Photo Kabushiki Kasisha (Japan) is significant and at risk of recoverability due to: - - the potential impact of the volatility of the Japanese Yen on the recoverable amount of this GBP denominated goodwill and; the inherent uncertainty involved in forecasting and discounting future cash flows, which are the basis of the assessment of recoverability. (cid:129) Our response - Our audit procedures included testing the group's budgeting procedures upon which the forecasts are based, the principles and integrity of the group's discounted cash flow model and the foreign exchange translation. We considered the historical accuracy of key assumptions used in the model by comparing forecasted revenue and cost growth to the actual amounts achieved in prior periods. We compared forecast exchange rates to externally derived data and performed break-even analysis on the key assumptions. We also assessed whether the group's disclosures about the sensitivity of the outcome of the impairment assessment to changes in key assumptions reflected the risks inherent in the valuation of goodwill. The risk - In the normal course of business, provisions and contingent liabilities may arise from potential and actual legal proceedings. These legal proceedings primarily relate to claims from former employees, as well as other ad hoc legal claims. The amounts involved are potentially significant and the estimation of the amounts, if any, to be provided, is inherently subjective. (cid:129) Our response - Our audit procedures included discussion with the board of directors and the company secretary of all known liabilities and potential liabilities on claims where the recognition criteria for a provision have not been met. In addition, discussions were held with key management at each key component of the group to understand their view of actual and potential claims that they are aware of. We read Board minutes and correspondence with the group’s external legal advisors to gain an understanding of their views in relation to any such potential liabilities. For employee claims we compared the group’s calculation of provisions with the group’s historical experience of similar claim settlements. We obtained estimates of the expected liabilities from the group’s legal advisors on all significant matters. We considered our own assessment of the provision balance based on our understanding of the business gained throughout the audit process. We also assessed the adequacy and appropriateness of the group's disclosures in respect of provisions and contingent liabilities. Recoverability of carrying value of photobooths and vending machines £49,669,000 (2015: £43,087,000) Risk vs 2015: ◄ ► Refer to page 28 (Audit Committee Report), page 57 (accounting policy) and pages 72 to 73 (financial disclosures) (cid:129) The risk – The carrying value of photobooths and vending machines is significant and there is a risk of impairment of these assets in some countries due to potential changes in technology, consumer preference and regulations. The group prepares discounted cash flow forecasts at a country-specific entity level and compares the results to carrying value of the assets to assess if an impairment of the assets is required. (cid:129) Our response - Our audit procedures included assessing assumptions made in the discounted forecasted cash flows. We challenged the methodology used to determine the discount rate used in the model. and challenged the cash flow forecasts by comparing against part performance and assessing whether these considered the changes in the market place and regulations. For those assets where the carrying values were not supported by the discounted cash flows and no impairment was recognised, we challenged the achievability of the plans management had in place for the assets. 3 Our application of materiality and an overview of the scope of our audit The materiality for the group financial statements as a whole was set at £2.0m (2015: £2.3m), determined with reference to a benchmark of group profit before taxation of £40m, of which it represents 5.0% (2015: 6.6%). We report to the audit committee any corrected or uncorrected identified misstatements exceeding £0.1m (2015: £0.1m), in addition to other identified misstatements that warrant reporting on qualitative grounds. Of the group's 34 (2015: 30) reporting components, we subjected 5 (2015: 5) to audits for group reporting purposes and 1 (2015: 6) to specified risk- focused audit procedures. The latter was not individually financially significant enough to require an audit for group reporting purposes, but did present specific individual risks that needed to be addressed. 12% 9% 12% 3% 2% 86% 88% 2% 86% 2016 Total ass e t s PBT Revenu e 5% 6% 2% 8% 5% 8% 89% 90% 87% 2015 Total ass e t s PBT Revenu e Audits for group reporting purposes Specified risk-focus audit procedures Analysis at aggregated group level The remaining 12% (2015: 5%) of total group revenue, 9% (2015: 6%) of group profit before tax and 12% (2015: 2%) of total group assets is represented by 28 (2015: 19) reporting components, none of which individually represented more than 4.9% (2015: 1.2%) of any of total group revenue, group profit before tax or total group assets. For the remaining components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material misstatement within these. The Group audit team instructed component auditors as to the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team approved the component materialities, which ranged from £1m to £1.2m (2015: £1m to £1.2m), having regard to the mix of size and risk profile of the Group across the components. The work on 6 of the 34 components (2015: 10 of the 30 components) was performed by component auditors and the rest by the Group audit team. The Group Engagement Partner visited 1 (2015: 0) component location in France, including to assess the audit risk and strategy. Regular telephone conference meetings were held with the component auditors, including planning calls and post reporting calls. At these meetings, the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditor. 4 Our opinion on other matters prescribed by the Companies Act 2006 is unmodified In our opinion: (cid:129) (cid:129) the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 5 We have nothing to report on the disclosures of principal risks Based on the knowledge we acquired during our audit, we have nothing material to add or draw attention to in relation to: (cid:129) (cid:129) the directors’ statement of viability on page 19, concerning the principal risks, their management, and, based on that, the directors’ assessment and expectations of the group’s continuing in operation over the three years to 30 April 2019; or the disclosures in note 1 of the financial statements concerning the use of the going concern basis of accounting. 6 We have nothing to report in respect of the matters on which we are required to report by exception Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading. In particular, we are required to report to you if: (cid:129) we have identified material inconsistencies between the knowledge we acquired during our audit and the directors’ statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s position and performance, business model and strategy; or (cid:129) the corporate governance statement does not appropriately address matters communicated by us to the audit committee. Under the Companies Act 2006 we are required to report to you if, in our opinion: (cid:129) (cid:129) (cid:129) adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or (cid:129) we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: (cid:129) (cid:129) the directors’ statement, set out on page 43, in relation to going concern and longer-term viability; and the part of the Corporate Governance Statement on page 26 relating to the company’s compliance with the eleven provisions of the 2014 UK Corporate Governance Code specified for our review. We have nothing to report in respect of the above responsibilities. Scope and responsibilities As explained more fully in the Directors’ Responsibilities Statement set out on page 43, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the company’s members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions. Steve Masters (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 Forest Gate Brighton Road Crawley RH11 9PT 21 June 2016 C o r p o r a t e G o v e r n a n c e 44 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 45 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 46 Financial Statements Innovative technology... Our leading edge kiosks provide durable, top quality prints from various media and via Bluetooth, WiFi and Infrared transfer, giving our customers an exceptional experience. ...bringing innovation to our customers. 46 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 47 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 48 Group Statement of Comprehensive Income for the year ended 30 April 2016 Statements of Financial Position for the year ended 30 April 2016 Revenue Cost of Sales Gross Profit Other Operating Income Administrative Expenses Share of Post-Tax Profits from Associates Operating Profit Analysed as: Operating profit before specific items Profit on sale of land Operating profit after specific items Finance Revenue Finance Cost Profit before Tax Total Tax Charge Profit for Year Other Comprehensive Income Items that are or may subsequently be classified to profit and loss: Exchange differences arising on translation of foreign operations Taxation on exchange differences Total items that are or may subsequently be classified to profit and loss Items that will not be classified to profit and loss: Remeasurement (losses)/gains in defined benefit obligations and other post-employment benefit obligations Deferred tax on remeasurement (losses)/gains Total items that will not be classified to profit and loss Other comprehensive income/(expense) for the year net of tax Total comprehensive income for the year Profit for the Year Attributable to: Owners of the Parent Non-controlling interests Total comprehensive income attributable to: Owners of the Parent Non-controlling interests Earnings per Share Basic Earnings per Share Diluted Earnings per Share All results derive from continuing operations. Notes 3 4 14 6 6 7 10 10 2016 £’000 183,994 (131,546) 52,448 1,306 (14,185) 165 39,734 39,734 – 39,734 538 (166) 40,106 (10,907) 29,199 5,328 485 5,813 43 (9) 34 5,847 35,046 29,066 133 29,199 34,841 205 35,046 7.77p 7.72p 2015 £’000 177,202 (129,638) 47,564 1,166 (10,524) 164 38,370 34,886 3,484 38,370 191 (65) 38,496 (10,452) 28,044 (6,779) – (6,779) (860) 221 (639) (7,418) 20,626 27,900 144 28,044 20,605 21 20,626 7.49p 7.43p Assets Non-current assets Goodwill Other intangible assets Property, plant & equipment Investment property Investment in - associates Investment in - subsidiaries Other financial assets - held to maturity Other financial assets - available for sale Deferred tax assets Trade and other receivables Current assets Inventories Trade and other receivables Current tax Cash and cash equivalents Assets held for sale Total assets Equity Share capital Share premium Translation and other reserves Retained earnings Equity attributable to owners of the Parent Non-controlling interests Total equity Liabilities Non-current liabilities Financial liabilities Post-employment benefit obligations Provisions Deferred tax liabilities Trade and other payables Current liabilities Financial liabilities Provisions Current tax Trade and other payables Total equity and liabilities The accounts were approved by the Board on 21 June 2016. Serge Crasnianski Chief Executive Officer John Lewis Non-executive Chairman Notes Group 2016 £’000 11 11 12 13 14 14 15 15 24 16 17 16 18 20 21 22 23 24 25 21 23 25 11,606 8,706 56,094 629 1,713 – 2,253 75 4,216 1,548 86,840 17,094 13,010 2,273 71,005 103,382 96 190,318 1,877 8,156 10,507 101,101 121,641 1,109 122,750 9,183 4,755 10 1,887 1,821 17,656 1,660 4,103 8,341 35,808 49,912 190,318 2015 £’000 10,180 6,507 48,263 458 848 – 2,220 70 3,512 1,684 73,742 12,099 10,874 869 58,632 82,474 – 156,216 1,866 7,131 4,766 89,744 103,507 904 104,411 124 4,291 17 1,067 2,050 7,549 59 5,540 5,981 32,676 44,256 156,216 Company 2016 £’000 – 5,723 8,383 – 400 44,462 971 – 2,227 – 62,166 1,723 4,974 – 46,840 53,537 96 115,799 1,877 8,156 1,660 57,110 68,803 – 68,803 – – 10 – 200 210 – – 997 45,789 46,786 115,799 2015 £’000 – 5,179 8,480 – 257 41,690 967 – 1,702 – 58,275 814 7,991 – 20,938 29,743 – 88,018 1,866 7,131 1,399 55,163 65,559 – 65,559 – – 17 – – 17 – – 1,128 21,314 22,442 88,018 The notes on pages 58 to 104 are an integral part of these consolidated financial statements. 48 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 49 l S t a t e m e n t s i F n a n c a i Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 50 Group Statement of Cash Flows for the year ended 30 April 2016 Company Statement of Cash Flows for the year ended 30 April 2016 Cash flow from operating activities Profit before tax Finance cost Finance revenue Operating profit Share of post tax profit from associates Amortisation of intangible assets Depreciation of property, plant and equipment Profit/(loss) on sale of property, plant and equipment Exchange differences Other items Changes in working capital: Inventories Trade and other receivables Trade and other payables Provisions Cash generated from operations Interest paid Taxation paid Net cash generated from operating activities Cash flows from investing activities Acquisition of subsidiaries net of cash acquired Investment in associates Investment in intangible assets Proceeds from sale of intangible assets Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds of sale of subsidiaries net of cash sold Interest received Dividends received from associates Net cash generated from investing activities Cash flows from financing activities Issue of Ordinary shares to equity shareholders Repayment of capital element of finance leases Repayment of borrowings Increase in borrowings Decrease in assets held to maturity Dividends paid to owners of the Parent Dividends paid to non-controlling interests Net cash utilised in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange loss on cash and cash equivalents Cash and cash equivalents at end of year Notes 9 18 2016 £’000 40,106 166 (538) 39,734 (165) 1,548 15,413 (236) 2,031 (1,615) (3,665) 52 108 (1,775) 51,430 (166) (10,816) 40,448 (1,642) (671) (3,221) – (21,276) 1,521 – 538 – (24,751) 1,036 (147) (665) 10,946 29 (18,217) – (7,018) 8,679 58,632 3,694 71,005 2015 £’000 38,496 65 (191) 38,370 (164) 2,092 14,789 (3,510) (1,996) (876) (1,910) 2,587 451 (671) 49,162 (64) (9,124) 39,974 (422) (146) (3,641) 1 (19,833) 5,623 32 189 96 (18,101) 617 (78) (158) – 76 (21,381) (158) (21,082) 791 60,996 (3,155) 58,632 Cash flow from operating activities Profit before tax Finance cost Finance revenue Dividends and other items Operating profit Amortisation of intangible assets Depreciation of property,plant and equipment Loss/(profit) on sale of property, plant and equipment Movement in investment provisions and other items Changes in working capital: Inventories Trade and other receivables Trade and other payables Provisions Cash generated from operations Interest paid Taxation paid Net cash generated from operating activities Cash flows from investing activities Investment in subsidiaries Purchase of intangible assets Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Loans advanced to subsidiaries Interest received Dividends received from associates and subsidiaries Net cash generated from investing activities Cash flows from financing activities Issue of ordinary shares to equity shareholders Borrowings from subsidiaries Repayment of borrowings from subsidiaries Increase in assets held to maturity Dividends paid to owners of the Parent Net cash utilised in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Notes 9 18 2016 £’000 21,453 74 (532) (10,692) 10,303 1,073 3,275 (255) (249) (909) 3,132 16,157 (7) 32,520 (74) (2,098) 30,348 (1,851) (1,617) (3,416) 397 (115) 532 10,692 4,622 1,036 15,615 (7,498) (4) (18,217) (9,068) 25,902 20,938 46,840 2015 £’000 22,481 191 (205) (8,430) 14,037 702 3,054 (3,601) 145 36 (1,960) (6,355) 7 6,065 (32) (1,364) 4,669 (4) (379) (3,259) 4,513 – 109 8,526 9,506 617 7,611 – (4) (21,381) (13,157) 1,018 19,920 20,938 The notes on pages 58 to 104 are an integral part of these consolidated financial statements. 50 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 51 l S t a t e m e n t s i F n a n c a i Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 52 Group Statement of Changes in Equity for the year ended 30 April 2016 Company Statement of Changes in Equity for the year ended 30 April 2016 At 1 May 2014 Profit for year Other comprehensive expense Total comprehensive expense Total comprehensive income for year Transactions with owners of the Parent Shares issued in period Share options Deferred tax on share options Capital contributions relating to share-based payments (net of disposals) Dividends Total transactions with owners of the Parent At 30 April 2015 At 1 May 2015 Profit for year Other comprehensive expense Total comprehensive expense Total comprehensive income for year Transactions with owners of the Parent Shares issued in period Share options Deferred tax on share options Capital contributions relating to share-based payments (net of disposals) Dividends Total transactions with owners of the Parent At 30 April 2016 Details of share capital and reserves are given in note 20. Share capital £’000 1,859 – Share premium £’000 6,521 – Other reserves £’000 1,172 – Retained earnings £’000 56,470 19,749 – – 7 – – – – 7 1,866 1,866 – – – 11 – – – – 11 1,877 – – 610 – – – – 610 7,131 7,131 – – – 1,025 – – – – 1,025 8,156 – – – – – 227 – 227 1,399 1,399 – – – – – – 261 – 261 1,660 – 19,749 – 144 181 – (21,381) (21,056) 55,163 55,163 19,951 – 19,951 – 152 61 – (18,217) (18,004) 57,110 Total £’000 66,022 19,749 – 19,749 617 144 181 227 (21,381) (20,212) 65,559 65,559 19,951 – 19,951 1,036 152 61 261 (18,217) (16,707) 68,803 Attributable Non- Share Share Other Translation Retained to owners of controlling capital premium reserves reserve earnings the Parent interests Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 At 1 May 2014 1,859 6,521 1,874 9,528 83,332 103,114 1,119 104,233 Profit for year – – – – 27,900 27,900 144 28,044 Other comprehensive (expense)/income Exchange differences – – – (6,656) – (6,656) (123) (6,779) Transfers between reserves – – – 20 (20) – – – Remeasurement losses in defined benefit pension scheme and other post- employment benefit obligations – – – – (860) (860) – (860) Deferred tax on remeasurement gains – – – – 221 221 – 221 Total other comprehensive (expense)/income – – – (6,636) (659) (7,295) (123) (7,418) Total comprehensive (expense)/income – – – (6,636) 27,241 20,605 21 20,626 Transactions with owners of the Parent Shares issued in the period 7 610 – – – 617 – 617 Share options – – – – 371 371 – 371 Deferred tax on share options – – – – 181 181 – 181 Dividends – – – – (21,381) (21,381) (158) (21,539) Disposal of minority – – – – – – (78) (78) Total transactions with owners of the Parent 7 610 – – (20,829) (20,212) (236) (20,448) At 30 April 2015 1,866 7,131 1,874 2,892 89,744 103,507 904 104,411 At 1 May 2015 1,866 7,131 1,874 2,892 89,744 103,507 904 104,411 Profit for year – – – – 29,066 29,066 133 29,199 Other comprehensive (expense)/income Exchange differences – – – 5,256 – 5,256 72 5,328 Tax on exchange – – – 485 – 485 – 485 Remeasurement losses in defined benefit pension scheme and other post-employment benefit obligations – – – – 43 43 – 43 Deferred tax on remeasurement gains – – – – (9) (9) – (9) Total other comprehensive (expense)/income – – – 5,741 34 5,775 72 5,847 Total comprehensive (expense)/income – – – 5,741 29,100 34,841 205 35,046 Transactions with owners of the Parent Shares issued in the period 11 1,025 – – – 1,036 – 1,036 Share options – – – – 413 413 – 413 Deferred tax on share options – – – – 61 61 – 61 – – – – (18,217) (18,217) – (18,217) Dividends Total transactions with owners of the Parent 11 1,025 – – (17,743) (16,707) – (16,707) At 30 April 2016 1,877 8,156 1,874 8,633 101,101 121,641 1,109 122,750 The non-controlling interests in the above table relate to interests not held by the Group in SCI du Lotissement d’Echirolles, where the Group’s interest is 61% as described in note 29. The notes on pages 58 to 104 are an integral part of these consolidated financial statements. Details of share capital and reserves are given in note 20. 52 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 53 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 54 Notes to the Financial Statements for the year ended 30 April 2016 Authorisation of the financial statements and statement of compliance with IFRSs The Group and the Company financial statements of Photo-Me International plc (the “Company”) for the year ended 30 April 2016 were authorised for issue by the directors on 21 June 2016 and the statements of financial position were signed by S Crasnianski, Chief Executive Officer and J Lewis, Non-executive Chairman. The Company is a public limited company incorporated and registered in England and Wales and whose shares are quoted on the London Stock Exchange, under symbol PHTM. The registered number of the Company is 735438 and its registered office is at Church Road, Bookham, Surrey KT23 3EU. The principal activities of the Group are shown on page 23. The Group’s and the Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), as adopted by the European Union (“EU”), International Financial Reporting Interpretations Committee (“IFRIC”) interpretations and in accordance with the provisions of the Companies Act 2006 applicable to companies reporting under IFRS. The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. 1 Accounting policies The principal accounting policies adopted in the preparation of the Group’s consolidated financial statements and the Company’s individual financial statements are set out below. The policies have been consistently applied, unless otherwise stated, to all of the statements presented. New standards adopted for this financial year are shown in note 2 on page 61. In presenting these financial statements, the directors have followed the Financial Reporting Council’s (“FRC”) objective in “cutting clutter” with the aim of simplifying notes and descriptions and removing non-material disclosures. 1.1 Basis of preparation The consolidated financial statements have been prepared under the historical cost convention except for certain derivative financial instruments and available-for-sale financial assets that are measured at fair value. Going concern The financial statements of the Group and the Company have been prepared on the going concern basis. In reaching this conclusion management has reviewed detailed budgets, which reflect, where applicable, the current economic conditions, with regard to the level of demand for the Group’s manufactured products, the level of consumer confidence, the uncertainty of the Euro and cash flow forecasts for the next financial year and high level projections thereafter. The cash flow projections indicate that the Group and the Company will remain comfortably within their available banking facilities. Additional information on these facilities is provided in note 15. A review of the business activity, future prospects and financial position of the Group are covered in the Chairman’s Statement and the Strategic Report. Critical accounting estimates and key judgments The preparation of the financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the year end and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on the directors’ best knowledge of current events and actions, actual results may ultimately differ from those estimates. The critical accounting policies, which the directors consider are of greater complexity and/or particularly subject to the exercise of judgment, are included in the following notes: Group 1) Goodwill and other intangible assets – notes 1.4, 1.8 and 11. The recoverable amount of cash generating units (cgus) has been determined by management based on a value in use basis. These calculations require estimates by management, including management’s expectations of future growth in revenue, costs and profit margins, cash flows and discount rates. 2) Development costs – notes 1.4 and 11. 3) Depreciation and impairment of property, plant and equipment – notes 1.5,1.8, 12 and 13. Management make estimates of the useful life of capitalised development costs and property, plant and equipment as disclosed below in notes 1.4 and 1.5. Technogical developments and regulatory changes can impact on the lives of the vending estate. Management consider these factors in assessing the useful lives of the asset. 4) Taxation – notes 1.17, 7 and 24. 5) Provisions – note 23. Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow will be required to settle the obligation and the amount can be reliably estimated. In respect of claims, litigation and other provisions, including property restitution, management make estimates based on anticipated costs where it is considered that an outflow of resources is probable. For all risks the ultimate liability may vary from the amount provided and will be dependent upon the eventual outcome of any settlement. Company Critical assumptions and estimates for the preparation of the Company’s financial statements, in addition to 3 and 4 above, include: Investments in subsidiaries Management makes decisions on the carrying value of investments in subsidiaries and whether an impairment is required, as detailed in note 1.8 and 1.9. 1.2 Basis of consolidation The Group consolidates the financial statements of the Company and all of its subsidiaries, and includes associates under the equity method, as at 30 April each year. Subsidiaries Subsidiaries are all entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date on which control ceases. Losses applicable to non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a negative balance. The principal subsidiaries affecting the results and financial position of the Group are shown in note 29. Changes in ownership of subsidiaries and loss of control Changes in the Group’s interest in a subsidiary that do not result in loss of control are accounted for as equity transactions. Where the Group loses control of a subsidiary, the assets and liabilities are derecognised along with any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in profit and loss. Any interest retained in a subsidiary is measured at fair value when control is lost. The Group uses the acquisition method of accounting to account for business combinations. Acquisition costs for business combinations are expensed as incurred. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets acquired, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values on acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets. If the business combination is achieved in stages, the acquisition date carrying value of the acquiree’s previously held interest in the acquiree is re-measured to fair value at the acquisition date, with such gains or losses arising from re-measurement recognised in profit and loss. Transactions eliminated on consolidation Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Where necessary subsidiaries’ accounting policies have been changed to ensure consistency with the Group’s policies. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. Application of the equity method to associates and joint ventures Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee. All associates affecting the results and financial position of the Group are shown in note 29. Non-controlling interests Non-controlling interests represent the portion of results for the period and net assets not held by the Group. They are presented separately within the statement of comprehensive income and the statement of financial position. i F n a n c a i 54 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 55 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 56 Notes to the Financial Statements for the year ended 30 April 2016 1.3 Foreign currency translation The consolidated financial statements and the Company’s own financial statements are presented in Sterling being the functional and presentational currency of the Parent Company and all values are shown in £’000 except where indicated. Transactions in foreign currencies are translated into the respective functional currencies of the Group’s subsidiaries at the exchange rate ruling on the date the transaction is recorded. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rates ruling at 30 April. Exchange gains and losses resulting from the above translation are reflected in the income statement, except where they qualify as cash flow hedges and are reflected in equity. There were no qualifying cash flow hedges in 2016 and 2015. Income statements of overseas entities are translated into Sterling, at weighted average rates of exchange, as a reasonable approximation to actual exchange rates at the date of the transaction and their balance sheets are translated at the exchange rate ruling at 30 April. Exchange differences arising on the translation of opening net assets are taken to equity, as is the exchange difference on the translation of the income statement between average and closing exchange rates. For this purpose net assets includes loans between Group companies and any related foreign exchange contracts where settlement is neither planned nor likely to occur in the foreseeable future. Such cumulative exchange differences are released to the income statement on disposal of the subsidiary or associate. Goodwill arising on the acquisition of subsidiaries and associates post 1 May 2004 is treated as a foreign currency asset and translated at the rate ruling at 30 April. On transition to IFRS on 1 May 2004, business combinations were not retrospectively adjusted to comply with Adopted IFRS and goodwill was recognised based on the carrying value under the previous accounting policies. Pre 1 May 2004 goodwill was treated as a sterling asset and is included in these financial statements at that value less any subsequent impairment. 1.5 Property, plant and equipment Property, plant and equipment is shown at cost, less accumulated depreciation and any impairment. Subsequent expenditure on property, plant and equipment is capitalised, either as a separate asset, or included in the cost of the asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. The carrying amount of any parts of the assets that are replaced are derecognised. All other costs are recognised in the income statement as an expense as incurred. Freehold land is not depreciated. Other assets are depreciated on a straight-line basis, or occasionally on a reducing balance basis, to reduce cost to the estimated residual value over the estimated useful life of the asset at the following rates: Freehold buildings Leasehold improvements Photobooths and vending machines Plant, machinery, furniture, fixtures and motor vehicles Capitalised finance lease assets 2% – 5% straight-line over the life of the lease on a straight-line basis 10% – 33.33% straight-line 12.5% – 33.33% straight-line or reducing balance over the shorter of the life of the asset or the life of the lease The assets’ residual values and useful lives are reviewed at each year end and adjusted, if appropriate. The critical judgment areas for operating equipment revolve around the useful life of the asset and whether an impairment charge is required. Operating equipment assets are reviewed at least annually for impairment testing. 1.4 Intangible assets Goodwill Goodwill represents the excess of cost of an acquisition of a subsidiary or associate over the fair value of the Group’s share of net identifiable assets at the date of acquisition. Goodwill on acquisition of associates is included in investment in associates. 1.6 Investment property Certain of the Group’s properties are classified as investment properties; being held for long-term investment and to earn rental income. Investment properties are stated at cost and the building element is depreciated to reduce cost to its estimated residual value at rates between 3.33% and 8.33% on a straight-line basis. Goodwill is not amortised but is tested annually for impairment or more frequently if events or changes in circumstances indicate that the carrying amounts may be impaired and is carried at cost less any impairment. On disposals, goodwill is included in the calculation of gains or losses on the sale of the previously acquired entity. Goodwill relating to previous acquisitions (pre-1999) was charged under UK GAAP to equity and is not included in the gain or loss on sale of the previously acquired entity to which it relates. For the purposes of impairment testing, goodwill is allocated to cash-generating units. Each of these units represents the Group’s investment in each region of operation. Research and development expenditure Research expenditure is expensed as incurred. Costs incurred in developing projects are capitalised as intangible assets when it is considered that the commercial viability of the project will be a success based on discounted expected cash flows, and the costs can be reliably measured. Other development costs are expensed and are not recognised as assets. Other intangible assets Intangible assets (including research and development) acquired as part of a business combination are capitalised at fair value at the date of acquisition. Other intangibles are capitalised at cost. The policies applied to the Group’s intangible assets are summarised as follows: Useful lives Amortisation Research and development costs Finite Straight-line basis, with a maximum life of four years from commencement of commercial production, with no residual value Internally generated or acquired Internally generated Patents and licences Finite Software Finite Straight-line basis, with Customer Other related Indefinite Finite Straight-line Not amortised, Straight-line but subject basis, with a basis, with a to impairment maximum life a maximum maximum life of testing of 20 years, 20 years, with life of three years, with no no residual value. with no residual value. Most The majority residual value patents are of customer depreciated related over a period intangible of 10 years assets are or less depreciated over their useful lives of between three and five years Acquired Acquired Acquired Acquired 1.7 Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of lease payments discounted at the interest rate implicit in the lease. The interest element in the lease payment is expensed at a constant interest rate, whereas the obligation net of the interest element is included in other payables. All other leases are classified as operating leases and rentals are expensed over the period of the lease on a straight-line basis. Where a Group company acts as a lessor the lease is classified as a finance or operating lease and accounted for as follows. When assets are leased out under a finance lease, the present value of the lease payments are recognised as a receivable. The rental is allocated between finance income and repayment of capital in each accounting period using the actuarial method, such that finance income will emerge as a constant rate of return on the lessor’s net investment in the lease. Lease income on operating leases is recognised over the term of the lease on a straight-line basis and the asset is included in the statement of financial position based on the nature of the asset. 1.8 Impairment For goodwill and intangible assets with indefinite lives, the carrying value is reviewed annually for impairment or more frequently if events or changes in circumstances indicate that the carrying amounts may be impaired. Other intangible assets and property, plant and equipment are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying value of the asset is higher than the recoverable amount of the asset an impairment loss is recognised. In carrying out such impairment evaluations the recoverable amount is the higher of the asset’s value in use or its fair value less costs to sell. Assets that do not generate largely independent cash inflows are grouped at the lowest level for which separate identifiable cash flows exist (cash-generating units) and the recoverable amount is determined for the cash-generating unit. If necessary, the carrying value is reduced by charging an impairment loss in the income statement. Reversal of impairment Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that it does not exceed the carrying amount that would have been determined had no impairment loss been recognised. No impairment loss is reversed for goodwill. 56 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 57 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 58 Notes to the Financial Statements for the year ended 30 April 2016 1.9 Financial assets Group The Group classifies its financial assets on initial recognition in the following categories. The classification depends on the purpose for which the financial assets were acquired. (i) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in trade and other receivables in the statement of financial position. These assets are held at amortised cost using the effective interest rate method. (ii) Held to maturity financial assets These financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has the positive intention and ability to hold to maturity. These assets are held at amortised costs using the effective interest rate method. Included within these amounts are cash deposits that are subject to restrictions and are not freely available for use by the Group until a future date. (iii) Financial assets at fair value through profit or loss A financial asset is classified in this category if acquired principally for the purpose of trading or if so designated by management. Assets held in this category are classified as current assets if expected to be settled within one year; otherwise they are classified as non-current. Financial assets in this category are initially recorded and subsequently valued at fair value, with changes in fair value recognised in the income statement. (iv) Available-for-sale financial assets Financial assets not classified in any of the above categories are shown as available-for-sale financial assets and are shown as non-current assets, unless management intends to sell the financial assets within 12 months of the end of the financial year. These assets are initially recognised at cost and are subsequently carried at fair value. (v) Recognition and measurement For investments designated as financial assets at fair value through profit or loss or available-for-sale financial assets the fair values of quoted investments are based on current bid prices. For unlisted investments the Group uses various valuation techniques to determine fair values, including at cost less any provision for impairment, where appropriate. At each year end date the Group assesses whether there is objective evidence that a financial asset, or group of financial assets, has become impaired. Any impairment loss so recognised is reflected in the income statement. Indications of impairment may include a reduction in the quoted price, a reduction in the underlying profitability of the investment and other factors indicating that the value of the investment has fallen. Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and simultaneously settle the liability. Company In the Company statement of financial position, investments in subsidiaries and associates are stated at cost less impairment. The Company reviews, at least annually, the carrying value of investments and performs an impairment exercise. An impairment charge is made where there is evidence that the carrying value exceeds the future cash flows of the investment or where its carrying amount will not be recovered from sale. 1.10 Inventories Inventories are stated at the lower of cost and net realisable value. Cost includes costs incurred in bringing inventories to their present location and condition. The cost of work-in-progress and finished goods includes an appropriate proportion of production overheads. Finished goods also include operating equipment not yet sited. Raw materials and consumables are valued on a first-in first-out basis or on an average cost basis where average cost is not significantly different to first-in first-out due to the fast turnaround of consumables. The Group uses standard costs to value inventory and these standard costs are regularly updated to reflect current prices. 1.11 Trade receivables Trade receivables are stated at fair value and subsequently measured at amortised cost using the effective interest method net of impairment provisions. An impairment provision is reflected in the income statement if there is objective evidence that the Group will not be able to recover the full amount of the receivable. The impairment is calculated as the difference between the carrying value of the receivable and the present value of the expected future cash flows, discounted at the original interest rate. Such factors as the debtor experiencing significant financial difficulties, bankruptcy, financial reorganisation or default on payments are indicators that the receivable is impaired. 1.12 Cash and cash equivalents Cash and cash equivalents are carried in the statements of financial position at cost. Bank overdrafts are included within borrowings in current liabilities in the statements of financial position. For the purposes of the statements of cash flows, cash and cash equivalents comprises cash on hand, unrestricted deposits held at banks with less than three months’ notice and other highly liquid investments with an original maturity of three months or less, less bank overdrafts. 1.13 Share capital Shares of the Company are classified as equity. Where the Company acquires its own equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax relief), is deducted from equity attributable to the Company’s equity shareholders until the shares are either cancelled or subsequently reissued. The amount is shown in equity as treasury shares. Where such shares (the treasury shares) are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders. 1.14 Borrowings Borrowings are recorded initially at the fair value of the consideration received net of directly attributable transaction costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method. This method includes any initial issue costs and discounts or premiums on settlement. Finance costs on the borrowings are charged to the income statement under the effective interest rate method. Financial liabilities are derecognised when the obligation under the liability is cancelled, discharged or has expired. 1.15 Employee benefits Pension obligations Group companies have various pension schemes in accordance with local conditions and practices in the countries in which they operate. The Company operates a defined benefit pension scheme, which is closed to new entrants, with contributions made by employees and the Company. The defined benefits are based upon the employee’s length of service and final pensionable salary. The Company also operates a defined contribution pension scheme. The Group also has defined benefit pension schemes as noted in note 22. The net obligation for the Group’s defined benefit pension schemes is calculated for each scheme separately by estimating the future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value amount of plan assets. The calculation is performed by independent actuaries using the projected unit credit actuarial method. If this calculation results in a potential asset for the Group, this asset is only recognised to the present value of the economic benefits available in the form of a refund of contributions paid to the fund or reductions in future contributions. In calculating the present value of any economic benefit consideration is given to any minimum funding requirements. Re-measurement of the net liability, which comprises actuarial gains and losses, the return on plan assets (excluding interest) and the effects of any asset ceiling, are recognised in other comprehensive income. The Group determines the net interest expense (income) on the net liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the period to the then net defined liability (asset), taking into account changes in the period as a result of contributions and pension benefits paid. Other expenses are charged to profit and loss. When plan benefits are changed or the plan curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised in profit and loss. Gains and losses on settlement of any plan are recognised when settlement occurs. Other post-employment benefits In addition to the pension schemes noted above, certain Group companies are required to make provisions for employee retirements. These provisions are based on local circumstances, length of service and salaries of the employees concerned. They are included in post-employment benefit obligations, and shown in note 22 as other retirement provisions. Equity compensation benefits The cost of equity-settled transactions with employees is measured by reference to the fair value at the date of grant, determined using the Black-Scholes model. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognised at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the number of awards that, in the opinion of the directors of the Group and based on the best available estimate, at that date, of the number of equity instruments that will ultimately vest. The income statement charge or credit for the period represents the movement in the cumulative expense recognised as at the beginning and end of the period. No expense is recognised for awards that do not ultimately vest. The Group does not have options with market conditions. On exercise of the option the proceeds received are allocated to share capital (nominal value of shares) and share premium. The grant by the Company of options over its equity instruments (shares) to the employees of subsidiary undertakings in the Group is treated as a capital contribution. The fair value of the employee services received, measured by reference to the grant date fair value, is recognised over the investing period as an increase to the investment in subsidiary undertakings with a corresponding credit to other reserves in equity. 58 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 59 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 60 Notes to the Financial Statements for the year ended 30 April 2016 Termination benefits Termination benefits are recognised in the income statement in the period when the Group is demonstrably committed to the termination of employment or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Short-term employee benefits The Group recognises a liability and an expense for short-term employee benefits (such as holiday pay, bonuses and profit sharing) where these obligations contractually arise (for example, as a result of employment contracts) or where a constructive obligation has arisen from past practice. 1.16 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made. Provisions are discounted where the effect of the time value of money is material. 1.17 Taxation Tax expense for the current period comprises current and deferred tax and is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or equity. The current tax charge is calculated on the basis of the laws enacted or substantively enacted at the balance sheet date in the countries where the Group operates. Deferred tax is provided in full on temporary differences arising between the tax base of assets and liabilities and their carrying value in the accounts. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in future periods in which the temporary difference will reverse, based on tax rates and laws enacted or substantively enacted at the year end. Deferred tax assets are recognised to the extent that it is probable that the future taxable profit, against which the deductible temporary differences can be utilised, will be available. Deferred tax is provided, or an asset recognised, on taxable temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. Current tax assets and liabilities are measured at the amounts expected to be recovered from, or paid to, the taxation authorities, based on tax rates and laws that are enacted or substantively enacted at the year end. 1.21 Own work capitalised Some of the Group’s subsidiaries manufacture vending equipment, which is then sold to the Group’s Operations companies and capitalised by them as fixed assets. The amount capitalised includes direct costs associated with the manufacture of such items together with applicable overheads, but excluding general overheads and administration costs. Profits made by the selling company are eliminated on consolidation. 1.22 Dividend distributions Dividends to the Company’s shareholders are recognised as a liability and deducted from shareholders’ equity in the period in which the shareholders’ right to receive payment is established. 1.23 Financial guarantee contracts Where the Company enters into financial guarantee contracts to warranty the indebtedness of one company within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee (note 27). 1.24 Government grants Grants that compensate the Group for expenses incurred are recognised in profit and loss on a systematic basis in periods in which the expenses are recognised, provided the terms of the grant are satisfied. 1.25 Specific items The Group’s Statement of Comprehensive Income and segmental analysis show operating profit before and after specific items. The presentation and use of Specific items is a non-GAAP measure and the use of this measure may not be comparable to similarly titled measures used by other companies. Specific items are those that in management’s judgment need to be disclosed separately by virtue of their size, nature or incidence. Management determines whether an item is specific and warrants separate disclosure by considering both qualitative and quantitative factors, such as the frequency or predictability of occurrence. This is consistent with the way operating performance is presented and reported to management. The directors believe that the presentation of the Group’s results in this way is relevant to an understanding of the Group’s performance, as specific items are identified by their size, nature or incidence. For those years where specific items are shown in the Group Statement of Comprehensive Income an alternative earning per share is shown in the earnings per share note. Alternative earnings per share and alternative diluted earning per share are shown and are calculated on earnings available to Ordinary shareholders excluding specific items. 1.18 Trade and other payables Trade payables are initially recorded at fair value and subsequently recorded at amortised cost using the effective interest rate method. 2 New standards, amendments and interpretations New accounting standards 1.19 Segment reporting Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision Maker as required by IFRS 8 Operating Segments. Details of the segments are shown in note 3. 1.20 Revenue recognition Revenue from the operation of photobooths and other operating equipment is the cash received, and held in machines up to the year-end date, net of value added tax and refunds. Revenue from the sale of goods is recognised upon delivery of products and acceptance, if applicable, by the customer. Revenue is stated net of value added tax and discounts. Revenue from the sale of services, including maintenance contracts and royalty income, is recognised evenly over the period in which the service/licence is provided to the customer. Rental income from investment property and other assets under operating lease contracts is accounted for on a straight-line basis over the lease term and is included in other operating income. Dividend income is recognised when the right to receive payment is established. Interest income is recognised using the effective interest method and mainly consists of bank interest. It is accounted for as finance income. Adopted by the Group The Group has adopted the following new and amended standards for the first time in these financial statements with no material impact. (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Amendments to IFRS 2 Share based Payments - clarifies issues relating to the definitions of performance and service conditions which are vesting conditions. Amendments to IFRS3 Business Combinations - clarifies when other applicable IFRSs should be referred to when determining the classification of contingent consideration as a liability or equity instrument. Amendments to IFRS8 Operating Segments - clarifies that entities should disclose those factors that are used to identify the entity’s Amendments to IAS19 Defined Benefit Plans: simplifies the accounting for contributions that are independent of a number of years Employee Contributions - of employee service. Amendments to IAS 24 Related Party Disclosures - clarifies that an entity providing key management personnel services to the reporting reportable segments when operating segments have been aggregated. entity or to the Parent Company is a related party of the reporting entity. Not adopted by the Group Certain changes to IFRS will be applicable to the Group’s financial statements in future years, including the IFRS Improvements Cycle. The more significant changes are shown below. IFRS 9 Financial Instruments (effective from 1 January 2018) reflects all phases of the financial instruments project and replaces IAS39 Financial Instruments: Recognition and Measurement. This standard introduces new classification and measurement requirements of financial instruments, new general hedge accounting requirements and a new expected credit loss model for measuring impairment on financial assets. The Group’s initial impression is that adopting this standard will not have a material impact on the financial statements. A detailed evaluation will commence in 2016. IFRS15 Revenue from Contracts with Customers (effective from 1 January 2018) replaces the existing Revenue Standard. The new standard is based on the principle that revenue is recognised when control of goods or services is transferred and provides a single principle based standard. The Group’s initial impression is that this standard will not have a material impact on the consolidated results or financial position. A detailed evaluation will commence in 2016. IFRS16 Leases was issued in January 2016, and is effective from 1 January 2019. This standard will replace all existing lease accounting requirements. The standard makes no distinction between operating and finance leases and will require nearly all leases to be reflected on the balance sheet. The Group currently has operating leases, mainly for motor vehicles which under the new standard will result in an increase in assets and liabilities. The Group has a strong net cash position so the impact on gearing will be marginal. The Group will begin to assess the impact of this standard in 2016, including any impact on site agreements. 60 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 61 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 62 Notes to the Financial Statements for the year ended 30 April 2016 3 Segmental analysis IFRS 8 requires operating segments to be identified, based on information presented to the Chief Operating Decision Maker (CODM) in order to allocate resources to the segments and monitor performance. The Group reports its segments on a geographical basis, Asia, Continental Europe and United Kingdom and Ireland. The Group’s European operations are predominately based in Western Europe and with the exception of the Swiss operations use the Euro as their domestic currency. The Board believes that the economic characteristics of the European operations, together with the fact that they are similar in terms of operation, they use common systems for operations and administrative functions and the nature of the regulatory environment allows the European operations to be aggregated into one reporting segment. The Group monitors performance at the adjusted operating profit level before special items, interest and taxation. In accordance with IFRS 8, no segment information is provided for assets and liabilities in the disclosures below, as this information is not regularly provided to the CODM. The segment results are as follows: 2016 Total revenue Inter-segment sales Revenue from external customers EBITDA Depreciation and amortisation Operating profit excluding associates Share of post-tax profits from associates Corporate costs excluding depreciation and amortisation Corporate depreciation and amortisation Operating profit Finance revenue Finance costs Profit before tax Tax Profit for year Capital expenditure Corporate capital expenditure Total capital expenditure Reconciliation of operating profit Operating profit before associates Share of post tax profits from associates Corporate operating profit Total operating profit Asia £’000 45,364 (865) 44,499 13,633 (3,134) 10,499 Continental Europe £’000 100,816 (7,104) 93,712 33,881 (9,718) 24,163 United Kingdom & Ireland £’000 46,066 (283) 45,783 11,934 (3,973) 7,961 4,623 13,221 4,669 Asia £’000 10,499 165 – 10,664 Continental Europe £’000 24,163 – 737 24,900 United Kingdom & Ireland £’000 7,961 – (3,791) 4,170 Total £’000 192,246 (8,252) 183,994 59,448 (16,825) 42,623 165 (2,918) (136) 39,734 538 (166) 40,106 (10,907) 29,199 22,513 2,303 24,816 Total £’000 42,623 165 (3,054) 39,734 2015 Total revenue Inter-segment sales Revenue from external customers EBITDA Depreciation and amortisation Operating profit excluding associates Share of post-tax profits from associates Corporate costs excluding depreciation and amortisation Corporate depreciation and amortisation Operating profit Finance revenue Finance costs Profit before tax Tax Profit for year Capital expenditure Corporate capital expenditure Total capital expenditure Asia £’000 38,925 (720) 38,205 10,232 (3,465) 6,767 Continental Europe £’000 100,127 (5,782) 94,345 32,013 (9,967) 22,046 United Kingdom & Ireland £’000 44,867 (215) 44,652 11,810 (3,359) 8,451 3,895 14,193 3,799 Included in corporate costs for April 2015 is the profit on sale of vacant land at the Bookham site of £3,484,000. Reconciliation of operating profit Operating profit before associates Share of post tax profits from associates Corporate operating profit Total operating profit Asia £’000 6,768 164 – 6,932 Continental Europe £’000 22,045 – 1,012 23,057 United Kingdom & Ireland £’000 8,453 – (72) 8,381 Inter-segment revenue mainly relates to sales of equipment. The Parent Company is domiciled in the UK. Total revenue from external customers is as follows: Total revenue from external customers Asia and rest of the world Continental Europe UK Total revenue from external customers Sales of equipment Sales of spare parts and consumables Other sales Vending revenue Group 2016 £’000 44,499 95,960 43,535 183,994 Group 2016 £’000 6,590 7,517 183 14,290 169,704 183,994 Total £’000 183,919 (6,717) 177,202 54,055 (16,791) 37,264 164 1,032 (90) 38,370 191 (65) 38,496 (10,452) 28,044 21,887 1,729 23,616 Total £’000 37,266 164 940 38,370 2015 £’000 38,205 96,265 42,732 177,202 2015 £’000 5,809 8,139 21 13,969 163,233 177,202 62 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 63 l S t a t e m e n t s i F n a n c a i Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 64 Notes to the Financial Statements for the year ended 30 April 2016 4 Profit for the year Costs and overhead items charged/credited in arriving at profit for the year, include the following: Amortisation, depreciation and impairment Amortisation of previously capitalised research and development expenditure Amortisation of intangible assets other than research and development Depreciation of property, plant and equipment - owned - leased 2016 £’000 1,015 533 1,548 15,304 109 15,413 Amortisation and impairment of capitalised research and development expenditure is reflected in the income statement in cost of sales. Amortisation of intangible assets other than research and development. - reflected in income statement in cost of sales - reflected in income statement in administrative expenses Operating lease rentals - property - plant and equipment Restated as per note 2 Inventory cost Cost of inventories recognised as an expense Inventory provision reversed 2015 £’000 1,678 414 2,092 14,709 80 14,789 206 208 414 2015 £’000 462 966 1,428 280 253 533 2016 £’000 396 1,866 2,262 11,441 52 11,493 12,575 – 12,575 Inventory provision reversed relates to provisions which have been reversed during the year. Other items Research and development current year expenditure, not capitalised Own work capitalised Trade receivables impairment (note 15) Net foreign exchange gains (Gains)/losses on sale of property, plant and equipment Direct expenses for investment properties generating rental income 2016 £’000 177 (1,842) (45) (106) (236) 53 Audit and non-audit services The following fees for audit and non-audit services were paid or are payable to the Company’s auditor, KPMG LLP and its associates. Audit of these financial statements Fees payable to the Company’s auditor and its associates for other services - audit of the Company’s subsidiaries pursuant to legislation - other services Audit fee of the Company 2016 £’000 162 131 21 314 2016 £’000 60 2015 £’000 377 (2,613) 292 (956) (3,510) 68 2015 £’000 162 151 57 370 2015 £’000 60 In order to maintain the independence of the external auditors, the Board has determined policies as to what non-audit services can be provided by the Company’s external auditors and the approval processes related thereto. This function is performed by the Audit Committee. Such services will only be approved if there are clear efficiencies and added value benefits to the Company. Fees paid to KPMG LLP and its associates for non-audit services to the Company itself are not disclosed individually, as they are included above. In addition to the audit fees payable to KPMG LLP and its associates, certain Group subsidiaries are audited by other firms. The following shows the fees payable to those firms: Audit fees Other services Summary Total fees paid or payable to all of the Group’s auditors for audit and other services Other operating income Other operating income principally includes rental income from investment property (note 13) Specific items Specific items are as follows: Profit on sale of land Total 2016 £’000 67 3 70 2016 £’000 384 2016 £’000 1,306 2016 £’000 – – 2015 £’000 89 3 92 2015 £’000 462 2015 £’000 1,166 2015 £’000 3,484 3,484 Specific items are those that in management’s judgment need to be disclosed separately by virtue of their size, nature or incidence. Management determines whether an item is specific and warrants separate disclosure by considering both qualitative and quantitative factors, such as the frequency or predictability of occurrence. In the year ended 30 April 2015 the Company sold its vacant land at the Bookham site. 5 Employees Staff costs, including costs relating to the Group’s key management personnel, who comprise the directors of the Parent Company, during the year amounted to: Wages and salaries Social security costs Share options granted to directors and employees Post employment benefit costs - defined benefit schemes - defined contribution schemes - other post-employment costs Group 2016 £’000 32,653 7,096 413 228 243 243 40,876 2015 £’000 32,031 7,242 371 247 218 191 40,300 i F n a n c a i 64 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 65 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 66 Notes to the Financial Statements for the year ended 30 April 2016 Directors’ emoluments Full details of directors’ remuneration and share options are given in the Remuneration Report on pages 36 to 48. The average number of employees during the year (including executive directors) comprised: Full - time Part - time UK: Full - time UK: Part - time Continental Europe: Full - time Continental Europe: Part - time Asia and rest of the world: Full - time Asia and rest of the world: Part - time 6 Finance revenue and costs Finance revenue Bank interest Other interest Other financial income Finance costs Bank loans and overdrafts at amortised cost Other loans at amortised costs and finance leases Provision on investments and other finance charges 7 Taxation expense Tax charges/(credits) in the statement of comprehensive income Taxation Current taxation UK Corporation tax - current year - prior years Overseas taxation - current year - prior years Total current taxation Deferred taxation Origination and reversal of temporary differences - current -year - UK - current -year - overseas Adjustments to estimated recoverable amounts of deferred tax assets arising in previous years - UK - Overseas Impact of change in rate Total deferred tax Tax charge in the statement of comprehensive income Group 2016 £’000 950 167 1,117 291 9 507 42 152 116 1,117 2016 £’000 528 10 – 538 149 17 – 166 2016 £’000 1,965 (15) 1,950 9,023 (64) 8,959 10,909 (520) 256 (15) 205 72 (2) 10,907 2015 £’000 924 164 1,088 264 11 515 42 146 110 1,088 2015 £’000 170 19 2 191 52 12 1 65 2015 £’000 2,164 (144) 2,020 7,491 (62) 7,429 9,449 1,103 (123) (56) 79 – 1,003 10,452 Tax relating to items charged to other components of comprehensive income Corporation tax Deferred tax Tax credit in other comprehensive income 2016 £’000 485 52 537 Reconciliation of total tax charge The difference between the Group tax charge and the standard UK corporation tax rate of 20.0% (2015: 20.9%) is explained below: Profit before tax Tax using the UK corporation tax rate of 20.0% (2015: 20.9%) Effect of: - non-taxable items - change in UK tax rates - overseas tax rates - losses not recognised in deferred tax (relieved)\incurred - adjustments to tax in respect of prior years Total tax charge Effective tax rate 2016 £’000 40,106 8,021 (227) 112 3,598 (708) 111 10,907 27.2% 2015 £’000 – 402 402 2015 £’000 38,496 8,052 168 7 2,648 (125) (298) 10,452 27.2% 8 Profits attributable to members of the Parent Company The profit for the year, after tax, dealt with in the financial statements of the Parent Company is £19,951,000 (2015: £19,749,000), including dividends received from subsidiaries. 9 Dividends paid and proposed Interim 2015 paid on 14 May 2015 2014 paid on 6 May 2014 Final 2015 paid on 12 November 2015 2014 paid on 7 November 2014 Special paid on 15 May 2014 2016 Pence per share 2.34 £’000 8,733 2015 Pence per share £’000 1.80 6,690 2.54 9,484 4.88 18,217 1.95 2.00 5.75 7,257 7,434 21,381 Year ended 30 April 2016 – Proposed dividends not yet paid The Board declared an interim dividend of 2.575p per share for the year ended 30 April 2016, amounting to £9,669,000 which was paid on 12 May 2016. The Board proposes a final dividend for the year ended 30 April 2016 of 3.285p per share, which is subject to shareholders approval at the Annual General Meeting to be held on 20 October 2016. The Board also proposes a special dividend of 2.815p per share. Both the final and special dividends will be paid on 10 November 2016. Year ended 30 April 2015 – Paid after 30 April 2015 The Board declared an interim dividend of 2.34p per share for the year ended 30 April 2015, amounting to £8,733,000 which was paid on 14 May 2015. The Board proposed a final dividend for the year ended 30 April 2015 of 2.54p per share, amounting to £9,484,000 which was paid on 12 November 2015. 66 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 67 l S t a t e m e n t s i F n a n c a i Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 68 Notes to the Financial Statements for the year ended 30 April 2016 10 Earnings per share Basic earnings per share amounts are calculated by dividing net earnings attributable to shareholders of the Parent of £29,066,000 (2015: £27,900,000) by the weighted average number of shares in issue during the year, excluding those held, where applicable, as treasury shares. Diluted earnings per share amounts are calculated by dividing the net earnings attributable to shareholders of the Parent by the weighted average number of shares outstanding during the year plus the weighted average number of shares that would be issued on conversion of all the dilutive potential shares into shares. The Group has only one category of dilutive potential shares: the share options granted to senior staff, including directors, as detailed in note 20. The earnings and weighted average number of shares used in the calculation are set out in the table below: Basic earnings per share Effect of dilutive share options Diluted earnings per share 2016 Weighted average number of shares £’000 374,121 2,514 376,635 Earnings £’000 29,066 29,066 Earnings per share pence 7.77 (0.05) 7.72 Earnings £’000 27,900 27,900 2015 Weighted average number of shares £’000 372,381 3,314 375,695 Earnings per share pence 7.49 (0.06) 7.43 Potential shares (for example, arising from exercising share options) are treated as dilutive only when their conversion to shares would decrease basic earnings per share or increase loss per share from continuing operations. Alternative earnings per share The table below reconciles earnings per share (EPS) and diluted earnings per share (DPS) before and after specific items. Earnings available to shareholders Specific items net of tax Earnings after special items Weighted average number of shares in issue in period- basic (’000) - including dilutive share options (’000) £’000 29,066 – 29,066 374,121 376,635 2016 EPS 7.77 – 7.77 DPS 7.72 – 7.72 £’000 27,900 (2,752) 25,148 372,381 375,695 2015 EPS 7.49 (0.74) 6.75 DPS 7.43 (0.73) 6.70 There were no specific items in the year ended 30 April 2016. Specific items for the year ended 30 April 2015 relate to the sale of vacant land at the Bookham site. The contract for £4,200,000 was exchanged on 5 June 2014 with cash settlement on completion one month later. 11 Goodwill and other intangible assets Goodwill Group Cost: At 1 May 2014 Exchange difference Additions At 30 April 2015 At 1 May 2015 Exchange difference Additions At 30 April 2016 Impairment charges: At 1 May 2014 Exchange difference At 30 April 2015 At 1 May 2015 Exchange difference At 30 April 2016 Net book value: At 1 May 2016 At 1 May 2015 At 1 May 2014 £’000 10,209 (246) 513 10,476 10,476 154 1,273 11,903 298 (2) 296 296 1 297 11,606 10,180 9,911 Goodwill by segments and impairment of goodwill The table below shows the allocation of goodwill acquired through business combinations between segments. Goodwill has been allocated for impairment testing purposes to eight (2015: seven ) cash-generating units (CGUs); allocated between geographical areas and activity in accordance with impairment testing in the prior year: Carrying amount UK & Ireland CGU 1 CGU 2 CGU 3 CGU 4 Total UK & Ireland Continental Europe CGU 1 - France CGU 2 - Germany CGU 3 - Switzerland Total Continental Europe Asia CGU 1 - Japan Total Asia Total Total 2016 £’000 154 14 317 1,273 1,758 280 1,797 526 2,603 7,245 7,245 11,606 2015 £’000 154 14 317 – 485 261 1,676 513 2,450 7,245 7,245 10,180 The Group tests annually, for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amount of all CGUs has been determined on a value in use basis. Value in use was determined by discounting the future cash flows of the CGU, for a finite period of five years, based on actual operating results, budgets and economic market research. Key assumptions Growth rate 3% (2015: 3%) The growth rate has been determined based on a conservative basis for expected annual growth in EBITDA for each CGU and takes into account revenue, volumes, selling prices and operating costs. It is based on past experience and expected future developments in markets and operations. Discount rate 8–11% (2015: 8–11%) The pre-tax discount rates applied to the cash flow forecasts for the CGUs are derived from the pre-tax weighted average cost of capital for the Group adjusted for economic and political risks for the specific country concerned. The rates used are: United Kingdom 8.7%, (2015: 9.5%), Ireland 8.1% (2015: 8.7%), France 7.8% (2015: 8.4%), Germany 7.51% (2015:8.1%), Switzerland 7.3% (2015: 7.8% ) and Japan 7.3% (2015: 8.3%). The Board is confident, overall, that these discount rates reflect the circumstances in each region, and are in accordance with IAS 36. Sensitivity to changes in assumptions There is significant headroom for each CGU and management believes that no reasonable possible change in any of the above assumptions would cause the carrying value of those CGUs to exceed their recoverable amount. Consequently, no impairment losses were recognised in 2016 (2015: none). i F n a n c a i The addition to goodwill in 2016 relates to the acquisition of operations in the United Kingdom, and in 2015 to acquisitions in Switzerland as shown in note 30. Company The Company has no goodwill. l S t a t e m e n t s 68 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 69 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 70 Notes to the Financial Statements for the year ended 30 April 2016 Other intangible assets Group Cost: At 1 May 2014 Exchange differences Additions - Internally generated - External Reclassifications Disposals At 30 April 2015 At 1 May 2015 Exchange differences Additions - Subsidiaries acquired - Internally generated - External Reclassifications Disposals At 30 April 2016 Amortisation: At 1 May 2014 Exchange differences Provided during year Reclassifications Disposals At 30 April 2015 At 1 May 2015 Exchange differences Subsidiaries acquired Provided during year Disposals Reclassifications At 30 April 2016 Net book value: At 30 April 2016 At 30 April 2015 At 30 April 2014 Research & development costs £’000 Other intangible assets £’000 7,607 (742) 2,560 – – (1,149) 8,276 8,276 577 – 2,935 – – (5,675) 6,113 5,374 (604) 1,678 – (814) 5,634 5,634 457 – 1,015 (5,675) – 1,431 4,682 2,642 2,233 7,112 (479) – 1,081 (8) (121) 7,585 7,585 396 255 – 286 56 (578) 8,000 3,569 (160) 414 (8) (95) 3,720 3,720 189 1 533 (510) 43 3,976 4,024 3,865 3,543 Total £’000 14,719 (1,221) 2,560 1,081 (8) (1,270) 15,861 15,861 973 255 2,935 286 56 (6,253) 14,113 8,943 (764) 2,092 (8) (909) 9,354 9,354 646 1 1,548 (6,185) 43 5,407 8,706 6,507 5,776 Company Cost: At 1 May 2014 Additions - external Disposals - external At 30 April 2015 At 1 May 2015 Additions - internally generated - external Disposals - external At 30 April 2016 Amortisation: At 1 May 2014 Provided during year Disposals - external At 30 April 2015 At 1 May 2015 Provided during year Disposals - external Transfers Transfers to available for sale At 30 April 2016 Net book value: At 30 April 2016 At 30 April 2015 At 30 April 2014 Research & development costs £’000 Other intangible assets £’000 Patents & trade marks £’000 – – – – 1,457 – – 1,457 – – – – – 243 – – – 243 1,214 – – 1,309 379 (88) 1,600 1,600 – 160 (475) 1,285 762 152 (88) 826 826 279 (475) – – 630 655 774 547 5,506 – – 5,506 5,506 – – – 5,506 551 550 – 1,101 1,101 551 – – – 1,652 3,854 4,405 4,955 Total £’000 6,815 379 (88) 7,106 7,106 1,457 160 (475) 8,248 1,313 702 (88) 1,927 1,927 1,073 (475) – – 2,525 5,723 5,179 5,502 Capitalised research and development expenditure is amortised over a maximum of four years, with no residual value. Included in the net book value of other intangible assets is £2,343,000 corresponding to droit de bail (2015: £2,194,000 and 2014: £2,068,000). Droit de bail, which occur in France, are payments made for the right to occupy a space to site vending equipment. The Group has control over the use of these rights and has classified them as having an indefinite life, as the Group considers that there is no foreseeable limit to the period in which they can be utilised. Although the Group has no intention of selling these rights, there is a value attached to them. These assets are based on cost, being the payments made for the right to occupy the space. In determining fair values of such assets for the purpose of impairment testing, the Group has based its assumptions on current prices paid for such assets (using actual amounts paid by the Company and/or management estimates for amounts paid by third parties) and, where the right has been held for a number of years, the expected sales price, less costs to sell. The carrying amount of these intangible assets has been reviewed on an individual basis for impairment testing at least once a year and more frequently if there is an indication that they may be impaired. If their fair value is less than their carrying value, an impairment loss is recognised and charged to cost of sales. Management believes that no reasonable possible change in the basis of this assessment would cause the carrying value of these rights to exceed their recoverable value. 70 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 71 l S t a t e m e n t s i F n a n c a i Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 72 Notes to the Financial Statements for the year ended 30 April 2016 12 Property, plant and equipment Group Cost: At 1 May 2014 Exchange difference Additions - new subsidiaries - internal - external Reclassifications Disposals At 30 April 2015 Exchange difference Additions - new subsidiaries - internal - external Reclassifications Transfer to assets held for sale Disposals At 30 April 2016 Depreciation At 1 May 2014 Exchange difference New subsidiary Provided during year Reclassifications Disposals At 30 April 2015 Exchange difference New subsidiary Provided during year Reclassifications Transfers to assets held for sale Disposals At 30 April 2016 Net book value: At 30 April 2016 At 30 April 2015 At 30 April 2014 Land & Buildings £’000 7,264 (495) – – 31 – (387) 6,413 437 278 – 192 – (1,542) (719) 5,059 5,738 (399) – 113 – (386) 5,066 366 28 55 – (1,446) (302) 3,767 1,292 1,347 1,526 Photobooths and vending Plant machinery, furniture, fixtures and machines motor vehicles £’000 £’000 169,028 (10,679) 1,516 2,613 15,674 – (12,253) 165,899 12,376 – 925 18,477 14 – (9,381) 188,310 127,338 (8,437) 1,291 13,925 – (11,305) 122,812 10,046 – 14,507 5 – (8,728) 138,642 49,668 43,087 41,690 24,940 (2,539) 90 – 1,657 8 (409) 23,747 1,608 590 – 1,861 (14) – (2,321) 25,471 21,627 (2,240) 82 751 8 (310) 19,918 1,390 291 849 (5) – (2,106) 20,337 5,134 3,829 3,313 Total £’000 201,232 (13,713) 1,606 2,613 17,362 8 (13,049) 196,059 14,421 868 925 20,530 – (1,542) (12,421) 218,840 154,703 (11,076) 1,373 14,789 8 (12,001) 147,796 11,802 319 15,411 – (1,446) (11,136) 162,746 56,094 48,263 46,529 Internal additions for photobooths and vending machines of £925,000 (2015: £2,613,000) relate to own work capitalised, being equipment produced by the subsidiaries and capitalised by the Group companies. Included in the above are assets held under finance leases, as follows: 2016 2015 Net book value Additions/reclassifications Depreciation charge Photobooths and vending Plant, machinery, furniture fixtures and machines motor vehicles £’000 483 319 109 £’000 – – – Photobooths and vending Plant, machinery, furniture, fixtures and machines motor vehicles £’000 187 142 80 £’000 – – – Assets held for sale at 30 April 2016 for both the Group and the Company of £96,000 consist of a Group property. Company Cost: At 1 May 2014 Additions - internal - external Disposals - internal - external At 30 April 2015 Additions - internal - external Transfer to assets held for sale Disposals - internal - external At 30 April 2016 Depreciation At 1 May 2014 Provided during year Disposals - internal - external At 30 April 2015 Provided during year Transfers to assets held for sale Disposals - internal - external At 30 April 2016 Net book value: At 30 April 2016 At 30 April 2015 At 30 April 2014 Photobooths and vending Plant machinery, furniture, fixtures and machines motor vehicles £’000 £’000 Land & Buildings £’000 Total £’000 1,648 35,777 1,075 38,500 – – – (6) 1,642 – – (1,542) – – 100 1,533 12 – – 1,545 1 (1,446) – – 100 – 97 115 3,056 183 (451) (2,884) 35,681 3,092 274 – (41) (2,197) 36,809 27,479 3,007 (319) (2,816) 27,351 3,240 – (5) (2,091) 28,495 8,314 8,330 8,298 – 20 – (41) 1,054 – 50 – – (41) 1,063 1,007 35 – (41) 1,001 34 – – (41) 994 69 53 68 3,056 203 (451) (2,931) 38,377 3,092 324 (1,542) (41) (2,238) 37,972 30,019 3,054 (319) (2,857) 29,897 3,275 (1,446) (5) (2,132) 29,589 8,383 8,480 8,481 Internal additions for photobooths and vending machines of £3,092,000 (2015: £3,056,000) relate to new equipment produced by subsidiaries and equipment previously capitalised by the Group’s subsidiaries and sold to the Parent. Internal disposals relate to disposals to subsidiary companies. i F n a n c a i 72 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 73 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 74 Notes to the Financial Statements for the year ended 30 April 2016 13 Investment property Group Cost: At 1 May 2014 Exchange difference At 30 April 2015 Exchange difference Additions At 30 April 2016 Depreciation At 1 May 2014 Exchange difference At 30 April 2015 Exchange difference Provided during year At 30 April 2016 Net book value: At 30 April 2016 At 30 April 2015 At 30 April 2014 £’000 12,315 (1,379) 10,936 790 140 11,866 11,799 (1,321) 10,478 757 2 11,237 629 458 516 The investment property is freehold and is stated at cost. The property was valued by an independent professional valuer in October 2010, with a value of €12.2m based on a market value for similar properties, and on a rental stream valuation of €12.6m. Since this valuation was performed, the Group has sold the rights to the future rental stream on the property for the period up to April 2019. Funds received in the year ended 30 April 2011 on the original rental stream sale amounted to €9.2m (£8.2m). The associated liability is reflected in accruals and deferred income, note 25. The sale of the future rental income has impacted the value of the property. The Board believes at 30 April 2016 that net of the remaining deferred rental income creditor of €3,109,000 (£2,431,000), the property continues to be worth more than its £629,000 net book value. The valuations for future years are expected to increase due to the passage of time and the unwinding of the related deferred rental income creditor. 14 Investments in associates and subsidiaries Investment in associates Group Cost: At 30 April 2014 Exchange differences Additions Share of profits Dividends At 30 April 2015 Exchange differences Additions Share of profits At 30 April 2016 £’000 620 14 146 164 (96) 848 29 671 165 1,713 The summarised financial information of the principal associates, relating to the Group’s share, is set out below. All companies are unlisted. Name At 30 April 2015 Max Sight Ltd Photo Direct Pty Ltd Stilla Technologies SA Other associates At 30 April 2016 Max Sight Ltd Photo Direct Pty Ltd Stilla Technologies SA Other associates Country of incorporation Assets £’000 Liabilities £’000 Revenue £’000 Profit/(loss) £’000 % interest Hong Kong Australia France Hong Kong Australia France 460 499 146 80 1,185 682 419 817 76 1,994 98 198 – 41 337 125 121 – 35 281 585 1,938 – 105 2,628 662 784 – 91 1,537 33.33 26.95 8.00 33.33 26.95 40.00 137 28 – (1) 164 173 (8) – – 165 Included in associates is an investment in Stilla Technologies SA, a French company which provides researchers with a universal and flexible digital PCR (dPCR) solution for genetic testing. Rental income from the investment property was £903,000 (2015: £946,000) (note 4) and finance costs were £32,000 (2015: £52,000). The Group will continue to act as a cash collection agent for the underlying lease agreement. The Group has increased its holding in this company during the year. The non-cancellable future minimum rentals receivable on this basis are as follows: No later than one year After one year but no more than five years Company The Company has no investment property. 2016 £’000 956 1,912 2,868 2015 £’000 888 2,664 3,552 74 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 75 l S t a t e m e n t s i F n a n c a i Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 76 Notes to the Financial Statements for the year ended 30 April 2016 Company Costs: At 1 May 2014 Additions Capital increase relating to share-based payment (net) At 30 April 2015 Additions Capital increase relating to share-based payment (net) At 30 April 2016 Provision: At 1 May 2014 Increase At 30 April 2015 Increase Decrease At 30 April 2016 Net book value: At 30 April 2016 At 30 April 2015 At 1 May 2014 Associated Subsidiary undertakings undertakings £’000 £’000 407 – – 407 – – 407 150 – 150 7 (150) 7 400 257 257 42,562 4 227 42,793 2,251 261 45,305 945 158 1,103 3 (263) 843 44,462 41,690 41,617 Total £’000 42,969 4 227 43,200 2,251 261 45,712 1,095 158 1,253 10 (413) 850 44,862 41,947 41,874 The net capital increase relating to share-based payments relates to share options granted to employees of subsidiary undertakings of the Group. Refer to note 20 for further details on the Group’s share option schemes. The details of all the Group’s principal subsidiaries and associates are given in note 29. 15 Financial instruments Group Treasury During the year ended 30 April 2016 the centralised Group Treasury Function became operational. The primary aim for this function is to manage liquidity and funding arrangements and the Group’s exposure to associated financial and market risks, including credit risk, interest rate risk and foreign currency risk. The general approach for Group Treasury is one of risk reduction within a framework of delivering total shareholder return. Treasury operations Overview and policy Treasury policy is set by the Board. Group treasury activities are subject to a set of controls appropriate for the magnitude of the borrowing, investments and Group wide exposures. To date the treasury function has limited itself to obtaining surplus cash from the subsidiaries and depositing this in bank accounts owned by the Parent Company. Depending on the exchange rate determined by the Board, bank balances may be converted into sterling, thus creating an exchange rate exposure for the Parent but protecting the Group’s total net cash position. The Board has defined an investment strategy, amounts and types of products to which the surplus cash may be invested. The Group may hold financial instruments (such as bank and other loans) to finance its day to day working capital requirements, for capital expenditure, for corporate transactions (such as dividend payments to shareholders, share buybacks and acquisitions), for the management of currency and interest rate exposure arising from its operations (which may involve the use of derivatives and swaps) and for the temporary investment of short-term funds. With a strong net cash position, the Group largely finances its working capital and capital expenditure programmes from its own resources. The Group made use of dual currency deposits in the early stages of the Group treasury function but no longer uses these instruments. In addition financial instruments such as trade receivables (amounts due from customers as a result of a sale) and trade payables (arising from purchases of materials and services) arise from day to day trading. The following notes describe the Group’s financial risk management policy and details on financial instruments. 15(a) Fair values of financial instruments by class There is no difference between the fair values and the carrying values of financial assets and financial liabilities held in the Group’s or the Company’s statement of financial position. Held to maturity, available-for-sale financial assets and derivatives The fair value is based on quoted prices at the balance sheet date for quoted investments and other valuation methods for unquoted investments. For restricted deposit accounts held to maturity, fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. Cash and cash equivalents The fair value of cash and cash equivalents is estimated as its carrying value where cash is repayable on demand. For short-term cash deposits and other items not repayable on demand, fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. Interest-bearing borrowings Fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the balance sheet date. For finance leases the market rate of interest is determined by reference to similar lease agreements. Trade and other payables The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. IFRS13 requires an analysis of financial instruments carried at fair value by valuation method as follows: Level 1 – quoted prices in active markets for identical assets or liabilities Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as process) or indirectly (that is derived from process). Level 3 – inputs for assets or liability that are not based on observable market data The Board will monitor the performance of the treasury function and will be responsible for making changes to the personnel and limits of authority of treasury personnel. The Group’s financial instruments are fair valued at level 2. The Board has provided written principles for overall risk management of the treasury function. It has also defined policies and procedures covering such areas as foreign exchange risk, interest rate risk, credit risk, the use of derivative instruments and investment of excess liquidity (surplus funds above the immediate and short–term operational funding needs, such as working capital requirements). Liquidity risk Liquidity risk is the risk that the Group will face in meeting is obligations in settling its financial liabilities. The Group’s approach to managing liquidity risk is to ensure that it has sufficient funds to meet its liabilities when due without incurring unacceptable losses. A material and sustained shortfall in the Group’s cash flow could undermine the Group’s credit rating, impair major investor confidence and restrict the ability of the Group to raise new funds. The Group maintained a strong net cash position throughout the year and preceding year as a result of cash generation from the business. During the current year surplus cash held by the operating subsidiaries, over and above balances required for working capital management was transferred to Group treasury. These funds were kept in their local currency, or converted into sterling and kept in Parent Company bank accounts which are interest bearing. Previously surplus cash was maintained by the operating subsidiaries and invested locally in suitable products, if not remitted to the Parent. The key objective for Group treasury will be to protect the principal value of cash and cash equivalents, to concentrate cash at the centre to minimise external borrowings, and to maximise the return on cash. The strong cash generation and retention from the business together with available credit resources, detailed below, help mitigate liquidity risk. i F n a n c a i 76 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 77 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 78 Notes to the Financial Statements for the year ended 30 April 2016 Financial instruments by category The tables below show financial instruments by category At 30 April 2016 Assets per statement of financial position Other financial assets - held to maturity Other financial assets - available for sale Trade and other receivables Cash and cash equivalents Liabilities per statement of financial position Borrowings Leases Trade and other payables excluding non-financial liabilities At 30 April 2015 Assets per statement of financial position Other financial assets - held to maturity Other financial assets - available for sale Trade and other receivables Cash and cash equivalents Liabilities per statement of financial position Borrowings Leases Trade and other payables excluding non-financial liabilities 15(b) Financial statement risk management Financial risk factors and financial risk management Overview The Group and the Company are exposed to the following risks arising from financial instruments: (i) Credit risk (ii) Liquidity risk (iii) Market risk Loans and receivables £’000 Available for sale £’000 2,253 – 12,247 71,005 85,505 – 75 – – 75 Other financial liabilities at amortised cost £’000 Loans and receivables £’000 2,220 – 9,699 58,632 70,551 10,381 462 34,005 44,848 Available for sale £’000 – 69 – – 69 Other financial liabilities at amortised cost £’000 – 182 30,126 30,308 Total £’000 2,253 75 12,247 71,005 85,580 Total £’000 10,381 462 34,005 44,848 Total £’000 2,220 69 9,699 58,632 70,620 Total £’000 – 182 30,126 30,308 Credit risk is the risk of financial loss to the Group and the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. It mainly arises on trade and other receivables and bank balances. Liquidity risk arises from the Group and the Company having insufficient cash resources to meet its obligations as and when they fall due for payment. Market risk arises from changes in market prices, such as exchange rates, interest rates and equity prices that will impact on the Group’s and the Company’s income statement or the value of its holding of financial instruments. Listed below are details of these risks, the Group’s objectives, policies and processes for measuring and monitoring risks and the Group’s management of capital. Risk Management Framework The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential risks for the Group. Information has been disclosed relating to the Parent Company only where material risk exists. There is a continuous process for identifying, evaluating and managing the key financial risks faced by the Group in line with changing market conditions and the Group’s strategy. If necessary, the Group’s internal audit function may assist in monitoring and assessing the effectiveness of controls and procedures. The Board retains responsibility for ensuring the adequacy of systems for identifying and assessing significant risks, that appropriate control systems and other mitigating actions are in place and that residual exposures are consistent with the Group’s strategy and objectives. Assessments are conducted for all material entities. The Group may use derivatives to manage exchange or interest rate risk. Approval for their use is given by the Board and the position is monitored constantly. With regard to management of interest rate risk, the objectives are to lessen the impact of adverse interest rate movements on earnings and shareholders’ funds and to ensure no breach of covenants. This is mainly achieved by reviewing the mix of fixed and floating rate borrowings. The Group’s liquidity risk management involves maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities. (i) Credit risk The Group has no significant concentrations of credit risk. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, and on outstanding trade and other receivables. Cash deposits are limited to high credit quality financial institutions. The Group has policies in place to ensure that sales of products and services are made to customers with an approved credit history. Credit quality of financial assets Individual Group companies have banking relationships with leading banks in the country in which the Group company operates. Surplus cash is placed with Group treasury bank accounts, as described above. The Group has procedures in place to ensure that cash is placed with sound financial institutions. The Group and the Company trade with a large number of customers, ranging from quoted companies and state organisations to individual traders. Individual Group companies have credit control procedures in place before making sales to new customers and levels of credit are reviewed in light of trading experience. The normal terms of trade are in the range 30–90 days. The collection of outstanding receivables is monitored at both the Group and subsidiary level. The Group and the Company make provisions against trade and other receivables, such provisions being based on the previous credit history of the debtor and if the debtor is in receivership or liquidation. The maximum credit risk for financial assets is the carrying value. Trade receivables, related parties and amounts due from associated undertakings are normally interest free. The normal terms of settlement are between 30 and 90 days. Other receivables and prepayments and accrued income are interest free. The movements in provisions are as follows: At 1 May Exchange differences Charged/(credited) to income statement Utilised and other movements At 30 April Group 2016 £’000 385 70 (45) 10 420 2015 £’000 327 (37) 292 (197) 385 Company 2016 £’000 715 38 (162) – 591 At 30 April 2016, trade receivables of £978,000 (2015: £535,000) were past due and relate to a number of individual customers for whom there is no recent evidence of default and therefore are not impaired. The ageing of net trade current receivables is as follows: Current Past due - overdue 1-30 days - overdue 31-60 days - overdue 61 days Total past due Total trade receivables Group 2016 £’000 5,910 210 54 714 978 6,888 2015 £’000 4,932 192 133 210 535 5,467 Company 2016 £’000 712 12 7 179 198 910 2015 £’000 846 (11) (34) (86) 715 2015 £’000 328 25 6 39 70 398 The credit quality of trade receivables that are neither past due nor impaired is assessed on an individual basis, based on credit ratings and experience. Management believes adequate provision has been made for trade receivables. Amounts due from subsidiaries of £3,095,000 (2015:£6,849,000) are all current. 78 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 79 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 80 Notes to the Financial Statements for the year ended 30 April 2016 (ii) Liquidity risk The Group’s liquidity risk management involves maintaining sufficient cash and cash equivalents and the availability of funding through an adequate amount of committed credit facilities. Trading forecasts indicate that the current facilities provide more than sufficient liquidity headroom to support the business for the foreseeable future. The net cash position at 30 April 2016 and 30 April 2015 has reduced liquidity risk for the Group. Operational foreign exchange exposure Where possible, the Group tries to invoice in the local currency of the respective entity. If this is not possible, to mitigate exposure, the Group endeavours to buy from suppliers and sell to customers in the same currency. The exposure relating to receivables and payables denominated in the non-functional currency is normally less than 3 months as this is the normal settlement period for these items. At 30 April 2016, the Group has undrawn facilities of £24,449,000 (2015:£10,490,000). Having regard to the Group’s cash flow, it is considered that these facilities provide adequate headroom for the Group’s needs. The facilities are generally reaffirmed by the banks annually. These undrawn facilities, if used, will be subject to floating rates of interest and may be subject to the normal covenant conditions attached to such borrowings. Certain lending banks may impose loan covenants on borrowings, which are normal for these types of borrowings, and, during the years to 30 April 2016 and 30 April 2015, the Group and the Company have comfortably complied with such requirements. The table below summarises the maturity profile of the Group’s and Company’s financial liabilities (including trade and other payables) at 30 April 2016 and 30 April 2015 based on contractual undiscounted payments. Group contractual cash flows At 30 April 2016 Interest bearing loans and borrowings and interest free loans Finance leases Trade and other payables At 30 April 2015 Interest bearing loans and borrowings and interest free loans Finance leases Trade and other payables Company contractual cash flows At 30 April 2016 Trade and other payables Interest bearing Group balances including interest At 30 April 2015 Trade and other payables Interest bearing Group balances including interest Within one year £’000 1,633 156 31,373 33,162 – 59 26,965 27,024 Within one year £’000 29,453 70 29,523 9,663 10,931 20,594 Year 2 £’000 1,633 141 – 1,774 – 45 – 45 Year 2 £’000 200 15,685 15,885 – – – Year 3 £’000 1,633 104 – 1,737 – 38 – 38 Year 4 £’000 1,633 69 – 1,702 – 28 – 28 Year 5 Over 5 years £’000 £’000 1,633 17 – 1,650 – 13 – 13 2,794 – – 2,794 – – – – Year 3 £’000 Year 4 £’000 Year 5 Over 5 years £’000 £’000 – – – – – – – – – – – – – – – – – – – – – – – – Total £’000 10,959 487 31,373 42,819 – 183 26,965 27,148 Total £’000 29,653 15,755 45,408 9,663 10,931 20,594 Held to maturity financial assets These largely comprise of restricted bank deposit accounts where the cash acts as security against possible shortfalls in the funding required to meet future payments in the course of business. Floating rate Euro loans Sterling loans (iii) Market risk Foreign exchange risk The Group is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than the local functional currency. In addition, the Group faces currency risks arising from monetary financial instruments held in non-functional currencies. The income statement reflects the impact of realised and unrealised exchange differences on trading items and monetary financial instruments (note 4). The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. The main currency translation risk relates to foreign operations whose functional currency is the Euro, Swiss franc or Japanese yen. The investments are not hedged. The translation reserve reflects the exchange differences arising on translation of the opening net assets and results of the foreign operation (note 20). Subject to the requirements of Group treasury, as noted above, where possible, the Group tries to hold the majority of its cash and cash equivalent balances in the local currency of the respective entity. Monetary assets/liabilities The Group continues to monitor exchange rates and buy or sell currencies in order to minimise the open exposure to foreign exchange risk. The Group may use derivative financial instruments mainly to reduce the risk of foreign exchange exposure on trading items (sales or purchases in currencies other than the domestic currency of the company concerned) and interest rate movements. The Group does not hold or issue derivative financial instruments for financial trading purposes. IFRS 7 sensitivity analysis The following table shows the impact on profit and equity of a change of 10% in exchange rates, excluding translation risk, assuming all other variables held constant. This analysis is for illustrative purposes only. 2016 Profit for the year Total equity 2015 Profit for the year Total equity Reported £’000 29,199 122,750 10% increase £’000 28,537 121,957 10% decrease £’000 29,993 123,630 28,044 104,411 28,883 105,265 27,018 103,367 The table below shows trade and other receivables that are not in the domestic currency of the individual Group company they are held by. Trade and other receivables Sterling Euro Swiss franc US dollar Japanese yen Other currencies The majority of these amounts arise from inter-Group trading. Included in the Company amounts due from subsidiaries are short-term loans as follows: Group 2016 £’000 17,373 1,601 – 687 – 11 19,672 2015 £’000 159 584 345 807 375 11 2,281 Company 2016 £’000 – 1,595 – – – – 1,595 2016 £’000 521 115 636 2015 £’000 – 579 14 – – – 593 2015 £’000 486 – 486 i F n a n c a i 80 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 81 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 82 Notes to the Financial Statements for the year ended 30 April 2016 Borrowings At 30 April 2016 and 30 April 2015 the Group had no borrowings which were not denominated in the functional currency of the Group company concerned. The table below shows trade and other payables that are not in the domestic currency of the individual Group company they are held by, with the majority arising from inter-Group trading. Trade and other payables Sterling Euro Swiss franc US dollar Japanese yen Other currencies Analysis of net cash by currency Group 2016 Sterling Euro Swiss franc US dollar Japanese yen Other currencies 2015 Sterling Euro Swiss franc US dollar Japanese yen Other currencies Interest rate risk Net cash Mainly non-interest bearing current accounts: - Cash at bank and in hand Deposit accounts - generally interest bearing: - Bank deposit accounts - Restricted deposit accounts Other items Interest free and interest bearing loans Interest bearing finance leases Group 2016 £’000 656 21,205 374 687 798 32 23,752 Financial assets £’000 971 662 620 – – – 2,253 967 649 604 – – – 2,220 2015 £’000 7,990 9,958 1,692 948 314 41 20,943 Loans £’000 – (10,381) – – – – (10,381) – – – – – – – Bank £’000 30,103 26,870 2,383 128 9,820 1,701 71,005 22,052 24,791 1,902 84 7,673 2,130 58,632 Company 2016 £’000 – 20,067 1 – – – 20,068 Leases £’000 (85) (35) – – (342) – (462) – (12) – – (171) – (183) 2016 £’000 38,368 32,637 2,253 (10,381) (462) 62,415 2015 £’000 – 8,971 1,336 – – 8 10,315 Total £’000 30,989 17,116 3,003 128 9,478 1,701 62,415 23,019 25,428 2,506 84 7,502 2,130 60,669 2015 £’000 29,275 29,357 2,220 – (183) 60,669 The above table shows which components of net debt are subject to interest. With the current low interest rates for bank base rates worldwide, the interest which can be earned on bank deposits is low. The Group’s exposure to floating rate interest bearing debt is small and a change in interest rates will not have a material change on interest expense. The Group uses derivative financial instruments mainly to reduce the risk of foreign exchange exposure on trading items (sales or purchases in currencies other than the domestic currency of the company concerned) and interest rate movements. The Group does not hold or issue derivative financial instruments for financial trading purposes. There were no derivatives reflected in the statement of financial position at 30 April 2016 and 30 April 2015. IFRS 7 sensitivity analysis With current low interest rates and the Group’s low level of debt financing, the impact on the total interest payable charges due to a change of 100 basis points (1%) on borrowings subject to floating rates of interest is not material. Consequently, no sensitivity tables have been presented. The Group has total loans outstanding at 30 April 2016 of £10,381,000 which is subject to a fixed interest rate of 1.2%. An increase of 1% in the fixed rate of interest would result in an extra £104,000 interest expense. Terms and debt repayment schedule The table below shows the maturity profile and interest rates of the Groups borrowings at 30 April 2016 and 30 April 2015. Floating rate interest borrowings (loans and overdrafts) are based on LIBOR, EURIBOR or equivalent rates in other countries plus a margin (generally between 0.45% and 1.0%). The Company has no external loans outstanding at 30 April 2016 (2015: none). Group Finance leases Loans Status Fixed rate Fixed rate Currency Various Euro Interest rate 0.0% -7.2% 1.20% Year of maturity 2021 2023 2016 Carrying amount £’000 462 10,381 10,843 2015 Carrying amount £’000 183 – 183 Price risk The Group and the Company are exposed to changes in prices on raw materials, consumables and finished goods purchased from suppliers. Wherever possible, price rises are passed on to customers via sales price increases to help manage this risk. The Group does not have material amounts invested in equity securities and thus does not have any significant exposure to price risk on equity investments. 15(c) Capital risk management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to enhance long-term shareholder value, by investing in the business so as to improve the return on investment (by increasing profits available for dividends) and by managing the capital gearing ratio (mixture of equity and debt). The Group manages, and makes adjustments to, its capital structure in light of the prevailing risks and economic conditions affecting its business activities. This may involve adjusting the rate of dividends, purchasing the Company’s own shares, the issue of new shares and reviewing the level and type of debt. The Group manages its borrowings by appraising the mix of fixed and floating rate borrowings and the mix of long-term and short-term borrowings. Details of how the Group and subsidiaries are funded are shown below. There were no changes to the Group’s approach to capital management during the year. Group The Group is funded by share capital and retained earnings; there was an increase in external borrowings in the current year and external loans in the comparative year were not significant. The Group has had a strong net cash position throughout the current and comparative year. Subsidiary companies Subsidiary companies are funded by share capital and retained earnings, and where applicable local borrowings by the subsidiaries in appropriate currencies. The capital structure of the Group is presented below. Cash and cash equivalents Borrowings Net cash (excluding restricted deposits) Equity 2016 £’000 71,005 (10,843) 60,162 122,750 2015 £’000 58,632 (183) 58,449 104,411 The Group has various borrowings and available facilities that contain certain external capital requirements (covenants) that are considered normal for these types of arrangements. The Group remains comfortably within all such covenants. i F n a n c a i 82 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 83 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 84 Notes to the Financial Statements for the year ended 30 April 2016 15(d) Other financial assets held to maturity and available for sale 18 Cash and cash equivalents Group Non-current Assets held to maturity 2016 £’000 2,253 2,253 Assets available for sale 2016 £’000 75 75 Assets held to maturity 2015 £’000 2,220 2,220 Assets available for sale 2015 £’000 70 70 Assets held to maturity consist of restricted bank deposit accounts – see note 19. Assets available for sale consist of short-term monetary funds of £nil (2015: £nil) and investments in unlisted entities, net of impairment provisions. Company Non-current Assets held to maturity consist of restricted bank deposit accounts – see note 19. 16 Trade and other receivables Non-current assets Other receivables Prepayments and accrued income Current assets Trade receivables Amounts due from subsidiaries Amounts due from associated undertakings Other receivables Prepayments and accrued income Assets held to maturity 2016 £’000 971 971 Assets available for sale 2016 £’000 – – Assets held to maturity 2015 £’000 967 967 Assets available for sale 2015 £’000 – – Group 2016 £’000 1,546 2 1,548 6,888 – 51 3,762 2,309 13,010 2015 £’000 1,639 45 1,684 5,467 – – 2,593 2,814 10,874 Company 2016 £’000 – – – 910 3,095 – 171 798 4,974 2015 £’000 – – – 398 6,849 – 159 585 7,991 Non-current other receivables include deposits relating to operating sites and properties. Current other receivables include deposits relating to operating sites and properties, indirect and other taxation and other receivables. 17 Inventories Raw materials and consumables Work-in-progress Finished goods The replacement value of inventories is not materially different from that stated above. Group 2016 £’000 12,595 40 4,459 17,094 2015 £’000 10,154 90 1,855 12,099 Company 2016 £’000 850 – 873 1,723 2015 £’000 814 – – 814 Cash at bank and in hand Deposit accounts (excluding restricted deposits) Cash and cash equivalents per statement of financial position Cash and cash equivalents per cash flow Group 2016 £’000 38,368 32,637 71,005 71,005 2015 £’000 29,275 29,357 58,632 58,632 Company 2016 £’000 14,732 32,108 46,840 46,840 2015 £’000 2,882 18,056 20,938 20,938 Cash and cash equivalents per cash flow comprise cash at bank and in hand and short-term deposit accounts with an original maturity of less than three months, less bank overdrafts. The amounts placed in short-term deposit accounts depend on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rate. Cash at bank is generally interest free, but may earn interest at the applicable daily bank floating deposit rate. 19 Net cash Cash and cash equivalents per statement of financial position Financial assets - held to maturity Non-current instalments due on bank loans Current instalments due on bank loans Non-current finance leases Current finance leases The Company’s net cash excludes inter-Group financing. Notes 18 15 21 21 21 21 Group 2016 £’000 71,005 2,253 (8,866) (1,515) (317) (145) 62,415 2015 £’000 58,632 2,220 – – (124) (59) 60,669 Company 2016 £’000 46,840 971 – – – – 47,811 2015 £’000 20,938 967 – – – – 21,905 At 30 April 2016, £2,253,000 of the total net cash (2015: £2,220,000 ) comprised bank deposit accounts that are subject to restrictions and are not freely available for use by the Group and Company. These amounts are shown under financial assets held to maturity. Net cash is a non-GAAP measure since it is not defined in accordance with IFRS but is a key indicator used by management in assessing operational performance and financial position strength. The inclusion of items in net cash as defined by the Group may not be comparable with other companies’ measurement of net cash/debt. The Group includes in net cash, cash and cash equivalents and certain financial assets, mainly deposits, less instalments on loans and other borrowings. In calculating the gearing ratio, the Group excludes certain deposit balances that are subject to restrictions and are not freely available for use by the Group. These financial assets are shown as held to maturity in the statement of financial position. 84 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 85 l S t a t e m e n t s i F n a n c a i Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 86 Notes to the Financial Statements for the year ended 30 April 2016 The tables below, which are not currently required by IFRS, reconcile the Group’s net cash to the Group’s statement of cash flows. Management believes the presentation of the tables will be of assistance to shareholders. Presentation of this information is recommended by the Financial Reporting Council (FRC) as good practice as being of use to shareholders and analysts, in their Financial Lab Project, Net Debt Reconciliations. 20 Share capital and reserves Share capital Group 2015/16 Cash and cash equivalents per statement of financial position and cash flow Financial assets held to maturity Non-current loans Current loans Non-current leases Current leases 2014/15 Cash and cash equivalents per statement of financial position and cash flow Financial assets held to maturity Financial assets - available for sale Current loans Non-current leases Current leases 1 May £’000 58,632 2,220 – – (124) (59) 60,669 60,996 2,334 85 (177) (64) (63) 63,111 Other movements for finance leases relates to new finance leases during the year. Company 2015/16 Cash and cash equivalents per statement of financial position and cash flow Financial assets held to maturity 2014/15 Cash and cash equivalents per statement of financial position and cash flow Financial assets held to maturity 1 May £’000 20,938 967 21,905 19,920 963 20,883 Exchange Other differences movements £’000 £’000 3,694 62 – – (20) (10) 3,726 (3,155) (69) (9) 19 4 4 (3,206) – – (76) (24) (244) (152) (496) – – (31) – (83) (59) (173) Exchange Other differences movements £’000 £’000 Cash flow £’000 30 April £’000 8,679 (29) (8,790) (1,491) 71 76 (1,484) 791 (45) (45) 158 19 59 937 71,005 2,253 (8,866) (1,515) (317) (145) 62,415 58,632 2,220 – – (124) (59) 60,669 Cash flow £’000 30 April £’000 – – – – – – – – – – – – 25,902 4 25,906 1,018 4 1,022 46,840 971 47,811 20,938 967 21,905 Company Allotted, issued and fully paid: Ordinary shares of 0.5p each At 1 May Issued in year - - share options At 30 April 2016 Number 2015 Number 373,229,778 371,794,278 2,249,000 375,478,778 1,435,500 373,229,778 2016 £’000 1,866 11 1,877 2015 £’000 1,859 7 1,866 The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Share options, which have been granted to senior staff, including directors, to purchase Ordinary shares of 0.5p each, are as follows: Date options granted 29 Jan 2009 20 Jan 2010 12 Jul 2010 4 Jul 2011 13 Dec 2011 4 Jul 2012 9 Jul 2013 11 Jul 2014 9 Jul 2015 15 Dec 2015 Date options granted 29 Jan 2009 20 Jan 2010 12 Jul 2010 4 Jul 2011 13 Dec 2011 4 Jul 2012 9 Jul 2013 11 Jul 2014 At 30 April 2015 50,000 44,093 15,000 740,000 250,000 1,926,000 1,980,000 1,331,700 – – 6,336,793 At 30 April 2014 95,000 44,093 1,140,500 1,085,000 250,000 1,926,000 2,030,000 – 6,570,593 Granted during year – – – – – – – – 1,377,600 57,400 1,435,000 Granted during year – – – – – – – 1,331,700 1,331,700 Lapsed or forfeited during year (30,000) – – – – – – – – – (30,000) Lapsed or forfeited during year (40,000) – (30,000) (10,000) – – (50,000) – (130,000) Exercised during year (20,000) – – (615,000) – (1,614,000) – – – – (2,249,000) Exercised during year (5,000) – (1,095,500) (335,000) – – – – (1,435,500) At 30 April 2016 – 44,093 15,000 125,000 250,000 312,000 1,980,000 1,331,700 1,377,600 57,400 5,492,793 At 30 April 2015 50,000 44,093 15,000 740,000 250,000 1,926,000 1,980,000 1,331,700 6,336,793 Full details of directors’ share options are given in the Remuneration report on pages 40 to 41. Exercise price 10.92p 36.37p 36.33p 65.25p 53.50p 39.17p 90.63p 145.33p 133.33p 153.25P Exercise price 10.92p 36.37p 36.33p 65.25p 53.50p 39.17p 90.63p 145.33p Date from which exercisable 29 Jan 2012 20 Jan 2013 12 Jul 2013 4 Jul 2014 13 Dec 2014 4 Jul 2015 9 Jul 2016 11 Jul 2017 9 Jul 2018 15 Dec 2018 Date from which exercisable 29 Jan 2012 20 Jan 2013 12 Jul 2013 4 Jul 2014 13 Dec 2014 4 Jul 2015 9 Jul 2016 11 Jul 2017 Last date on which exercisable 28 Jan 2016 19 Jan 2017 11 Jul 2017 3 Jul 2018 12 Dec 2018 3 Jul 2019 8 Jul 2020 10 Jul 2021 8 Jul 2022 14 Dec 2022 Last date on which exercisable 28 Jan 2016 19 Jan 2017 11 Jul 2017 3 Jul 2018 12 Dec 2018 3 Jul 2019 8 Jul 2020 10 Jul 2021 All options can be exercised, in normal circumstances, within a period of four years from the exercise of option date, providing that the performance criterion or performance condition has been achieved. The subscription price for all options is based upon the average market price on the three days prior to the date of grant. Options are restricted, or may lapse, if the grantee leaves the employment of the Group before the first exercise date. All options are equity settled options. Options granted after 2005 are covered by the new Photo-Me Executive Share Option Scheme. The vesting of options is subject to an EPS-based performance condition relating to the extent to which the Company’s basic EPS for the third financial year, following the date of grant, reaches a sliding scale of challenging EPS targets. Options are normally granted over shares worth up to 150% of a participant’s salary each year. In exceptional cases as part of the terms of attracting senior management, options in excess of that number may be granted. The weighted average exercise price of all options outstanding at 30 April 2016 is 109.5p (2015: 80.9p) and the weighted average exercise price of options exercisable at 30 April 2016 is 48.3p (2015: 58.6p). The weighted average share price for options exercised during the year ended 30 April 2016 was 159.3p (30 April 2015: 133.6p). The weighted average remaining years for options outstanding at the year end date is 4.8 years (2015: 4.8 years). i F n a n c a i 86 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 87 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 88 Notes to the Financial Statements for the year ended 30 April 2016 Share-based payments In accordance with IFRS 2 Share-based Payments, share options granted to senior management including directors after November 2002 have been fair-valued and the Company has used the Black-Scholes option pricing model. This model takes into account the terms and conditions under which the options were granted. The following table lists the inputs to the model used for the years ended 30 April 2016 and 30 April 2015: Date of grant Vesting period Share price volatility Share price on date of grant Option price Expected term Dividend yield Risk free interest rate Fair value Date of grant Vesting period Share price volatility Share price on date of grant Option price Expected term Dividend yield Risk free interest rate Fair value Date of grant Vesting period Share price volatility Share price on date of grant Option price Expected term Dividend yield Risk free interest rate Fair value Date of grant Vesting period Share price volatility Share price on date of grant Option price Expected term Dividend yield Risk free interest rate Fair value 29 January 2009 3 years 52.80% 10.75p 10.92p 3.25years 0.00% 2.52% 4.693p 20 January 2010 3 years 69.10% 35.50p 36.37p 3.25years 0.70% 2.27% 16.36p 04 July 13 December 2011 3 years 63.20% 50.25p 53.50p 3.25years 4.48% 0.50% 16.38p 2011 3 years 65.40% 64.00p 65.25p 3.25years 3.13% 1.32% 24.46p 09 July 2013 3 years 48.50% 94.00p 90.63p 3.25years 3.83% 0.62% 26.20p 11 July 2014 3 years 39.10% 141.00p 145.33p 3.25years 2.66% 1.28% 32.20p 12 July 2010 3 years 70.10% 38.00p 36.33p 3.25years 3.29% 1.27% 15.95p 04 July 2012 3 years 58.30% 38.00p 39.17p 3.25years 6.58% 0.46% 10.23p 9 July 2015 3 years 30.70% 113.50p 133.33p 3.25years 4.02% 0.82% 21.00p 15 December 2015 3 years 26.16% 154.00p 153.25p 3.25years 3.32% 0.90% 21.78p The charge for share-based payments is £413,000 (2015: £371,000) and for the Company the charge is £152,000 (2015: £144,000). Share price volatility is based on historical volatility. Reserves Group Treasury shares (Group and Company) In accordance with shareholders’ resolutions passed at Annual General Meetings, the Company may purchase its own shares up to a maximum of 10% of the Ordinary shares in issue. At 30 April 2016 and 30 April 2015 the Company held no shares in treasury. Other reserves Other reserves mainly arise in subsidiaries, are generally not distributable, and arise as a result of local legislation regarding capital maintenance. Translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates. In accordance with the options allowed under IFRS 1, only exchange rate differences arising on translation after the date of transition, 1 May 2004, are shown in this reserve. When an overseas subsidiary or associate is disposed, the cumulative exchange difference relating to the entity disposed is recycled through the income statement as part of the profit or loss on sale in finance revenue/cost and is shown as a movement in other comprehensive income. Company Other reserves The Company’s other reserves include £201,000 (2015: £201,000) arising on the redemption of the deferred shares and £1,459,000 (2015: £1,198,000) relating to the fair value of options granted to employees of Group undertakings (note 14). 21 Financial Liabilities Non-current liabilities Non-current instalments due on bank loans Finance lease creditors Current liabilities Current instalments due on loans Finance lease creditors Group 2016 £’000 8,866 317 9,183 1,515 145 1,660 2015 £’000 – 124 124 – 59 59 Company 2016 £’000 2015 £’000 – – – – – – – – – – – – Bank loans bear interest rates based on LIBOR or foreign equivalent rates appropriate to the country in which the borrowing is incurred. Further details are provided in note 15 and in the tables below. Margins are generally between 0.4% and 1.0%. Obligations under finance leases The Group has entered into finance lease arrangements for certain items of property, plant and equipment, largely for periods of up to four (2015: four) years (note 12). The total finance lease creditor at 30 April 2016 is £462,000, £145,000 due within one year and £317,000 due between two and five years, (2015: £183,000, £59,000 due within one year and £124,000 due within two to five years). 22 Post-employment benefit obligations The Company and its principal subsidiaries operate pension and other retirement and post-employment schemes including both funded defined benefit schemes, and defined contribution schemes. Defined benefit plans A defined benefit plan is a pension arrangement under which participating members receive a benefit at retirement. The amount is determined by the plan rules and is dependent on such factors as age, years of service and pensionable pay and is not dependent on contributions made by the Company or members. The income statement service cost, in respect of defined benefit plans represents the increase in the defined benefit liability arising from pension benefits accrued by members in the current period. The Company having such plans is exposed to investment and other experience risks and may need to make additional contributions where it is estimated that the benefits will not be covered by the assets of the plan. As is explained below, the defined benefit plan for the Company has been closed to new members for over 30 years. The Group’s and the Company’s policy is to recognise actuarial gains and losses immediately each year in the statement of changes in equity, under other comprehensive income. These comprise the impact on the defined benefit liability of changes in demographic and financial assumptions compared with the start of the year, actual experience being different to those assumptions and the return on plans assets above the amount included in net pension interest. Defined contributions plans are arrangements in which the benefits paid to participants are linked to the amount of contributions paid and the performance of the scheme. Such plans are independent of the Company and the Group and the Company and the Group have no exposure to investment and experience risks. The income statement charge for these plans represents the contributions paid by the Group based on a percentage of employees’ pay. The Group’s and the Company’s defined benefit pension schemes are included in the statement of financial position under employment benefit obligations, as are other overseas retirement provisions. The amounts charged to profit and loss for all post-employment benefits are shown in note 5. The amount shown in the statement of financial position is detailed as follows: Company defined benefit obligations Overseas employment benefit obligations Overseas defined benefit scheme Group 2016 £’000 – 3,833 922 4,755 2015 £’000 – 3,318 973 4,291 Company 2016 £’000 – – – – 2015 £’000 – – – – Photo-Me International plc defined benefit pension scheme The Company operates a final salary defined benefit scheme in the UK for some long-serving employees, which is funded by contributions from the Company and by members of the scheme. This pension scheme (the Photo-Me International plc Pension and Life Assurance Fund) is closed to new entrants. The defined benefits are based upon an employee’s years of service and final pensionable salary. Actuarial valuations are undertaken triennially by a qualified independent actuary, the most recent valuation being at 1 June 2012. The next valuation with an effective date of 1 June 2015 is currently being carried out and as part of this valuation the Company will discuss with the Trustee Directors the contributions to be paid to the Fund in the future. 88 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 89 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 90 Notes to the Financial Statements for the year ended 30 April 2016 Reconciliation of the movement in the present value of the defined benefit obligation Present value of defined benefit obligation at beginning of year Current service cost Interest cost Contributions by members Actuarial losses/(gains) on fund liabilities arising in demographic assumptions Actuarial (gains)/losses from changes in financial assumptions Actuarial (gains)/losses on liabilities from experience Benefits paid Present value of defined benefit obligation at end of year Reconciliation of the movement in the fair value of plan assets Fair value of plan assets at beginning of year Interest income on fund assets Remeasurement (losses)/gains on assets Contributions by the Company Contributions by members Benefits paid Fair value of plan assets at end of year Amount to be recognised in the statement of financial position Present value of funded obligations Fair value of scheme assets Net assets Effect of limit of recognition of an asset Amount recognised in statement of financial position 2016 £’000 6,562 16 210 1 – (25) (76) (385) 6,303 2016 £’000 6,938 223 (75) 14 1 (385) 6,716 2016 £’000 6,303 (6,716) (413) 413 – 2015 £’000 5,922 14 243 1 (18) 659 40 (299) 6,562 2015 £’000 6,379 262 581 14 1 (299) 6,938 2015 £’000 6,562 (6,938) (376) 376 – Principal actuarial assumptions Discount rate for scheme liabilities Rate for increase in salaries Price inflation Pension increases 30 April 2016 % 3.30 3.90 2.90 2.90 30 April 2015 % 3.30 4.10 3.10 3.00 The mortality tables used for 2016 are S1NXA Light tables with CMI 2014 projections and a long term rate of improvement of 1.5% pa. The mortality tables used for 2015 are S1NXA Light tables with CMI2014 projections and a long term rate of improvement of 1.5% pa. The mortality assumptions allow for expected future improvements in mortality rates. Male currently aged 65 Female currently aged 65 Male currently aged 45 Female current aged 45 History of assets, liabilities and actuarial gains and losses Fair value of defined benefit obligation Fair value of assets Surplus/(deficit) Experience (losses)/gains on fund assets Experience gains/(losses) on plan liabilities - as a percentage of present value of plan liabilities Differences between expected and actual return on plan assets - as a percentage of present value of plan liabilities 2016 24.1 years (age 89.10) 25.5 years (age 90.50) 26.1 years (age 91.10) 27.8 years (age 92.80) 2015 24.0 years (age 89.00) 25.3 years (age 90.30) 26.0 years (age 91.00) 27.6 years (age 92.60) 2016 £’000 6,303 6,716 413 2016 £’000 (75) 76 – – – 2015 £’000 6,562 6,938 376 2015 £’000 581 (40) – – – 2014 £’000 5,922 6,379 457 2014 £’000 (357) 246 – – – 2013 £’000 6,696 6,973 277 2013 £’000 – (731) (11.0%) 602 9.0% 2012 £’000 5,865 5,923 58 2012 £’000 – (316) (5.0%) (165) (3.0%) The actuarial valuation of the UK Pension scheme has revealed a surplus at 30 April 2016 and 30 April 2015. This surplus has not been recognised as an asset, in accordance with IFIC14 as in future the surplus will not be recovered by a reduction in future contributions to the scheme. The scheme has been closed to new members for over 30 years. The figure of liabilities for 2016, 2015 2014 and 2013 relates to gains/(losses) in respect of liability experience only, and excludes any change in liabilities in respect of changes to the actuarial assumptions used, previous years’ figures include changes in respect of the actuarial assumptions used. The Company’s best estimate of contributions to be paid by the Company next year is £14,000 (2015: £14,000). The cumulative amount of remeasurement gains and losses recognised since 1 May 2004 in the Group and Company statements of comprehensive income, within other comprehensive income, is a loss of £1,375,000 (2015: loss of £1,375,000) in respect of the Company’s defined benefit scheme. This has been charged to retained earnings. Sensitivity to key assumptions The key assumptions used for the IAS 19 valuation are: discount rate, inflation rate and mortality. If different assumptions were used, this could have a material effect on the results disclosed. The table below shows the sensitivity to the key assumptions noted above. 2016 £’000 2015 £’000 Year ended 30 April 2016 Amount recognised in profit and loss and other comprehensive income Amount recognised in profit and loss Current service cost Interest on net defined liability/(asset) Total charge Pension expense recognised in profit and loss Remeasurement in other comprehensive income Return on Scheme assets (in excess of)/below that recognised in net interest Actuarial (gains)/losses due to changes in financial assumptions Actuarial losses/(gains) due to changes in demographic assumptions Actuarial (gains)/losses on liabilities arising from experience Adjustment due to the asset ceiling Total (income)/expense amount recognised in other comprehensive income Total (income)/expense amount recognised in comprehensive income The amounts shown above are included in staff costs (note 5) and in administrative expenses. An analysis of the assets of the plan is as follows: Growth assets Insurance policies and bonds Other 16 – 16 16 75 (25) – (76) 24 (2) 14 2016 £’000 603 6,044 69 6,716 % 9 90 1 100 2015 £’000 827 6,097 14 6,938 There were no financial instruments of the Company included in the plan assets (2015: none) and there were no property assets occupied by the Company (2015: none). 14 – 14 14 (581) 659 (18) 40 (100) – 14 % 12 88 – 100 As reported Following a 0.1% decrease in the discount rate Following a 0.1% increase pa in the inflation assumption Following an increase in the life expectancy of one year Service cost £’000 16 16 16 16 Net interest £’000 – – – – Total profit and loss charge £’000 16 16 16 16 Plan assets £’000 6,716 6,745 6,720 6,894 Defined benefit obligation £’000 6,303 6,383 6,326 6,607 Surplus £’000 413 362 394 287 The sensitivity information shown above has been prepared using the same method as adopted when adjusting the results of the latest valuation to the balance sheet data. This is the same approach as has been adopted in previous years. i F n a n c a i l S t a t e m e n t s 90 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 91 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 92 Notes to the Financial Statements for the year ended 30 April 2016 Overseas post-employment benefit obligations Provisions for obligations to make termination payments on retirement, to employees who are not members of the pension and retirement schemes, are as follows: (cid:129) The Group’s Japanese subsidiary undertaking, Nippon Auto-Photo K.K., has an unfunded post-employment retirement provision based on an employee’s length of service with the company and their current salary. The allowance is paid to an employee when they leave the company. This has been provided for in full within the accounts. Nippon Auto –Photo K.K, agreed with the employees that 50 % of the liability for the retirement provision will be paid in cash to an independently controlled defined contribution scheme, with the balance to be met by the company when the employee leaves. To meet the legal obligations within France, the Group’s subsidiary undertakings have unfunded retirement provisions, which were valued by an independent actuary using the Projected Unit Credit Method at 30 April 2016 and 30 April 2015. This actuarial valuation incorporated the following principal assumptions in arriving at the present value of the obligations: (cid:129) Discount rate Rate of increase in salaries Retirement age Inflation rate Mortality table 2016 1.35% 2.00% 62-64 years 2.00% TGH/TGF 05 2015 1.25% 2.00% 62-64 years 2.00% TGH/TGF 05 Management believes that the book value for retirement obligations in France fairly states the position at 30 April 2016 and 30 April 2015. The movement on these schemes is as follows: At 1 May Exchange differences Utilised and other movements At 30 April 2016 £’000 3,318 373 142 3,833 2015 £’000 3,094 (320) 544 3,318 Utilised and other movements for 2016 include amounts reflected in other comprehensive income, amounts charged to profit and loss and amounts paid to employees. Overseas pension schemes The Group’s Swiss subsidiary, Prontophot (Schweiz) A.G. participates in funded multi-employer pension schemes. A guaranteed return for such employees’ schemes is mandated by the Swiss state. An actuarial valuation was performed at 30 April 2016 and 30 April 2015 by independent actuaries. Reconciliation of the movement in the present value of the defined benefit obligation Present value of defined benefit obligation at 1 May Exchange difference Contribution by members Current service cost Interest cost Past service cost Remeasurement losses on plan liabilities Prepaid risk premiums Benefits paid Administration costs Present value of defined benefit obligation at 30 April Fair value of plan assets at 1 May Exchange difference Contributions by company and members Expected return on plan assets Remeasurement gain on plan assets Benefits paid Prepaid risk premiums Fair value of plan assets at 30 April Net liability at 1 May Exchange difference Increase/(decrease) in liability Net liability at 30 April 2016 £’000 3,381 97 36 203 27 – 107 (61) (265) 1 3,526 2016 £’000 2,491 71 181 19 168 (265) (61) 2,604 2016 £’000 890 25 7 922 2015 £’000 2,529 37 33 169 52 36 571 – (47) 1 3,381 2015 £’000 2,205 27 167 45 94 (47) – 2,491 2015 £’000 324 10 556 890 Amounts recognised in comprehensive income Amount recognised in profit and loss Service costs Current service cost Past service cost Administrative expenses Net pension interest Total charge Amount recognised in other comprehensive income Return on scheme assets Actuarial losses/(gains) on defined benefit obligation Total amount recognised in other comprehensive income Total amount recognised in profit and loss and other comprehensive income Cash Equities & debt instruments Other Total plan assets Principal actuarial assumptions Discount rate Expected return on plan assets at end of year Rate of increase in salaries Price inflation 2016 £’000 2015 £’000 203 – 1 8 212 (168) 107 (61) 151 2015 £’000 30 1,750 711 2,491 169 36 1 7 213 (94) 571 477 690 % 1 70 29 100 30 April 2016 % 0.50 n/a 2.00 0.00 30 April 2015 % 0.80 n/a 2.00 1.00 2016 £’000 73 1,753 778 2,604 % 3 67 30 100 The normal retirement age for males is between 60 - 65 years and for females between 59 - 64 years for both 2016 and 2015. The mortality tables used in 2016 were the BVG2015 GT tables; 2015,2014 and 2013 were the BVG 2010 GT tables. History of assets, liabilities and actuarial gains and losses Present value of defined benefit obligation Fair value of assets Deficit Experience (losses)/gains on plan liabilities (£’000) - as a percentage of the present value of plan liabilities Difference between expected and actual return on plan assets (£’000) - as a percentage of the present value of plan assets 2016 £’000 3,526 2,604 (922) 2016 (107) 3% 168 6% 2015 £’000 3,381 2,491 (890) 2015 (571) (17%) 94 3% 2014 £’000 2,529 2,205 (324) 2014 78 3% 1 0% 2013 £’000 2,383 2,002 (381) 2013 205 9% 98 5% 2012 £’000 3,297 2,746 (551) 2012 (372) (13%) 162 6% The 2016, 2015 and 2014 figures in the table above represent actuarial gains on plan liabilities and plan assets. i F n a n c a i 92 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 93 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 94 Notes to the Financial Statements for the year ended 30 April 2016 Sensitivity to key assumptions The key assumptions used for the IAS 19 valuation are: discount rate, inflation rate and mortality. If different assumptions were used, this could have a material effect on the results disclosed. Company The table below shows the sensitivity to the key assumptions noted above. Defined benefit obligation as reported Defined benefit obligation - with discount rate - 0.25% - with discount rate + 0.25% - with salary decrease - 0.25% - with salary increase + 0.25% - with life expectancy + 1 year - with life expectancy - 1 year Defined benefit obligation £’000 3,526 3,690 3,375 3,489 3,516 3,576 3,475 Increase/ (decrease) in defined benefit obligation £’000 – 164 (151) (37) 35 50 (51) At 30 April 2014 Charged to income statement At 30 April 2015 Amount shown as non-current liability Amount shown as current liability At 30 April 2015 Utilised and other movements At 30 April 2016 Amount shown as non-current liability Amount shown as current liability 24 Deferred taxation Deferred tax comprises: The Group’s best estimate for contributions to be paid by the company next year to the scheme is £215,000 (2015: £141,000). The amount recognised in the income statement for this scheme was £212,000. Employee related claims £’000 – – – – – – – – – – – – Product warranties £’000 – – – – – – – – – – – – Group 2016 £’000 (447) 842 (1,400) (352) (972) (2,329) (4,216) 1,887 (2,329) Group 2016 £’000 (2,445) 115 55 (2) (52) (2,329) 2015 £’000 (956) 542 (1,280) (123) (628) (2,445) (3,512) 1,067 (2,445) 2015 £’000 (2,850) (196) – 1,003 (402) (2,445) Other £’000 10 7 17 17 – 17 17 (7) 10 10 – 10 Company 2016 £’000 (1,881) – – – (346) (2,227) (2,227) – (2,227) Company 2016 £’000 (1,702) – – (464) (61) (2,227) Total £’000 10 7 17 17 – 17 17 (7) 10 10 – 10 2015 £’000 (1,365) – – – (337) (1,702) (1,702) – (1,702) 2015 £’000 (2,334) – – 813 (181) (1,702) 23 Provisions Group At 30 April 2014 Exchange differences Utilised and other movements Charged to income statement At 30 April 2015 Amount shown as non-current liability Amount shown as current liability At 30 April 2015 Exchange differences Utilised and other movements Charged to income statement At 30 April 2016 Amount shown as non-current liability Amount shown as current liability Employee related claims £’000 1,718 (161) (626) 118 1,049 – 1,049 1,049 1,049 63 (314) 97 895 – 895 895 Product warranties £’000 2,441 (143) (2,113) – 185 – 185 185 185 7 (117) – 75 – 75 75 Other £’000 4,107 (503) (769) 1,488 4,323 17 4,306 4,323 4,323 229 (1,495) 86 3,143 10 3,133 3,143 Total £’000 8,266 (807) (3,508) 1,606 5,557 17 5,540 5,557 5,557 299 (1,926) 183 4,113 10 4,103 4,113 Employee related claims Certain overseas Group undertakings have made provision for claims made by former employees. Product warranties A provision is made for claims on products sold under warranty. The provision will reduce as the warranty period expires but will be increased by warranties given with new sales. The provision is based on past experience of level of repairs for items under warranty. It is expected that most of the provision will be utilised within the next year. The effect of discounting is not material. Timing difference relating to property, plant and equipment Other timing differences in recognising revenue and expense items in other periods for taxation purposes: - research and development -post-employment benefit provisions -losses -other short term temporary differences The closing balance comprises: Deferred tax assets Deferred tax liabilities The movements on deferred taxation during the year were as follows: Opening balance Exchange differences Newly acquired subsidiary Charge/(credit) for the year in income statement Amounts (credited)/charged to other comprehensive income Closing balance Temporary differences associated with Group investments Unremitted earnings of overseas affiliates No deferred tax liability has been recognised on the unremitted earnings of overseas subsidiaries, as no tax is expected to be payable on them in the foreseeable future based on current legislation or where the Group is able to control the remittance of earnings and it is possible that such earnings will not be remitted in the foreseeable future. Other provisions Other provisions include provisions for potential legal claims against certain Group Companies. These have been assessed by management based on legal advice and are expected to be resolved in the following year. Unrecognised deferred tax assets Deferred tax assets amounting to £958,000 (2015: £1,009,000) arising on temporary differences of £3,809,000 (2015: £4,308,000), in respect of unrelieved tax losses and other temporary differences have not been recognised, as their future economic benefit is uncertain. The expiry dates of unrelieved tax losses are as follows: Expiring in less than one year Expiring between two and 20 years No expiry date Group 2016 £’000 – 81 877 958 2015 £’000 – 230 779 1,009 In addition, the Group has an unrecognised deferred tax asset on gross capital losses of £3,765,000 (2015: £3,737,000), of which £3,627,000 (2015: £3,608,000) relate to the Company, which have not been recognised as their future economic benefit is not certain. Factors that may affect future tax charges in the UK The rate of UK corporation tax is scheduled to reduce from 20% to 19% from 1 April 2017 (and then to 17% from 1 April 2020). UK deferred tax has been calculated at 19% for balances at 30 April 2016, apart from balances which are expected to be utilised before 1 April 2017. 94 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 95 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 96 Notes to the Financial Statements for the year ended 30 April 2016 25 Trade and other payables Amounts shown as non-current liabilities Other payables Accruals and deferred income Amounts shown as current liabilities Trade payables Amounts owed to subsidiaries Other taxes and social security costs Other payables Accruals and deferred income Group 2016 £’000 200 1,621 1,821 19,672 – 3,624 5,435 7,077 35,808 2015 £’000 – 2,050 2,050 15,779 – 4,600 5,437 6,860 32,676 Company 2016 £’000 200 – 200 4,015 34,246 721 295 6,512 45,789 2015 £’000 – – – 4,398 13,226 765 103 2,822 21,314 27 Capital commitments and contingent liabilities Capital commitments The table below shows the amount of capital commitments with third parties for property, plant and equipment and the amounts placed with the Group’s procurement companies for vending equipment. Amounts with third parties For supply of property, plant & equipment - mainly vending equipment Amounts with Group companies Amount of vending equipment contracted by the Group’s operating companies with the Group’s procurement companies Group 2016 £’000 8,942 2015 £’000 9,640 Company 2016 £’000 17 2015 £’000 – 1,398 173 1,394 146 Contingent liabilities The Company and subsidiary undertakings have given other guarantees in the normal course of business to third parties. No losses are expected from guarantees given by the Company and subsidiary undertakings. Other payables non-current and current for both the Group and the Company includes deferred consideration for the acquisition of subsidiary undertakings as shown in note 30 Business Combinations and disposals In the opinion of the directors, adequate provision has been made for claims and legal disputes and the directors thus consider that no contingent liability for litigation exists. Included in the Company figures – amounts owed to subsidiaries, are borrowings as detailed in note 15. The Group has no contingent liabilities with regard to its interest in the associated undertakings (2015: none). 26 Operating leases and site agreements The future minimum lease payments under non-cancellable operating leases are as follows: Land and buildings Not later than one year After one year but not more than five years After five years Other Not later than one year After one year but not more than five years After five years Total Not later than one year After one year but not more than five years After five years Site owner agreements Not later than one year After one year but not more than five years After five years Group 2016 £’000 667 1,241 144 2,052 1,133 1,712 6 2,851 1,800 2,953 150 4,903 6,836 10,336 3,451 20,623 2015 £’000 666 1,074 – 1,740 1,010 1,028 7 2,045 1,676 2,102 7 3,785 7,126 9,932 3,154 20,212 Company 2016 £’000 144 229 – 373 462 927 – 1,389 606 1,156 – 1,762 1,273 884 1 2,158 2015 £’000 151 362 – 513 412 246 – 658 563 608 – 1,171 1,895 843 – 2,738 Lease arrangements The Group and the Company have entered into operating lease agreements in respect of property, plant and machinery, the majority of which are for motor vehicles. Site owner agreements The Group and the Company have entered into various commission agreements with site-owners enabling the Group and the Company to site vending equipment for a number of years. The amounts shown in the table above represent the minimum fixed commission payable. Certain agreements may, in addition, have clauses where additional commission is payable based on a percentage of revenue generated, above a specified amount. Based on the IASB publications in 2015: Project Update: Leases - Practical implications of the new Leases standard and Project Update: Leases - Definition of a Lease, the Board decided to show in 2015 and for future periods separately under the heading site owner agreements the obligations arising under commission agreements which extend beyond 12 months as such agreements did not appear to meet the definition of a lease. In January 2016 the IASB issued IFRS16 Leases which is effective for annual reporting periods beginning on or after 1 January 2019, subject to EU endorsement. Under this standard all leases, both finance and operating will be included on the balance sheet. The Group will study the impact of this new standard in 2016 and the impact on both operating lease and site owner agreements. 28 Related parties The following transactions were carried out with related parties: Directors’ compensation Salaries and other short-tem employee benefits excluding long-term incentives and pension contributions Post-employment benefits Share- based payments - charge Group 2016 £’000 1,360 80 117 1,557 2015 £’000 1,491 9 99 1,599 Company 2016 £’000 1,360 80 117 1,557 2015 £’000 1,491 9 99 1,599 The remuneration of the directors, both executive and non-executive, of the Company, who are the key management personnel of the Group, is set out in the table above. These figures include amounts payable to third party companies for services of the directors. Further information about the remuneration of the directors is given in the Remuneration report on pages 30 to 42. Certain executive directors, with UK salaries, are entitled to join the Company’s Group Personal Pension Plan, to which the Company contributes 5% of their basic salaries. The charge for the year was £3,000 (2015: £9,000). No director who served during the year was a member of the Company’s defined benefit pension scheme (2015: none). Directors of the Company control 21.3% of the Ordinary shares of the Company. The interests of the directors are shown on page 39 of the Remuneration report. i F n a n c a i 96 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 97 l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 98 Notes to the Financial Statements for the year ended 30 April 2016 Sales of goods and services, purchases and year end balances Sales of goods and services Associates Trade and other receivable balances Associates Group 2016 £’000 84 84 51 51 2015 £’000 92 92 – – Company 2016 £’000 2015 £’000 – – – – – – – – Transactions with related parties other than associates refer to transactions with companies in which certain directors have declared an interest. All transactions with related parties were conducted at arm’s-length in the ordinary course of business. The trade and other receivable balances with related parties and associates arise from normal trading and do not include any security or any other consideration. The trade and other payable balances arise from normal trading. The Company has the following transactions with related parties. Defined benefit pension scheme Administration costs of Company defined benefit scheme Transactions with subsidiaries Sales Purchases Amounts owed by subsidiaries Amounts owed to subsidiaries Other items Interest due from subsidiaries Interest paid to subsidiaries Intercompany fee due from subsidiaries Intercompany fees charged by subsidiaries Property, plant and equipment - sold to subsidiaries - acquired from subsidiaries Dividend income - from subsidiaries Transactions with Associates Dividends received from associates 2016 £’000 47 2016 £’000 72 5,428 3,095 34,246 5 73 7,458 1,591 36 3,092 10,692 2016 £’000 – 2015 £’000 39 2015 £’000 54 5,707 6,849 13,226 5 32 8,681 1,358 132 3,056 8,430 2015 £’000 96 29 Group undertakings This disclosure is made in accordance with Section 409 of the Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, as amended by the Companies, Partnerships and Groups (accounts and reports) Regulations 2015. A full list of subsidiary undertakings and associated undertakings (showing country of incorporation, which is also the main trading location of the company, and the effective percentage of equity shares held) at 30 April 2016 is shown below. Unless indicated otherwise the equity shares held are in the form of ordinary shares or common stock. Principal group undertakings which affect the financial statements of the Group are highlighted in bold. Together with the Parent Company, Photo-Me international plc, these companies contributed over 85% of the Group’s revenue and operating profit. Geographical Area Subsidiary undertakings Principal activity Group’s interest United Kingdom and Ireland Camden Management Services Limited Fowler UK.Com Limited Jolly Roger (Amusement Rides) Limited MgInvest Investments Limited Xpand Investments Limited Photo-Me Limited Photo-Me (Retail) Limited Photo-Me Trustee Limited Power-Me Limited Photo-Me Ireland Limited Impact (Web Services) Limited Continental Europe Prontophot Austria G.m.b.H. Prontophot Belgium NV Photo-Me Czech Republic s.p.o.l. s.r.o. Photo-Me France SAS KIS SAS Photomaton SAS SCI Immobilière du 21 SCI du Lotissement d’Echirolles Fotofix-Schnellphotoautomaten G.m.b.H. Prontophot Holland B.V Animate Fotofixe Limitada KIS Poland s.p.z.o.o. KIS Automatic Services SL Copyphot SA Prontophot (Schweiz) AG Photo-Me Suisse SA Prontophot Holding SA Asia and Rest Of World Photo-Me Beijing Co Limited Photo-Me (Shanghai) Co Limited NAP (Hong Kong) Limited Photo-Me Korea Company Limited Nippon Auto-Photo Kabushiki Kaisha Photomatico (Singapore) Pte Limited KIS Technology Company Limited KIS USA LLC KIS (Thailand) Limited Associated undertakings Stilla Technologies SA Photomaton Maroc SARL Photo Direct Pty Ltd Max Sight Limited Fullwise International Limited Operations Operations Production Investment Investment Dormant Dormant Dormant Dormant Operations Dormant Operation Operations Dormant Investment Trading Operations Property Property Operations Operations Operations Operations Operations Operations Operations Dormant Dormant Operations Operations Dormant Operations Operations Operations Trading Operations Dormant Biotechnology Operations Sales & servicing Operations Dormant 100%* 100% 100% 100%* 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%* 100% 100%* 100%* 100%* 61%* 100% 100% 100% 100% 100% 100%* 100% 100% 100% 100%* 100%* 100%* 100%* 100% 100% 100% 100% 49% 40% 50% 26.95% 33.33% 33.33% Country of incorporation England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Republic of Ireland Republic of Ireland Austria Belgium Czech Republic France France France France France Germany Holland Portugal Poland Spain Switzerland Switzerland Switzerland Switzerland China China Hong Kong Korea Japan Singapore Vietnam USA Thailand France Morocco Australia Hong Kong Hong Kong Investments in subsidiaries not owned directly by Photo-Me International plc are indicated thus *. Photo-Me CR.s.p.o.l.s.r.o. is owned 20% by Photo-Me International plc and 80% by Prontophot Austria G.m.b.H. Photo-Me International plc owns 49% common shares in KIS (Thailand), 51% preferred stock are owned by other shareholders. The results of the Group’s subsidiaries and associates are consolidated for the year ended 30 April. Certain subsidiaries and associates have a different statutory year end, sometimes due to legal requirements in the country concerned. The following subsidiaries and associates have year ends which are not 30 April. Fowler UK.Com Limited 30 September, SCI du Lottisement d’Echirolles 31 December, Photo-Me Beijing Co Limited and Photo-Me ( Shanghai) Co Limited 31 December, KIS Technology Company Limited. 31 March, Stilla Technologies SA 31 December, and Photo Direct Pty Ltd 30 June. 98 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 99 i F n a n c a i l S t a t e m e n t s Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 100 Notes to the Financial Statements for the year ended 30 April 2016 Five Year Summary 30 Business Combinations and disposals Business Combinations Current year The Group completed its acquisition of 100% of the share capital and voting interests in Fowler UK.Com Ltd (“Fowler”) in early November 2015. Fowler is a UK company which supplies and installs laundry and catering equipment. The acquisition was effective on 1 October 2015 and Fowler was consolidated in the Group’s consolidated results and balance sheet from that date. The table below summarises the fair value of assets acquired, liabilities assumed and the consideration paid. Intangible assets Property, plant and equipment Inventory Trade and other receivables Cash and cash equivalents Total assets Borrowings Deferred tax Trade and other payables Current tax Total liabilities Total identifiable net assets Total net assets excluding net cash and cash equivalents Goodwill Goodwill and total identifiable net assets Cost of investment Deferred consideration Cash paid as per Company Statement of Cash Flows Net cash acquired Net cash consideration as per Group Statement of Cash Flows £’000 253 549 265 280 209 1,556 178 55 289 56 578 978 947 1,273 2,251 2,251 400 1,851 209 1,642 As a result of this acquisition the Group is expected to strengthen its presence in the laundry market and benefit from cost savings and business synergies. Goodwill of £1,273,000 arose on this acquisition. Prior year business combinations and disposals Business combinations On 14 May 2014 the Group acquired 100% of the share capital and voting interests in Copyphot SA, a small operating company in Switzerland. Disposals Transactions with non-controlling interests. During the year ended 30 April 2015 the Group disposed of its 51% interest in Photo-Me Hungary KFT, a small operating company, to its other shareholder for a total consideration of €110,000 (£80,000), which was the Group’s share of the net assets. The profit on this transaction is shown in finance income after including the recycling of accumulated exchange differences through the income statement. Income statement (unaudited) Revenue UK & Ireland Continental Europe Asia Total revenue Operating profit after special items before finance costs Net finance (cost)/income Profit before taxation Taxation Profit after taxation Attributable to: - equity owners of the Parent - Non-controlling interests Earnings per share - basic Earnings per share - diluted Dividends - interim Dividends - final Dividends - special Total dividends * Including discontinued operations. 2016 £’000 45,783 93,712 44,499 183,994 39,734 372 40,106 (10,907) 29,199 29,066 133 29,199 7.77p 7.72p 2,575p 3.285p 2.815p 8.675p Statement of financial position (unaudited) Intangible assets Property,plant and equipment Other non-current investments Other non-current assets Current assets Assets held for sale Total assets Share capital Share premium Treasury shares Reserves Equity of the Parent Non-controlling interests Total equity Total non-current liabilities Total current liabilities Total equity and liabilities Net cash 2016 £’000 20,312 56,723 1,713 8,092 103,382 96 190,318 1,877 8,156 – 111,608 121,641 1,109 122,750 17,656 49,912 190,318 62,415 2015 £’000 44,652 94,345 38,205 177,202 38,370 126 38,496 (10,452) 28,044 27,900 144 28,044 7.49p 7.43p 2.34p 2.54p 0.00p 4.88p 2015 £’000 16,687 48,721 848 7,486 82,474 – 156,216 1,866 7,131 – 94,510 103,507 904 104,411 7,549 44,256 156,216 60,669 2014 £’000 44,927 102,932 38,739 186,598 30,266 (173) 30,093 (8,514) 21,579 21,422 157 21,579 5.77p 5.70p 1.80p 1.95p 2.00p 5.75p 2014 £’000 15,687 47,045 620 8,474 86,680 705 159,211 1,859 6,521 – 94,734 103,114 1,119 104,233 8,713 46,265 159,211 63,111 2013 £’000 45,744 104,913 44,933 195,590 24,199 107 24,306 (6,746) 17,560 17,405 155 17,560 4.78p 4.76p 1.50p 1.50p 3.00p 6.00p 2013 £’000 16,715 46,057 790 6,376 85,872 – 155,810 1,856 6,287 – 89,018 97,161 1,197 98,358 9,847 47,605 155,810 61,419 2012* £’000 46,173 114,045 47,623 207,841 20,019 121 20,140 (5,594) 14,546 14,349 197 14,546 3.97p 3.95p 1.25p 1.25p – 2.50p 2012 £’000 18,853 47,275 592 6,877 86,075 – 159,672 1,850 5,873 (5,802) 93,919 95,840 1,001 96,841 13,292 49,539 159,672 51,832 Note: The figures above have been extracted from the accounts for the relevant year and have not been adjusted for changes in accounting policies as a result of adoption of new accounting standards. Financial & operating statistics Capital expenditure - photobooth & vending machines £’000 Capital expenditure - research & development £’000 EBITDA £’000 EBITDA % of revenue Number of vending sites 2016 19,402 2,935 56,695 30.8 45,500 2015 18,287 2,560 55,251 31.2 44,600 2014 17,327 1,125 47,803 25.6 43,850 2013 16,381 1,058 44,927 23.0 43,150 2012 15,032 2,169 44,033 21.2 43,000 S h a r e h o d e r l I n f o r m a t i o n 100 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 101 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 102 Company Information & Advisors Registered in England and Wales Number 735438 Registered Office Church Road, Bookham Surrey, KT23 3EU Tel: +44 (0)1372 453399 Fax: +44 (0)1372 459064 Web: www.photo-me.co.uk e-mail: ir@photo-me.co.uk Auditor KPMG LLP 1 Forest Gate, Brighton Road Crawley, RH11 9PT Brokers finnCap Limited 60 New Broad Street London, EC2M 1JJ Canaccord Genuity Ltd 88 Wood Street London EC2V 7QR Bankers Lloyds Bank plc City Office, 11–15 Monument Street London, EC3V 9JA Santander UK plc 2 Triton Square, Regent’s Place London, NW1 3AN Financial public relations Madano Partnership Ltd 7th Floor, 160 Blackfriars Road London, SE1 8EZ Registrars Capita Asset Services The Registry, 34 Beckenham Road Beckenham, Kent , BR3 4TU Shareholder Information Analysis of registered shareholdings at 21 June 2016 Category: Individuals Nominees Other corporate bodies Size of holding: 1 – 1,000 1,001 – 10,000 10,001 – 100,000 100,001 – 500,000 500,001 – 1,000,000 1,000,001 and above Number of holdings Number of % of issued Ordinary share capital Ordinary shares 2,007 466 48 2,521 1,189 963 233 64 29 43 2,521 7,708,334 348,662,716 19,107,728 375,478,778 583,523 3,076,723 7,709,356 16,588,013 20,366,846 327,154,317 375,478,778 2.1 92.9 5.0 100.0 0.2 0.8 2.1 4.4 5.4 87.1 100.0 Capital gains tax For shareholders wishing to calculate United Kingdom capital gains tax, the example below shows the effect on 100 shares at 31 March 1982 after all subsequent capitalisations and subdivisions: 31 March 1982 9 December 1983 (1 for 5 Cap.) 12 December 1985 (1 for 6 Cap.) 12 December 1985 (subdivision) 18 December 1987 (subdivision) 13 December 1989 (subdivision) 8 November 1999 (subdivision) 100 20 120 20 140 140 280 1,120 1,400 1,400 2,800 11,200 14,000 Ordinary shares of 50p each (at market value of 445p per 50p share) Ordinary shares of 50p each Ordinary shares of 50p each (50p to 25p) Ordinary shares of 25p each (25p to 5p) Ordinary shares of 5p each (5p to 2.5p) Ordinary shares of 2.5p each (2.5p to 0.5p) Ordinary shares of 0.5p each Investor relations website Investor relations information, including share price, is available through the Company’s website www.photo-me.co.uk S h a r e h o d e r l I n f o r m a t i o n 102 Photo-Me International plc Annual Report & Accounts 2016 Photo-Me International plc Annual Report & Accounts 2016 103 Photo-Me 2016_AR_AW.qxp_Photo-Me 2016_AR 15/07/2016 13:31 Page 104 Shareholder Information continued Transfer office and registration services Capita Asset Services Limited act on behalf of the Company. All shareholder enquiries, notifications of change of address, dividend mandates, etc. should be referred to them at: Capita Asset Services The Registry, 34 Beckenham Road Beckenham, Kent, BR3 4TU Tel: 0871 664 0300 Overseas Tel: 00 44 208 639 3399 Fax: 0871 644 0399 Capita Asset Services also offer a range of shareholder information online at www.capitashareportal.com The Register of directors’ interests is maintained at the Registered Office at Bookham. Copies of the Annual Report should be requested from: Photo-Me International plc Church Road, Bookham Surrey, KT23 3EU Tel: +44 (0)1372 453399 Fax: +44 (0)1372 459064 e-mail: ir@photo-me.co.uk Financial calendar Annual General Meeting Half-year results (to 31 October 2016) Full-year results (to 30 April 2017) Dividend Final (year to 30 April 2016) and special – ex-dividend date – record date – payment date 20 October 2016 Announcement in December 2016 Announcement in June/July 2017 6 October 2016 7 October 2016 10 November 2016 104 Photo-Me International plc Annual Report & Accounts 2016 Designed and produced by effektiv +44 (0)20 7251 7720 / www.effektiv.co.uk S h a r e h o d e r l I n f o r m a t i o n 

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