Photo-Me International
Annual Report 2019

Plain-text annual report

I N N O V A T I O N A N D D I V E R S I F I C A T I O N A N N U A L R E P O R T 2 0 19 F U R T H E R I N F O R M AT I O N For more information go to our website: photo-me.com/investor-relations C O N T E N T S ST R AT E G I C R E P O R T 2019 in Summary Business at a Glance Chairman’s Statement Business Model Our Business Identification Laundry Kiosks Innovation & Diversification Chief Executive’s Report Business Review Review of Performance by Geography Key Performance Indicators Financial Review Principal Risks Corporate Responsibility Statement Viability Statement 04 05 06 08 10 12 14 16 16 18 27 28 30 34 41 C O R P O R AT E G OV E R N A N C E Board of Directors and Company Secretary Report of Directors Corporate Governance Remuneration Report Annual Statement Remuneration Policy Report Annual Report on Remuneration Statement of Directors’ Responsibilities F I N A N C I A L STAT E M E N TS Independent Auditor’s Report Group Statement of Comprehensive Income Statements of Financial Position Group Statement of Cash Flows Company Statement of Cash Flows Group Statement of Changes in Equity Company Statement of Changes in Equity Notes to the Financial Statements Five-Year Summary Company Information and Advisors Shareholder Information 44 45 48 52 54 59 65 68 74 75 76 77 78 79 80 143 145 146 A B O U T P H O T O - M E W E A R E ... an international market leader in automated instant-service equipment, with approximately 47,000 unattended vending units across 18 countries. O U R V I S I O N ... is to realise shareholder value as the go-to provider for multiple instant- vending services, located in the most convenient locations, and to become the leader in digital and biometric security identification solutions. O U R M I SS I O N . .. is to extend the suite of services available through our established network and relationships through investment in technological innovation and the diversification of our operations in existing and new geographies. S T R A T E G I C R E P O R T 04 2019 IN SUMMARY 05 BUSINESS AT A GLANCE 06 CHAIRMAN'S STATEMENT 08 BUSINESS MODEL 28 FINANCIAL REVIEW 10 OUR BUSINESS 30 PRINCIPAL RISKS 18 BUSINESS REVIEW 34 CORPORATE RESPONSIBILITY STATEMENT 2019 I N S U M M A RY F I N A N C I A L H I G H L I G H TS E X PA N S I O N REPORTED REVENUE £228.1m 2018: £229.8m 2017: £214.7m REPORTED EBITDA (excluding associates) £69.7m 2018: £71.0m 2017: £69.0m REPORTED PROFIT BEFORE TAX £42.6m 2018: £50.2m 2017: £48.0m UNDERLYING PROFIT BEFORE TAX¹ £44.1m 2018: £46.8m 2017: £46.6m CASH GENERATED FROM OPERATIONS £63.9m 2018: £61.0m 2017: £61.3m NET CASH £16.3m 2018: £26.7m 2017: £39.2m EARNINGS PER SHARE (DILUTED) TOTAL ORDINARY DIVIDEND PER SHARE 8.26p 2018: 10.60p 2017: 9.27p 8.44p 2018: 8.44p 2017: 7.03p² ¹ Underlying profit before tax is 2019 profit before tax adjusted to exclude the gain on the disposal of the Group’s interest in Stilla Technologies SA (£3.2m), the fair value loss on the Group’s shareholding in Max Sight Group Holdings Limited (-£2.9m) and restructuring costs incurred in the Group’s Japanese subsidiary (-£1.8m). 2018 profit before tax is adjusted to exclude the gain on the Group’s shareholding in Max Sight Group Holdings Limited (£3.7m), the profit on disposal of the former head office building (£2.3m), and restructuring fees relating to Photo-Me Retail (-£2.6m). Continued expansion of Laundry operations, with 18% more Revolution units in operation Total revenue from Revolution units up by more than 30% R E A D M O R E P 12 I N N OVAT I O N Continued deployment of secure photo ID upload technology November 2018: First banking booths launched in Paris R E A D M O R E P 1 6 D I V E R S I F I C AT I O N F O R F U T U R E G R OW T H Entry into growing fresh fruit and vegetable juice market through the acquisition of SEMPA, the leader in France for the commercialisation of self-service fresh juice equipment in April 2019 ² Excludes special dividend of 2.851p per share R E A D M O R E P 17 4 PHOTO-ME INTERNATIONAL PLCB U S I N E SS AT A G L A N C E 85% OF OUR PROFITS ARE GENERATED OUTSIDE THE UK C O N T I N E N TA L E U R O P E U K & R E P U B L I C O F I R E L A N D AS I A 46,956 VENDING UNITS o Identification o Laundry in operation o Kiosks o Other vending equipment O U R B U S I N E SS E S 18 COUNTRIES Austria, Belgium, China, France, Germany, Italy, Ireland, Japan, Morocco the Netherlands, Poland, Portugal, Singapore, South Korea, Spain, Switzerland, United Kingdom, Vietnam 3 CORE GEOGRAPHIES o Continental Europe o UK & the Republic of Ireland o Asia I D E N T I F I C AT I O N L A U N D RY K I O S KS AN ESTABLISHED, INTERNATIONAL NETWORK OF PHOTOBOOTHS ACROSS 18 COUNTRIES CONSUMER AND B2B LAUNDRY OPERATIONS REMAIN THE PRIMARY KEY GROWTH DRIVER FOR THE GROUP HIGH-QUALITY, MARKET-LEADING DIGITAL PRINTING EQUIPMENT IN SIX COUNTRIES R E A D M O R E P 1 0 R E A D M O R E P 1 2 R E A D M O R E P 1 4 O U R ST R AT E G Y O U R ST R AT E G Y O U R ST R AT E G Y Target expansion into high- footfall locations Penetrate new territories Grow revenue through multiple service offering Deploy proven identification security technologies into existing and new territories Deploy 6,000 owned, sold and acquired laundry units by 2020 Increase presence on high-footfall sites through multi-service offering Identify and deliver products to new high-demand markets Expand launderette presence through the owned/operated model Extend B2B offering in the UK and into new territories Extend product partnerships into new territories Capitalise on market-leading position and competitor landscape 5 ANNUAL REPORT 2019STRATEGIC REPORTC H A I R M A N ' S STAT E M E N T The Group remains cash generative, with £63.9 million of cash generated from operations in the period. This supports the Group’s ongoing investment in innovation and its future growth. S I R J O H N L E W I S Non-executive Chairman REPORTED REVENUE £228.1m NET CASH POSITION £16.3m 6 In the 2019 financial year, the Group continued to make progress on its growth strategy, led by the expansion of our self-service Laundry operations. Total revenues from Laundry operations increased by 19.0% and revenue from Revolution increased by 30.2%. This growth was achieved despite a decrease in B2B Laundry revenue and aided by the first-year contribution from La Wash laundry services. In line with our plan, revenue from Laundry activity has continued to increase as a proportion of the Group’s total revenue. Identification declined by 1.1%, reflecting challenging market conditions in the UK. Excluding the UK operations, Identification revenue grew by 0.7% Revenue from Kiosks declined by 19.1% following the restructuring of Photo-Me Retail, which happened in financial year 2018 and resulted in a lower number of kiosks in the Group’s portfolio. R E S U LTS Our operations in Continental Europe and Asia continued to perform in line with our expectations. As previously announced, overall trading in the UK became more challenging than expected as consumer activity slowed, owing to uncertainty around the UK’s exit from the European Union. This resulted in lower revenues from business-to-business and machine sales activity due to delays in order decisions, albeit we expect part of these revenue delays to be recovered during the 2020 financial year. Reported revenue reduced by 0.7% to £228.1 million and by 0.8% at constant currency. Adjusted revenue increased by 2.1%, excluding a £6.3 million revenue contribution from Photo-Me Retail in the prior year. Reported EBITDA (excluding associates) was £69.7 million (2018: £71.0 million), resulting in an EBITDA margin of 31.4%. Excluding the impact of one-off items detailed below, EBITDA margin was 32.0%. Adjusted profit before tax was 6.0% lower at £44.1 million when adjusted for one-off items in the financial year 2019 and the prior financial year. A reconciliation of Reported profit before tax to Adjusted profit before tax is detailed in the table below. R E C O N C I L I AT I O N O F R E P O R T E D P R O F I T B E F O R E TA X TO A D J U ST E D P R O F I T B E F O R E TA X Profit before tax Adjustments to exclude: – Gain on disposal of Stilla Technologies SA – Fair value loss on financial instrument held at FVTPL – Gains on available for sale financial instruments – Profit on sale of land & buildings – Restructuring costs Underlying profit before tax – Favourable commercial litigation – Exchange gain Adjusted profit before tax 2019 £m 42.6 (3.2) 2.9 – – 1.8 44.1 – – 44.1 2018 £m 50.2 – – (3.7) (2.3) 2.6 46.8 (1.6) (0.9) 44.3 PHOTO-ME INTERNATIONAL PLC The Group remains highly cash generative, with £63.9 million of cash generated from operations in the period (2018: £61.0 million). This continues to support the ongoing investment in innovation and its future growth. per share, this brings the total dividend for the year ended 30 April 2019 to 8.44 pence per share (2018: 8.44 pence per share). This will be paid on 8 November 2019 to shareholders listed on the register on 18 October 2019. The ex-dividend date will be 17 October 2019. Capital expenditure in the year was £30.3 million (2018: £43.6 million). This reflects lower trading in the UK and our strategy to reduce the level of capex and focus on the expansion of our Laundry business, through deploying Revolution machines only at high-footfall locations. Our net cash position at 30 April 2019 was £16.3 million, compared with net cash of £26.7 million at 30 April 2018. This net cash position reflects the distribution of dividends amounting to £31.9 million during the financial year and £36.4 million of net cash outflow on investing activities. Investing activities includes the net cash outflow on the acquisition of La Wash (£4.2 million) and Sempa SARL (£9.3 million), and ongoing investment in the growth of Photo-Me’s existing business. ST R AT E G Y Photo-Me operates, sells and services a wide range of instant-service equipment, primarily aimed at the end consumer. Our operations are focused on the three principal business areas of Identification, Laundry and digital Kiosks. We currently operate across 18 countries. Our growth strategy is focused on diversifying our operations by developing new technologies with multiple applications that can be speedily deployed, at a relatively low cost to the business, across new and existing geographies and provide a rapid return on investment. We have R&D centres in France (primary facility), Portugal, Vietnam and Japan. Our capabilities in this area are supported by a team of more than 60 dedicated engineers. In recent years, our activities have been focused on the development and deployment of our secure upload Photo ID technology in our Identification business. AC Q U I S I T I O N O F S E M PA S A R L (“ S E M PA”) In line with our strategy to grow Photo-Me through product diversification and innovation, the Group acquired Sempa in April 2019, for a gross consideration of €20.64 million, funded by a new debt facility of €20.0 million. Sempa’s net cash position upon acquisition was more than €9.8 million, resulting in net cash outflow of approximately €10.8 million. Sempa is the leader in France for the commercialisation of self-service fresh fruit juice equipment and operates 2,788 units. This acquisition was an important strategic development for Photo-Me and marked the Group’s entry into the fresh fruit and vegetable juice market, which is estimated to be worth $154 billion¹ globally, and the platform to develop a new business area for the Group. Sempa has already achieved considerable success in France and we look forward to replicating this via our existing network and commercial relationships across Photo-Me’s international markets, with our initial focus being on Europe. The rollout of the new juice estate will leverage our existing network of regional field engineers and our sales team, alongside Sempa’s industry experience, at low incremental cost to the Group. D I V I D E N D S Photo-Me is committed to creating value for its shareholders. Subject to approval at the Annual General Meeting, the Board is proposing a final dividend payment of 4.73 pence per share (2018: 4.73 pence per share). When combined with the interim dividend of 3.71 pence For the current financial year ending 30 April 2020, the Board intends to maintain a total dividend of 8.44 pence per ordinary share. T H E B OA R D During the last few years, having regard to the substantial changes being made to the businesses of the Group, the Board has been mindful of the importance of maintaining stability, and continuity. Nevertheless, it is conscious of the need to bring in new Directors to take the Group forward and will continue to review the composition of the Board accordingly. The first steps have been taken following the recent decision to appoint a new non-executive director to the Board. C O L L E AG U E S On behalf of the Board, I would like to thank all our team members across the world for their ongoing hard work and continued commitment throughout the year, supported by our country managers. I would also like to welcome our new colleagues from Sempa into the Group as we look ahead to building an exciting new business together. C U R R E N T T R A D I N G A N D O U T LO O K Our Laundry business will remain the core growth driver for the Group, accounting for an increasing proportion of the Group’s total revenue in the medium-term. We will continue to progress our rollout of Identification products for governments that support our strong presence in the Identification market. Our entry into the growing fresh fruit and vegetable juice market will enable us to further diversify our operations. We plan to replicate the success of this business in France across other geographies in which we operate. In addition, we are investing in new product development to expand the products offered to the end consumer, such as an apple and pineapple juice machine. The intention is for this business to become a significant part of the Group’s growth strategy and in the financial year ending 2020, we will report fresh juice activities separately, alongside our current business areas of Identification, Laundry and Kiosks. This new business presents an exciting new opportunity for Photo-Me and steps have been taken to introduce patents and innovations to allow us to further penetrate the fresh juice market. While consumer uncertainty continues to weigh on our business in the UK, we remain confident that overall the Group will continue to perform well in the current financial year and beyond. S I R J O H N L E W I S Non-executive Chairman 17 July 2019 ¹ Source: Global Fruit and Vegetable Juice Market Research 2018-2025; Grand View Research. 7 ANNUAL REPORT 2019STRATEGIC REPORTB U S I N E SS M O D E L I N P U TS AC T I V I T I E S O U T P U TS 1 T E C H N O L O G Y A N D I N N O V A T I O N Development of proprietary solutions and continuous focus on product diversification 2 L O N G - T E R M P A R T N E R S H I P S W I T H H I G H - F O O T F A L L S I T E O W N E R S Supermarkets, shopping malls, public transport and public administration buildings 3 B R A N D S R E C O G N I T I O N Leading brands and household names in key geographies 4 N E T W O R K O F S K I L L E D F I E L D E N G I N E E R S Supporting growth across business areas at limited cost 5 T E L E M E T R Y S Y S T E M Sophisticated and tailored to Photo-Me’s proprietary technology 6 I N D U S T R Y E X P E R T I S E Over 50 years working with regulatory bodies 8 I D E N T I FI C AT I O N L AU N D RY K I OS KS PHOTO-ME INTERNATIONAL PLCOur business model supports our growth strategy O U T P U TS G R OW T H ST R AT E G Y C O M P E T I T I V E L Y P R I C E D , H I G H - Q U A L I T Y S E R V I C E S F O R C O N S U M E R S Meeting increasing demand for instant services on-the-go A D D I T I O N A L S E R V I C E S F O R S I T E O W N E R S Supporting customer needs and footfall S E C U R E S O L U T I O N S F O R G O V E R N M E N T S Encrypted photo upload technology rolled out with governments for official identification documents S T A B L E C A S H F L O W S Generated from existing network utilised to fund R&D and support growth strategy CONTINUED ROLLOUT OF DIGITAL IDENTIFICATION TECHNOLOGY AND LAUNDRY SERVICES To increase presence in existing and new geographies PRODUCT INNOVATION AND DIVERSIFICATION S H A R E H O L D E R V A L U E Delivered through growth and dividends To extend service offering through existing networks 9 ANNUAL REPORT 2019STRATEGIC REPORTO U R B U S I N E SS I D E N T I F I C AT I O N AN ESTABLISHED NETWORK OF MORE THAN 28,000 PHOTOBOOTHS SPANNING 18 COUNTRIES, PRIMARILY AIMED AT THE CONSUMER MARKET. IDENTIFICATION REPRESENTS 62% of the Group’s total vending estate (at 30 April 2019) O U R O P E R AT I O N S Our Identification business delivers high cash flow that supports the Group’s investment in R&D and overall growth strategy. I N T E G R AT E D P R O P R I E TA RY S O F T WA R E We use integrated proprietary software across our entire estate to ensure that all photographs comply with International Civil Aviation Organisation (ICAO) photo identification regulations. We are a prominent international player in the photobooth market, with leading brands across all our operating regions: Photo-Me, Photomaton, ProntoPhot, FOTO.FIX, PRONTO PHOT and Foto-Já! AG R E E M E N TS I N P L AC E W I T H G OV E R N M E N TS Governments are seeking to improve and digitalise security ID to combat fraud and security threats. We have agreements in place with governments for the direct and secure upload of photographs from our photobooths to their servers for official documents. ST R O N G S U P P O R T A N D M A I N T E N A N C E N E T W O R K Our photobooth estate is supported, maintained and upgraded by our 700-strong network of skilled field engineers, and monitored 24/7 by interconnected remote telemetry. 10 PHOTO-ME INTERNATIONAL PLCST R AT E G Y I N AC T I O N Maintaining incremental revenue growth through the continued extension of services offered via our photobooth network, including the continued rollout of encrypted photo ID upload technology for documents such as passports and driving licences in partnership with governments. More than 12,000 photobooths are now connected to government organisations and are enabled with encrypted photo ID upload technology. This technology removes the opportunity for photo ID for official documents to be manipulated. To date, our government ID security solutions have been successfully deployed in France, the UK, Ireland, Germany, Georgia, Japan, Switzerland, the Netherlands and China. T E C H N O LO G Y I N AC T I O N UK passport renewal 1 PHOTO & SIGNATURE ARE CAPTURED 2 Customer is given a photo with a unique code 2 PHOTO-ME SERVER Data transferred to a secure server 4 WEB REQUEST 5 AUTOMATIC DATA TRANSFER 6 PHOTO DISPLAYED ON THE ONLINE APPLICATION 3 Customer inputs unique code during the online application on the HMPO website HMPO GOVERNMENT SERVER URL creation Checks and validation 7 Passport delivered to customer 11 ANNUAL REPORT 2019STRATEGIC REPORTO U R B U S I N E SS L A U N D RY PHOTO-ME’S HIGHEST MARGIN AND FASTEST GROWING BUSINESS AREA, WITH OVER 4,800 UNITS DEPLOYED (OWNED, SOLD AND ACQUIRED) AND CONTINUED STRONG GROWTH MOMENTUM. REVOLUTION MACHINES IN OPERATION REPRESENTS 6% of the total Group vending estate (at 30 April 2019) O U R O P E R AT I O N S R E V O L U T I O N U N AT T E N D E D L A U N D RY S E R V I C E S o Outdoor self-service laundry units, providing 24-hour access to large-capacity, rapid laundry services, located on high-footfall sites such as supermarket car parks o More than 2,700 Revolution units in France, the UK, Ireland, Belgium and Portugal S E L F - S E R V I C E L A U N D E R E T T E S H O P S o Convenient and competitively priced large-capacity, self-service laundry amenities, typically located near town centres o We operate launderettes in France, Spain, Portugal, Ireland and the UK B 2 B L A U N D RY S E R V I C E S o B2B laundry services located in the UK and Spain o Distribution and leasing of laundry and catering equipment, targeting hospitals, care homes and universities 12 PHOTO-ME INTERNATIONAL PLC ST R AT E G Y I N AC T I O N Expansion of the Laundry business remains integral to Photo-Me’s growth strategy, with these activities comprising an increasing proportion of the Group’s total revenue in the medium- to long-term. E X PA N S I O N I N TO N E W G E O G R A P H I E S Rapid rollout of units across the Group’s established network of high-footfall sites, and expansion into new geographies for the Laundry business, with an immediate focus on Germany and Austria. M A X I M I S E O P E R AT I O N A L E F F I C I E N C Y Continued upgrade of units to maximise operational efficiencies, customer experience and revenue opportunities. N U M B E R O F U N I TS I N C R E AS E D U P G R A D E The number of Revolution units in the 2019 financial year increased by 18%, with installations increasing from 50 to 80 units per month at 30 April 2019. 1,957 units were upgraded to include detergent dispensers at an additional cost to the customer of €1 per wash. Y E A R - O N -Y E A R G R OW T H 2019 2018 +9.4% 4,876 4,449 TOTAL LAUNDRY UNITS DEPLOYED (owned, sold and acquisitions) 2019 2018 +19.0% £43.70m £36.7m TOTAL REVENUE FROM LAUNDRY OPERATIONS 2019 2018 +18.1% 2,732 2,313 2019 2018 +30.2% £27.6m £21.2m NUMBER OF REVOLUTION UNITS IN OPERATION TOTAL REVENUE FROM REVOLUTION UNITS 13 ANNUAL REPORT 2019STRATEGIC REPORTO U R B U S I N E SS K I O S KS MORE THAN 5,400 DIGITAL PRINTING KIOSKS POSITIONED IN ATTRACTIVE, HIGH-FOOTFALL LOCATIONS ACROSS THE UK, FRANCE, JAPAN, BELGIUM, SWITZERLAND AND THE NETHERLANDS. KIOSKS REPRESENTS 12% of the total Group vending estate (at 30 April 2019) O U R O P E R AT I O N S L E A D I N G T E C H N O LO G Y Industry-leading technology enabling easy, competitively priced, high-quality digital printing from smartphones, with a wide range of printing formats and personalised products. F U L LY I N T E G R AT E D W I T H M A J O R S O C I A L M E D I A N E T W O R KS Kiosks are fully integrated with major social media networks, providing consumers with convenient, easy-to-use, reliable and high-quality services for a seamless customer experience. U P G R A D E S A N D I N N OVAT I O N We carry out ongoing upgrades of kiosk technology and introduce innovative software, enabling us to maximise opportunities from digitally driven consumer trends, and to profit from growing demand. F O C U S O N D I V E R S I F I C AT I O N Continued focus on diversification of kiosk service offerings to maximise revenue opportunity. 14 PHOTO-ME INTERNATIONAL PLCOT H E R V E N D I N G E Q U I P M E N T REPRESENTS 21% of the total Group vending estate (at 30 April 2019) The remainder of our estate includes a variety of unattended vending equipment, including children’s rides, amusement machines and photocopiers. C R O SS - S A L E E X T E N S I O N This equipment offers a cross-sale extension to existing services within our established footprint, where relationships with site owners already exist. M A X I M I S E SY N E R G I E S A N D O P E R AT I N G M A R G I N S The highly profitable machines are serviced by our network of skilled field engineers, and provide additional services in locations alongside existing Photo-Me units. This leverages the Group’s existing presence on high-footfall sites, maximising synergies and operating margins. O P P O R T U N I T I E S The Group will continue to opportunistically rollout “Other” vending equipment where suitable opportunities arise. I N C R E AS I N G T H E O F F E R F O R S I T E OW N E R S By grouping units offering different services together at one site, Photo-Me creates a “destination” for customers, benefitting the site owner and Photo-Me by driving additional footfall. 15 ANNUAL REPORT 2019STRATEGIC REPORTO U R B U S I N E SS I N N OVAT I O N & D I V E R S I F I C AT I O N INVESTMENT IN INNOVATION REMAINS AT THE CORE OF THE BUSINESS We are focused on technological innovation and new product development, upgrading our service offering to meet changing consumer demand, and extending our suite of services. Focus on three key areas: 1. The refurbishment and upgrade of Photo-Me’s estate 2. Further development and rollout of proprietary security biometric and Identification solutions 3. Complementary products and services Our R&D capabilities are supported by a dedicated team of 60 engineers, across France, Portugal, Vietnam and Japan. The team explores and identifies new market opportunities and carries out small-scale product manufacturing and testing. At the Group’s primary R&D centre, in Echirolles (France), the team is focused on new product development and technological innovation. 16 P H O T O - M E I N T E R N AT I O N A L P L C STRATEGIC REPORT E N T RY I N TO T H E I N STA N T F R E S H J U I C E S E L F - S E R V I C E E Q U I P M E N T M A R K E T E N T E R E D T H E $154 B N ¹ F R E S H F R U I T A N D V E G E TA B L E J U I C E M A R K E T through the acquisition of SEMPA Sarl, the leader in France for the commercialisation of self-service fresh fruit juice equipment. L A U N C H I N G R O L LO U T O F S E L F - S E R V I C E F R E S H J U I C E E Q U I P M E N T across Photo-Me’s geographic network, with the initial focus on Europe. P L A N S TO D E V E LO P I N N OVAT I V E N E W J U I C I N G T E C H N O LO G Y supported by Photo-Me’s R&D capabilities and Sempa’s industry expertise. In line with its strategy to diversify its instant service offering, in April 2019 the Group acquired SEMPA Sarl (“Sempa”), the leader in France for the commercialisation of self-service fresh fruit juice equipment. Photo-Me is now focused on developing a new growth business area in fresh fruit juice. The established Sempa business will give Photo-Me a strong foothold from which to launch the expansion of this business across the Group’s geographic network, with the initial rollout planned in Europe. With Sempa’s expert team, Photo-Me’s R&D engineers will develop additional self-service fresh fruit juice equipment to meet the needs of these new markets for the juice business. The Group is investing in new product development to expand the products offered to the end consumer, such as an apple and pineapple juice. The intention is for this business to become a significant part of the Group’s growth strategy in the financial year ending 2020. Photo-Me’s R&D engineers will develop additional self-service fresh fruit juice equipment. 1 Source: Global Fruit and Vegetable Juice Market Research 2018-2025; Grand View Research. A N N U A L R E P O R T 2 019 17 B U S I N E SS R E V I E W C H I E F E X E C U T I V E ' S R E P O R T Our strategy is to grow our business through ongoing investment in new technologies and complementary products and services. S E R G E C R A S N I A N S K I Chief Executive Officer & Deputy Chairman KEY READS IN THE BUSINESS REVIEW SECTION: P19 OVERVIEW BY PRINCIPAL BUSINESS AREA P22 REVIEW OF PERFORMANCE BY GEOGRAPHY P27 KEY PERFORMANCE INDICATORS (KPIS) P28 FINANCIAL REVIEW 18 The 2019 financial year saw macro headwinds and uncertainty in the UK, resulting in a slowdown in consumer activity and delays to B2B orders. This put pressure on our financial performance, and resulted in a £6.3 million negative revenue impact. As a result, Group revenues declined by 0.7%, and underlying profit before tax by 5.8%. Across our other geographies, the Group performed well and in line with our expectations. Overall, profit before tax was slightly ahead of our revised expectations. We continued to make progress on our strategy to expand our Laundry services business and we achieved strong results with a 9.4% increase in total laundry machines deployed, translating to a 19% increase in Laundry revenue in the financial year, while total revenue from Revolution laundry units increased by 30.2%. G R OW T H ST R AT E G Y T H R O U G H P R O D U C T D I V E R S I F I C AT I O N A N D I N N OVAT I O N Investment in innovation remains at the core of the business. Photo- Me’s growth strategy to deploy new products and technologies, with multiple applications across our vending estate, is underpinned by an ongoing focus on R&D and product diversification. We have in-house research and development capabilities in France, Portugal, Vietnam and Japan, and we employ a team of 60 dedicated and highly experienced engineers. Our team specialises in new product and software development, focused on three key areas: (i) the refurbishment and upgrade of our estate; (ii) further development and rollout of our proprietary security biometric identification solutions; and (iii) complementary products and services. Our largest facility is in France, where our team plays a key role in identifying new market opportunities and carries out small- scale product manufacture and testing. Once new products are fully launched, larger scale production is outsourced to our manufacturing partners. The expansion of our Laundry business, currently present in Ireland, Portugal, the UK, France, Belgium and the Netherlands, remains a core pillar of the Group’s long-term growth strategy, with significant potential across territories where Photo-Me operates. Expansion is funded by cash generated from our Identification business, which represents a global market-leading estate of hi-tech photobooths offering multiple instant-vending services. Essentially, our growth strategy is focused on expanding the number of units in operation, increasing the yield per unit, and minimising production and operational costs to the Group in achieving this objective. PHOTO-ME INTERNATIONAL PLCWe are continually looking for opportunities to enhance our product offering and leverage our established long-term relationships with site owners and our network of 700 dedicated field engineers. D E V E LO P M E N T O F A F R E S H F R U I T A N D V E G E TA B L E J U I C E P R O D U C T O F F E R I N G As part of our diversification and innovation approach, we entered the growing fresh fruit and vegetable juice market with the acquisition of Sempa in April 2019. The business operates via a lease model, whereby Sempa sells fresh fruit juice equipment to customers through lease finance agreements. It receives payment upon the sale of the equipment and the lease finance contracts are then subject to renewal every 12 months (on average). Sempa’s customers include retail, office and work spaces, and small businesses. The growing importance people place on their health and well-being makes it an exciting time to enter this market, with the health benefits of juice driving its popularity and potential. Our intention is for Photo-Me to become the global leader in self-service fresh fruit juice machines and to replicate the success Sempa has seen in France by rolling out the equipment across our European network. The Group will open a fruit juice dedicated R&D department at our facility in France, with the aim of launching a new and innovative fruit juice machine by the calendar year end. L A U N C H O F F I R ST B A N K I N G B O OT H In November 2018 in Paris, the Group launched its first banking booth, which provides front-end retail banking services to customers, in partnership with Anytime, a Belgian Fintech business. The technology allows customers to open a personal or professional bank account and scan in supporting documents. It then takes two days for a new account to be opened once compliance checks have been completed. The new client receives a credit card by post within two days of the account opening. In the long-term, customers will be able to deposit cheques and cash in the booths and speak directly to bank specialists through the screen. A 10-machine pilot is underway in Paris with the support of Anytime. OV E R V I E W BY P R I N C I PA L B U S I N E SS A R E A IDENTIFICATION (PHOTOBOOTHS AND INTEGRATED BIOMETRIC IDENTIFICATION SOLUTIONS) Photo-Me is the world’s largest operator of photobooths with market-leading photographic quality and technology, operating a well-established network of photobooths. Identification accounts for 61.5% of vending units in operation. Our strategy is to (i) expand our presence in high-footfall locations; (ii) grow revenue by offering customers a broader range of services via our photobooths; and (iii) penetrate new geographies. In particular, we remain focused on deploying our proven identification security technology. The increasing appetite from governments for improved and digitalised security ID underpins our growth strategy in this business area. Number of units in operation Percentage of total Group vending estate (number of units) Revenue Capex 30 April 2019 28,873 61.5% 30 April 2018 29,015 62.0% % change -0.50% -0.8% £147.7m £149.3m £9.7m £13.4m -1.1% -27.6% Excluding the UK, Identification revenue grew by 0.7% and the number of units in operation increased by 0.9%. Overall Identification revenue declined by 1.1% due to a more challenging trading environment in the UK and continued uncertainty around the UK’s European Union exit negotiations. Consumer activity slowed and footfall in retail locations was lower year-on-year. In addition, the UK Government’s decision to allow photo ID taken on a smart device or camera at home to be used for passport photo ID has impacted Identification volumes and 178 machines were removed from the UK estate, and will be relocated, due to rising operational costs. 19 ANNUAL REPORT 2019STRATEGIC REPORTC H I E F E X E C U T I V E ' S R E P O R T B U S I N E SS R E V I E W C O N T I N U E D Elsewhere, we continued to see a resilient performance aided by the diversification of our photobooth services, including the rollout of our encrypted photo ID upload technology with governments in the UK, France, Germany, Ireland and the Netherlands. In total, the Group has more than 12,000 photobooths connected to government organisations for the secure upload of photo ID. The Board anticipates that this number will continue to grow as discussions with governments progress. Capex for Identification reduced in the period as we prioritised expenditure on the installation of Revolution machines, only in high-footfall locations. We will continue to invest in advanced identification technology and innovative solutions. A photobooth capable of delivering photo ID for babies and young children – the “first of its kind” – is currently in development. LAUNDRY (UNATTENDED LAUNDRY SERVICES, LAUNDERETTES, B2B SERVICES) The Group owns and operates laundry units and has a presence in 12 countries, with operations primarily in France, the UK, Ireland, Belgium and Portugal. The expansion of our Laundry business, organically and by acquisition, remains the primary growth driver for the Group. Total Laundry units deployed (owned, sold and acquisitions) Total revenue from Laundry operations 30 April 2019 4,876 30 April 2018 4,449 % change +9.4% £43.7m £36.7m +19.0% REVOLUTIONS (EXCLUDES LAUNDERETTES AND B2B): Number of Revolutions in operation* Percentage of total Group vending estate (number of units) Total revenue from Revolutions Revolution capex 2,732 2,313 +18.1% 5.8% 5.0% +16.0% £27.6m £10.9m £21.2m £15.2m +30.2% -28.3% * There were 2,522 full-time units in operation during FY2019 compared with 2,031 in FY2018. 20 Total Laundry revenue grew by 19.0% year-on-year, despite a decrease in B2B Laundry revenue (-£3.6m), and represented 19.2% of total Group revenue in FY2019, up from 16.0% in the prior year and 10.0% in FY2017. This reflects the continued expansion of our Laundry operations, with 427 new units installed in the 2019 financial year, generating stable revenues. During the period we installed 45 units per month on average (including sales). The key geographies for growth continue to be the UK, Ireland, Portugal, France and Spain. The Group is looking to expand its presence in Germany (currently 20 units) and Austria (two units). We anticipate approaching 6,000 owned, sold and acquired laundry units by the calendar year 2020, subject to macro-economic factors outside of the Group’s control. And we continue to expect this business to contribute an increasing proportion of total Group revenue and profits. Our Laundry business comprises three areas of operation: Revolution, Launderette and business-to-business laundry services. Revolution is our 24-hour, outdoor, self-service laundry unit, which is typically located in high-footfall sites such as supermarket car parks and petrol station forecourts. Our strategy is to expand the estate through our partnerships with strategic site owners globally and identify and expand into new high-demand markets. The number of Revolution units in operation increased by 18.1%, with 2,732 machines operating as at 30 April 2019 (2018: 2,313). Total revenue from Revolution units increased by 30.2% year-on-year, and now represents 12.1% of our total vending estate compared with 9.2% in 2018, an increase of 2.9 percentage points. Revolution capex reduced year-on-year, reflecting the lower cost of production as well as the Group’s focus and discipline around identifying high-footfall locations where the Revolution units will be highly profitable, rather being wholly focused on the number of units deployed. PHOTO-ME INTERNATIONAL PLC These Speedlab units were transferred to Photomaton in France, were refurbished and then redeployed across the country to replace previous generation machines. The decrease in revenue is due to the removal of 491 kiosks related to the Photo-Me Retail restructuring programme in FY2018. Excluding this, Kiosks revenue has increased by 1.6%. OT H E R V E N D I N G E Q U I P M E N T The Group operates 9,621 (2018: 9,829) other vending units such as children’s rides (4,749 units), photocopiers (3,391 units) and amusement machines (455 units). These are typically an extension of our product range at sites where we have an existing relationship with the site owner. While this is not one of our three principal business areas, these machines are profitable and benefit from synergies relating to other areas of the business, such as our network of field engineers. Further details on financial and strategic progress in each of our three principal areas of operation are provided in the Review of Performance by Geography. Launderette shops are typically situated in or near to town centres where there is limited competition from other laundry services. Our aim is to continue to expand our launderette presence through an owned-and-operated model. La Wash, our Spanish laundrettes franchise company, which the Group acquired in May 2018, contributed revenue of £3.8 million and a profit before tax of £0.9 million, in accordance with our expectations. We are looking to build on our presence in Spain. Business-to-business (B2B) laundry services provides the distribution and leasing of laundry and catering equipment. Our B2B customers include institutions such as hospitals, care homes and universities. The growth strategy is to extend our presence both in the UK and into new territories through acquisitive growth. The Group’s B2B operations are currently focused in the UK, where overall trading became more challenging in the second half of the 2019 financial year. Year-on-year revenue declined 39.0% to £5.8 million (2018: £9.5 million), while underlying loss before tax declined to -£0.1m (2018: underlying profit before tax of £1.4 million). As previously announced, due to economic uncertainty, the Group experienced delays in orders that significantly affected the performance of this business. We believe this is a timing issue and that these orders will be recovered in FY2020. KIOSKS (HIGH-QUALITY DIGITAL PRINTING SERVICES) Our digital printing kiosks offer a wide range of print formats and personalised products that are competitively priced. Our latest generation kiosks – Speedlab cube and Speedlab bio – are fully integrated with all major social media networks and offer rapid and high-quality printing for customers. Our key geographic markets are France, the UK and Switzerland. Our strategy is to capitalise on our market-leading position by increasing our presence in high-footfall locations, extending the range of services in our kiosks and entering new geographies. Number of units in operation Percentage of total Group vending estate (number of units) Revenue Capex 30 April 2019 5,487 11.7% 30 April 2018 5,416 % change +1.3% 11.6% +0.9% £13.3m £2.3m £16.5m £3.4m -19.1% -32.4% Our kiosk business is profitable and the number of units in operation is growing. At the period end, the number of kiosks in operation had increased by 1.3%, following the completion of the relocation of kiosks from Photo-Me Retail shops in the UK as part of the 2018 restructuring programme. Upon relocation in France, revenue from these units increased by at least 15.0%. 21 ANNUAL REPORT 2019STRATEGIC REPORT C H I E F E X E C U T I V E ' S R E P O R T R E V I E W O F P E R F O R M A N C E BY G E O G R A P H Y Commentary on the Group’s financial performance is set out below, in line with the segments as operated by the Board and the management of Photo-Me. These segmental breakdowns are consistent with the information prepared to support the Board decision-making. Although the Group is not managed around product lines, some commentary below relates to the performance of specific products in the relevant geographies. Performance by geography Continental Europe UK & Republic of Ireland Asia Corporate costs Segment revenue Year to 30 April 2018 £m 121.1 63.7 45.0 229.8 Change² % +7.9% -16.9% -1.0% -0.7% 2019 £m 130.7 52.9 44.5 228.1 2018¹ £m 120.6 63.7 45.7 230 Segment operating profit Year to 30 April 2018 £m 31.9 10.4 5.4 47.7 (1.8) 45.9 Change² % +5.0% -32.2% -13.5% -1.9% +148.8% 7.0% 2019 £m 33.5 7.1 4.7 45.3 (2.6) 42.7 2018¹ £m 32.0 10.0 5.5 47.5 (1.6) 45.9 ¹ 2018 trading results of overseas subsidiaries converted at 2019 exchange rates ² Refers to change compared to reported results 3 Operating profit excludes results of associate Segment revenue Year to 30 April 2019 £228.1m Segment operating profit Year to 30 April 2019 £42.7m Continental Europe £130.7m +7.9% 2018: £121.1m 2018¹: £120.6m UK & Republic of Ireland £52.9 -16.9% 2018: £63.7m 2018¹: £63.7m Asia £44.5m -1.0% 2018: £45.0m 2018¹: £45.7m Continental Europe £33.5m +5.0% 2018: £31.9m 2018¹: £32.0m UK & Republic of Ireland £7.1m -32.2% 2018: £10.4m 2018¹: £10.0m Asia £4.7m -13.5% 2018: £5.4m 2018¹: £5.5m 150 120 90 60 30 2018 20181 2019 2018 20181 2019 2018 20181 2019 2018 20181 2019 2018 20181 2019 2018 20181 2019 ¹ 2018 trading results of overseas subsidiaries converted at 2019 exchange rates. 2 Refers to change compared with reported results. 3 Operating profit excludes results of associate 22 PHOTO-ME INTERNATIONAL PLC K E Y F I N A N C I A L S The Group reports its financial performance based on three geographic regions of operation: (i) Continental Europe; (ii) the UK & Republic of Ireland; and (iii) Asia. In Continental Europe, revenue grew by 7.9% and operating profit by 5.0%. The performance in the UK and Republic of Ireland was impacted by macro headwinds in the UK, which resulted in a revenue decline of 16.9% and a 32.2% decline in operating profit. The turnaround in Asia continued and, while revenue was down marginally, operating profit decreased by 13.5% including the impact of restructuring fees of £1.8m relating to the Japanese business. V E N D I N G U N I TS I N O P E R AT I O N S In Continental Europe, machine units increased by 2.8% with 266 laundry units, 193 photobooths and 67 kiosks. In the UK, 225 unprofitable photobooths were removed and an additional 85 Revolution machines were in operation at the period end. Following the restructuring programme, the number of units in Asia stabilised. Number of vending units in operation Continental Europe UK & Republic of Ireland Asia At 30 April 2019 At 30 April 2018 No of units 25,230 11,701 10,025 46,956 % of total 53.8 24.9 21.3 100 No of units 24,550 12,055 10,105 46,710 % of total 52.6 25.8 21.6 100 Change year-on-year Change % +2.8% -2.9% -0.8% +0.5% Number of vending units in operation Year ended to 30 April 2019 46,956 Percentage of total vending units in operation Year ended to 30 April 2019 Continental Europe 25,230 +2.8% 2018: 24,550 UK & Republic of Ireland 11,701 -2.9% 2018: 12,055 Asia 10,025 -0.8% 2018: 10,105 Continental Europe UK & Republic of Ireland Asia 53.8% 24.9% 21.3% 23 ANNUAL REPORT 2019STRATEGIC REPORTC H I E F E X E C U T I V E ' S R E P O R T R E V I E W O F P E R F O R M A N C E BY G E O G R A P H Y C O N T I N U E D C O N T I N E N TA L E U R O P E F I N A N C I A L P E R F O R M A N C E Continental Europe remains the largest revenue contributor to the Group. As at 30 April 2019, 53.8% of the Group’s total units in operation were situated in Continental Europe, compared with 52.6% in the prior year. Reported Revenue Year to 30 April 2019 £130.7m +7.9% Operating profit Year to 30 April 2019 £33.5m +5.0% This region contributed 57.3% of Group revenues for the year (2018: 52.7%) and 74.1% of Group operating profit before Corporate costs (2018: 66.9%). Looking forward, the acquisition of Sempa is expected to be earnings enhancing in the financial year ending 30 April 2020 and thereafter. In the financial year ending 30 April 2020, it is expected to contribute profit before tax of approximately £3.2 million at current exchange rates. ST R AT E G I C P R O G R E SS The Group remains in discussions with the French Government regarding the extension of its secure photo ID transfer technology to include photo ID for new passports and identification cards (91% of photobooths are enabled). Advanced discussions continued with the Dutch Government regarding the deployment of this technology for use in driving licences in the Netherlands, with 70 photobooths already upgraded with this technology. The Laundry business continued to perform well, including a first-time contribution from La Wash Group, which was acquired in May 2018 for a consideration of £4.4 million. The profit before tax of La Wash was £0.9 million in FY2019. The expansion of Revolution laundry operations in Portugal, France and Spain has continued and the Group is looking at the viability of the German and Austrian markets. The acquisition of Sempa during the period marks a significant new opportunity for the division, as Photo-Me becomes the leading player in the French self-service fresh juice equipment market, with plans to expand this offer into other countries in Europe via the Group’s existing commercial network. 24 PHOTO-ME INTERNATIONAL PLCU K & R E P U B L I C O F I R E L A N D F I N A N C I A L P E R F O R M A N C E ( I N C L U D I N G C O R P O R AT E ) The performance of this division was impacted by the macro environment, which generated ongoing consumer uncertainty during the financial year, in relation to the UK’s European Union exit negotiations and the tough trading conditions faced by retailers. Reported Revenue Year to 30 April 2019 £52.9m -16.9% Operating profit Year to 30 April 2019 £7.1m -32.2% A slowdown in consumer spending had a significant effect on earnings in the UK, which affected performance at a Group level. UK revenues in the first half were also temporarily impacted by the restructuring of Photo-Me Retail in the UK market in H2 2018. Photo-Me Retail now operates 241 kiosks, which generate very high revenue levels and the business is profitable. In Ireland the continued rollout of Laundry has delivered 64 new Revolutions, and revenue in the country increased significantly by 19.0% in FY2019. The UK & Republic of Ireland division contributed 23.2% of Group revenue in the 2019 financial year (2018: 27.7%), and 15.6% of operating profit before corporate costs (2018: 21.8%). Revenue was £52.9 million, representing a decline of 16.9% compared with the prior year. Operating profit was £7.1 million, down 32.2%. As at 30 April 2019, 24.9% of the Group’s total units in operation were situated in the UK and the Republic of Ireland (2018: 25.8%). ST R AT E G I C P R O G R E SS In its Identification business, the Group continued to focus on the rollout of secure digital upload technology for Irish Online Passport renewal and British passport renewals. In total, 51.0% of the photobooths are now enabled for UK passport renewals. Laundry continued to grow apace in the Republic of Ireland, with 64 units deployed in the period. Laundry revenues now account for 77.4% of the country’s total revenue (2018: 72.2%). 25 ANNUAL REPORT 2019STRATEGIC REPORTC H I E F E X E C U T I V E ' S R E P O R T R E V I E W O F P E R F O R M A N C E BY G E O G R A P H Y C O N T I N U E D AS I A F I N A N C I A L P E R F O R M A N C E The Group’s turnaround plan implemented in H2 2018, to address the significant challenges in the Japanese market, identified in the 2018 financial year, has proven highly effective. The business has recovered faster than initially expected and is performing well. Reported Revenue Year to 30 April 2019 £44.5m -1.0% Operating profit Year to 30 April 2019 £4.7m -13.5% Trading in the other countries in Asia remains strong. Asia contributed 19.5% of Group revenue (2018: 19.6%) and 10.3% of Group operating profit excluding corporate costs (2018: 11.3%). At constant currency, revenue was down marginally (-0.8%) and operating profit decreased by 13.5%, including the costs of restructuring the Japanese business. The restructuring programme in Japan was completed in the period, at a total cost of £1.8 million. Excluding this one-off cost, operating profit in Asia was £6.5 million compared to £5.4 million in FY2018, an increase of 20.2%. As at 30 April 2019, 21.3% of the Group’s total units in operation were situated in Asia, compared with 21.6% in the prior year. ST R AT E G I C P R O G R E SS While the photo identification market in Japan remains highly competitive, the Board continues to believe that there are growth opportunities, given Photo-Me’s dominant market position in the country. As a result, the Group intends to commence the deployment of its new units, which have a significantly lower production cost than the units deployed previously and will offer a 35.0% faster return on investment. 26 PHOTO-ME INTERNATIONAL PLCK E Y P E R F O R M A N C E I N D I C ATO R S ( K P I s) The Group measures its performance using a mixture of financial and non- financial indicators. The main objective of these KPIs is to ensure 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 Total Group revenue at actual rate of exchange Group profit before tax Underlying profit before tax EBITDA margin The EBITDA margin is a good indicator of improved profitability Gross takings (including Photo-Me Retail) Gross takings is an important indicator of the trend in our core vending business Performance 30 April 2019 30 April 2018 £228.1m £229.8m £42.6m £50.2m £44.1m £46.8m 31.4% 32.0% -0.7% +3.9% Increase in number of photobooths The increase in number of photobooths is a constant priority and a main driver for growth -142 +474 Increase in number of Laundry units (operated or sold) The increase in number of laundry units measures our penetration in markets where there is a significant potential for growth and strong profits +427 +1,198 F U T U R E P R O S P E C TS The Group will remain focused on driving profitability from its existing estate and investing in new and complementary products to extend the suite of services available through its established instant-service equipment network. There will be a strong focus on R&D, particularly as it relates to the Group’s fresh fruit juice offering and its entry into this highly attractive new market for the Group. We remain confident for the future. O U R T E A M At Photo-Me, our team is structured to reflect our entrepreneurial and creative heritage and is aligned to our business strategy and objectives. We are committed to nurturing talent within our teams and developing the next generation of leaders. This year the business has met with both challenges and successes. I would like to take this opportunity to specifically thank the teams who have worked so successfully on the recovery of our Japan operations to deliver strong results that give us real confidence in the future of this business. I would also like to acknowledge the ongoing hard work of our teams, which continue to meet the challenges of the UK market. In addition, I would like to welcome the Sempa team to Photo-Me. We look forward to replicating the success they have already achieved in France across the territories that Photo-Me operates, through the sharing of technological and industry expertise. 27 ANNUAL REPORT 2019STRATEGIC REPORT F I N A N C I A L R E V I E W The Group delivered a stable performance despite significant headwinds in the UK market, which impacted the financial performance of the UK and the Republic of Ireland region. Reported revenue declined by 0.7% to £228.1 million, supported by the continued growth of our Laundry operations in Europe and a strong recovery in Asia. R E V I E W O F O P E R AT I N G C O STS Operating costs were £185.5 million: Operating profit also declined by 7.0%. Staff costs were £48.9 million. The ratio of staff costs to revenue is 21.4% (2018: 22.5%). April 2019 £m 48.9 April 2018 £m 51.7 19.5 89.9 158.3 27.0 0.2 185.5 23.6 85.9 161.2 25.1 (2.4) 183.9 April 2018 (constant rate) £m 51.7 23.6 86.3 161.6 25.1 (2.4) 184.3 Staff costs Inventory costs Other operating costs Depreciation & amortisation Profit on disposal of fixed assets Operating costs E A R N I N G S P E R S H A R E Diluted earnings per share were 8.26 pence (2018: 10.60 pence), a decrease of 22.1%. Basic earnings per share were 8.27 pence (2018: 10.64 pence). TA X AT I O N The Group tax charge of £11.3 million corresponds to an effective tax rate of 26.6% (2018: 19.7%). The increase in the effective tax rate over last year is attributable to a one off catch up deferred tax charge in the Group’s French operations. The Group undertakes business in 18 countries worldwide, with most of the tax charge arising in France, Japan and the UK. In each jurisdiction in which the Group operates, operations are organised so that the Group pays the appropriate amount of tax at the right time, in accordance with local regulations, ensuring compliance with the Group’s tax policy and guidelines. D I V I D E N D S During the year, the Group paid dividends totalling £31.9 million, in respect of the interim and final dividends for the year ended 30 April 2018. The interim dividend for the year ended 30 April 2019 was 3.71 pence per share (2018: 3.71 pence), which was paid to shareholders on the register on 5 April 2019. Revenue EBITDA (excluding associates) Operating profit (excluding associates) Profit before tax Profit after tax April 2019 £m 228.1 April 2018 £m 229.8 69.7 42.7 42.6 31.3 The movements in turnover are outlined in the following table: Turnover at 30 April 2018 Change in core business revenue: Continental Europe The UK & Ireland Asia Impact of exchange rates Turnover at 30 April 2019 71.0 45.9 50.2 40.3 £m 229.8 10.1 (10.8) (1.2) 0.2 228.1 The decline in the profit before tax can be explained as follows: Profit before tax at 30 April 2018 Effect of acquisitions Changes in revenue Changes in costs Restructuring costs Profit on sale of former head office Increase in net finance income & other gains (Max sight gain, £3.7m) Impact of exchange rates Profit before tax at 30 April 2019 £m 50.2 0.9 (5.5) 2.8 0.8 (2.3) (4.2) (0.1) 42.6 28 PHOTO-ME INTERNATIONAL PLCSTAT E M E N T O F F I N A N C I A L P O S I T I O N The Group balance sheet can be summarised as follows: C AS H F LOW A N D N E T C AS H P O S I T I O N Non-current assets (excl. deposits) Current assets (excl. cash and deposits) Non-current liabilities (excl. borrowings) Current liabilities (excl. borrowings) Net cash Total equity Minority interests Total shareholders’ funds April 2019 £m 142.3 April 2018 £m 130.6 44.1 (11.1) (47.8) 16.3 143.8 (1.9) 141.9 48.0 (8.4) (52.0) 26.7 144.9 (1.6) 143.3 Opening net cash Cash generated from operations Taxation Net cash generated from operations Net cash used in investing activities Dividends paid net of shares issued Net cash utilised Impact of exchange rates Net cash outflow Closing net cash April 2019 £m 26.7 April 2018 £m 39.2 63.9 (6.2) 57.7 (36.4) (31.7) (10.4) – (10.4) 16.3 61.0 (8.3) 52.7 (39.9) (25.1) (12.3) (0.2) (12.5) 26.7 Following the payment of dividends of £31.9 million, shareholders’ funds at 30 April 2019 amounted to £141.9 million, a decrease of £1.4 million compared with the previous financial year-end. Non-current assets detailed are outlined in the following table: The net cash generated from operations improved by 9.5% in FY2019. The net cash used in investing activities decreased to £36.4 million (2018: £39.9 million). Closing net cash was £16.3 million. Outstanding debt of £69.3 million (2018: £33.7 million) was deducted from the closing net cash balance at 30 April 2019. Total cash and cash equivalents at 30 April 2019 were £84.6 million (2018: £58.7 million). At the end of April 2019, the Group’s net cash was £16.3 million (2018: £26.7 million), and could be split as follows: April 2019 £m 26.6 April 2018 £m 13.4 6.1 9.1 81.8 10.4 3.2 0.7 6.5 7.5 80.8 9.5 2.3 0.7 Goodwill R&D costs capitalised Other intangible assets Operating equipment Plant and machinery Land and buildings Investment property Investments Deferred tax assets Trade and other receivables 137.9 120.7 1.7 0.9 1.8 5.9 1.9 2.1 Balance at 30 April 2018 Cash flow Non-cash movements Total non-current assets (excl. deposits) 142.3 130.6 Balance at 30 April 2019 S E R G E C R A S N I A N S K I Chief Executive Officer & Deputy Chairman 17 July 2019 Cash and deposits £m 60.4 25.9 (0.7) 85.6 Borrowings £m (33.7) Net cash £m 26.7 (35.2) (0.4) (69.3) (9.3) (1.1) 16.3 29 ANNUAL REPORT 2019STRATEGIC REPORT P R I N C I PA L R I S KS Similar to any business, the Group faces risks and uncertainties that could impact the achievement of the Group’s strategy. These risks are accepted as inherent to the Group’s business. The Board recognises that the nature and scope of these risks can change; it therefore 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. E C O N O M I C NATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Global economic conditions Volatility of foreign exchange rates Economic growth has a major influence on consumer spending. A sustained period of economic recession could lead to a decrease in consumer expenditure in discretionary areas. The majority of the Group's revenue and profit is generated outside the UK, and the Group results could be adversely impacted by an increase in the value of sterling relative to those currencies. The Group focuses on maintaining the characteristics and affordability of its needs-driven products. The Group hedges its exposure to currency fluctuations on transactions, as relevant. However, by its nature, in the Board's opinion, it is very difficult to hedge against currency fluctuations arising from translation in consolidation in a cost-effective manner. R E G U L AT I O N S NATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Centralisation of the production of ID photos In many European countries where the Group operates, if governments were to implement centralised image capture for biometric passport and other applications, or widen the acceptance of self-made or home-made photographs for official document applications, the Group’s revenues and profits could be affected. The Group has developed new systems that respond to this situation, leveraging 3D technology in ID security standards, and securely linking our booths to the administration repositories. (Solutions are in place in France, Ireland, Germany, Switzerland and the UK; discussions in Belgium and the Netherlands). Furthermore, the Group also ensures that its ID products remain affordable and of a high quality. 30 PHOTO-ME INTERNATIONAL PLCNATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Brexit The UK’s referendum decision to leave the European Union (EU) (“Brexit”) will most probably lead to changes in regulations in the UK as well as to modifications to numerous arrangements between the UK and other members of the EU, affecting trade and customs conditions, taxation, movements of resources, etc. The Board is keeping the potential impacts of the referendum decision to leave the EU on all the Group’s operations under review. Any potential developments, including new information and policy indications from the UK Government and the EU, will be looked at carefully on a continual basis, with a view to enhancing the ability to take appropriate action targeted at managing – and, where possible, minimising – any adverse repercussions of Brexit. The specific impact of Brexit on the Group will depend on the details of the conditions of the break-up to be negotiated between the UK and the EU. The Board foresees that in the short-term the negative impact of the uncertainty overshadowing the general UK economy could also spill over into the Group’s UK operations. In the long-term, potential “re- nationalisation” of UK identity documents (including the conversion of the EU burgundy passports to the navy blue British version), as well as strengthened immigration regulations, could lead to increased requests for the Group’s secure identification products. Business rates Since early 2015, the Valuation Office Authority has been issuing significantly increased assessments for some of the Company’s estate, mainly photobooths and printing kiosks, and in some instances applying rates that the Company considers unreasonable. The census campaign led by the government is part of the well-publicised strategy to systematically increase the amount of tax collected through business rates. The business tax risk is limited to the Company’s operations in the UK. The Company has expensed the cost of the tax charge as reasonably estimated. The Company has engaged advisers to reduce its exposure to business rates. The Company has received advice that the vast majority of the affected estate should not be subject to business rates, and therefore it has systematically appealed before the Valuation Tribunal the assessments received, while negotiating with the authorities to reduce that exposure. The Company believes that, following the latest decision by the Upper Tribunal on 12 April 2017 in the ATM case, the risk should be capable of successful mitigation. Discussions are ongoing with the Valuation Office Agency on this matter. 31 ANNUAL REPORT 2019STRATEGIC REPORTST R AT E G I C NATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Identification of new business opportunities The failure to identify new business areas may impact the ability of the Group to grow in the long-term. Inability to deliver anticipated benefits from the launch of new products The realisation of long-term anticipated benefits depends mainly on the continued growth of the laundry business and the successful development of integrated secure ID solutions. Management teams constantly review demand in existing markets and potential new opportunities. The Group continues to invest in research in new products and technologies. The Group regularly monitors the performance of its entire estate of machines. New technology-enabled secure ID solutions are heavily trialled before launch, and the performance of operating machines is continually monitored. M A R K E T NATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Commercial relationships The Group’s major key relationships are supported by medium-term contracts. We actively manage our site–owner relationships at all levels to ensure a high quality of service. The Group continues to monitor the situation in both the French and the UK markets. The Group has well-established, long-term relationships with a number of site-owners. The deterioration in the relationship with, or ultimately the loss of, a key account would have an adverse, albeit contained, impact on the Group’s results, bearing in mind that the Group’s turnover is spread over a large client base and none of the accounts represent more than 1% of Group turnover. To maintain its performance, the Group needs to have the ability to continue trading in good conditions in France and the UK, taking into account the situation in these two countries. O P E R AT I O N A L NATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Reliance on foreign manufacturers The Group sources most of its products from outside the UK. Consequently, the Group is subject to risks associated with international trade. Extensive research is conducted into quality and ethics before the Group procures products from 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. 32 PHOTO-ME INTERNATIONAL PLCO P E R AT I O N A L ( C O N T I N U E D ) NATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Reliance on one single supplier of consumables Reputation The Group currently buys all its paper for photobooths from one single supplier. The failure of this supplier could have a significant adverse impact on paper procurement. The Board has decided to hold a strategic stock of paper, allowing for 6–10 months’ worth of paper consumption, to allow enough time to put in place alternative solutions. The Group’s brands are key assets of the business. Failure to protect the Group’s reputation and brands could lead to a loss of trust and confidence. This could result in a decline in our customer base. The protection of the Group’s brands in its core markets is sustained by products with certain unique features. The appearance of the machine is subject to high maintenance standards. Furthermore, the reputational risk is diluted as the Group also operates under a range of brands. The Group continues to invest in its existing estate to ensure that it remains contemporary, and in constant product innovation to meet customer needs. The Group also has a programme in place to regularly train its technicians. Product and service quality The Board recognises that the quality and safety of both its products and services is of critical importance and that any major failure will affect consumer confidence. T E C H N O LO G I C A L NATURE OF THE RISK DESCRIPTION AND IMPACT MITIGATION Failure to keep up with advances in technology The Group operates in fields where upgrades to new technologies are mission-critical. The Group mitigates this risk by continually focusing on R&D. Cyber risk: Third party attack on secure ID data transfer feeds The Group operates an increasing number of photobooths capturing ID data and transferring these data directly to government databases. The Group performs an ongoing assessment of the risks and ensures that the infrastructure meets the security requirements. 33 ANNUAL REPORT 2019STRATEGIC REPORTCORP ORATE RESPO NSI BI LI T Y STAT E M ENT H I G H L I G H TS P R O D U C TS ISO CERTIFIED ISO International Standards ensure that products and services are safe, reliable and of good quality. ECO -FRIENDLY The Revolution 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. P R I N C I PA L AC T I V I T I E S We believe that effective management of corporate responsibility can reduce risks and help us identify business opportunities. We prioritise our corporate responsibility activities based on three main drivers: o legal requirements and future policy trends; o customer, employee and investor preferences for corporate responsibility; and o cost savings and business efficiency USER -FRIENDLY Laundrettes EQUAL OPPORTUNITIES AND DIVERSITY o Fair and equitable policies and procedures for all o Support for employees who develop a disability – Retraining – Redeployment o Gender diversity We aim to ensure that our approach is consistent with the directors’ duty to promote the success of the Company, a legal requirement included in the Companies Act 2006. This duty is based on the principle of ‘enlightened shareholder value’. E M P LOY E E S H OW W E M A N AG E C O R P O R AT E R E S P O N S I B I L I T Y The Board is ultimately accountable for corporate responsibility. The Chief Operating 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’s internal audit programme operates 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, opportunities, or new information. EMPLOYEE ENGAGEMENT o Business networking o Notification of vacancies and policy updates o Monthly operational meeting for business leaders 34 PHOTO-ME INTERNATIONAL PLC P R O D U C TS H E A LT H & S A F E T Y DEDICATED EXPERTS o Network of trained service operators o Periodic safety inspections and tests o Call centres provide customer assurance and within 24-hour service o New product assessments CE MARKING Confirms that our products comply with all health, product safety and environmental protection. Photobooths: CE Marking (RoHS2) Children’s rides: BACTA CE Marking (RoHS2) ACCREDITED CONTRACTOR o Safe Contractor accreditation managed by Alcumus and Altius o Assured award BUYER -FRIENDLY Equipment E M P LOY E E S E N V I R O N M E N T EQUAL OPPORTUNITIES AND DIVERSITY o Fair and equitable policies and procedures for all o Support for employees who develop a disability – Retraining – Redeployment o Gender diversity GREEN AWARENESS We actively work to decrease energy use and demand for natural resources. MONITOR POWER CONSUMPTION o Automatic shut down of units when not in use o Remote telemetry reduces the number of service visits and consumables o Use of low-energy lamps o Use of energy-efficient flat screen technology RECYCLING POLICY We recover, refurbish and re-sell our electrical equipment. 35 ANNUAL REPORT 2019STRATEGIC REPORT C O R P O R AT E R E S P O N S I B I L I T Y STAT E M E N T C O N T I N U E D 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 INCREASED CUSTOMER EXPECTATIONS, INCLUDING ENVIRONMENTAL, HEALTH AND SAFETY, AND ACCESSIBILITY ISSUES. To ensure 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, ISO 9001 standard certification has been achieved. T H E R E V O L U T I O N U N I TS A R E E C O - F R I E N D LY: o The built-in washing liquid pump provides the ideal quantity for each washing cycle and reduces waste o The highly concentrated washing liquid, free of phosphates, colouring agents and preservatives, meets the French OCERT standard. Ecological, effective low-temperature and without allergen, this washing liquid naturally perfumes the linen o The boiler only heats the water when the dryer is not in operation o The energy-saving dryer reduces power consumption. o LED lights use less energy than standard lighting o The launderette only requires 13KW (compared with 30KW for a classical launderette) T H E Y A R E A L S O U S E R - F R I E N D LY o The launderettes comply with CE standards and the new decree N°2012-412 practical since 1st July 2012 o Accessibility for our disabled customers has been a priority in the design of this launderette from the outset. The machines and touchpads are located at the legally required height, thus combining a beautiful design with easy access for our customers o As an added service to the customer, a built-in pump releases a specially designed neutral and mild washing liquid with a pleasant fragrance. This also helps ensure the machines are kept clean and tidy o Equipped with high capacity professional washing machines (8 and 18kg), the user can wash and dry large or heavy loads such as duvets, blankets and pillows in a record time of 30 minutes per washing cycle o Customers can enter their mobile number at the point of payment and an SMS will be sent to alert them 5 minutes before the end of the cycle o This free service is convenient for customers who might use this waiting time for shopping o Thanks to the touch screen, the payment station is easy to use by following the on-screen instructions o Besides the coin and bill acceptor, the credit card payment is available as an option. It is a service which facilitates the use of the launderette and thus increases its use 36 T H E Y A R E A L S O B U Y E R - F R I E N D LY o Floor space used is less than 5m² – relatively little for a new innovative service o Low installation cost o The launderette is delivered fully assembled and cabled, and can be installed in half a day o Thinner power cables (due to low power), thus cheaper In consideration of global concerns regarding the disposal of waste and increasing metal prices and landfill costs, we have focused more attention on the re-use and recycling of our retired products. Currently, more than 90% by weight of the materials used in our photobooths, mostly steel and other metals, is recycled at the end of their product lifecycle. In light of our concerns regarding increased energy costs and man-made impact on climate change, we have 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 to us. This drives a continual review of our products and the development of solutions to meet these needs. For example, we have improved services offered to customers with disabilities, and complied with the Equality Act 2010 by introducing on-screen instructions within our photobooths for hard- of-hearing customers, and voice instructions and carefully selected screen colours and font sizes for customers with visual impairments. In addition, the development of the universal photobooth enables access for wheelchair users. PHOTO-ME INTERNATIONAL PLCEMPLOYEES THE COMPANY’S EMPLOYEES ARE A VALUED INTEGRAL PART OF THE BUSINESS AND THE COMPANY’S ABILITY TO ACHIEVE 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 to encourage employee engagement, and to enthuse and inspire its workforce through a network of media such as: o business networking tools to encourage synergies among colleagues and businesses, sharing ideas and best practices; o internal notification of vacancies and policy updates; and o monthly operational meetings for business leaders across the Group to engage with colleagues, providing business and local updates. Encouraging interactive feedback to ensure business leaders are kept informed of the Group’s performance and of the financial and economic factors affecting Company and Group performance While it has adopted a decentralised Group management approach, the Company nurtures a common culture among its workforce throughout the entire Group through openness, honesty and the pursuit of a universal goal that focuses on core corporate values. We do everything in our power to support and protect human rights. As a responsible company with operations across the world, we believe that strong ethics and good business go hand-in-hand. We commit to complying with the laws and regulations of the countries and jurisdictions in which we operate. E Q U A L O P P O R T U N I T I E S A N D D I V E R S I T Y The Company is an equal opportunities employer and is committed to ensuring equal career opportunities for all its employees without discrimination, and pursuing fair and equitable policies and procedures for recruitment, training and development. Full consideration is accorded to all applications from persons with disabilities, with due regard to their aptitudes and abilities. The Company ensures that, wherever possible, employees who develop a disability during their engagement can continue their employment through a supportive mechanism of retraining, redeployment and reasonable adjustments where practicable, 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 persons with disabilities. G E N D E R D I V E R S I T Y The table below shows the gender diversity of the Group’s employees at 30 April 2019 with corresponding figures for the previous year: AS AT 3 0 A P R I L 2018 Total Male Female The Board of Photo-Me 6 5 Senior managers in the Group (excluding directors of Photo-Me) Employees (excluding above) Total 18 17 1,106 1,130 922 944 1 1 184 186 AS AT 3 0 A P R I L 2019 Total Male Female The Board of Photo-Me 7 6 Senior managers in the Group (excluding directors of Photo-Me) Employees (excluding above) Total 17 14 1,116 1,140 932 952 1 3 184 188 37 ANNUAL REPORT 2019STRATEGIC REPORT C O R P O R AT E R E S P O N S I B I L I T Y STAT E M E N T C O N T I N U E D HEALT H AN D SAFE T Y Within the UK, the general manager fully supports the health and safety policy and ensures there is provision on the agenda of regular senior executive meetings to address health and safety matters. Policies and procedures developed over the years continue to be reviewed and adjusted as part of the process of continual improvement and keeping pace with legislative advances. To achieve the standard of health and safety performance to which the Company aspires, we believe that it is important to empower individuals at all levels and equip them with the tools and skills they require by providing relevant training and information. The Company continues to improve its employee-induction process and has introduced an alternative online training system supplied by Essential Skillz in 2014 to teach and refresh employee skills as required. That database showed over 4,000 training sessions and 70% compliance with the training plan. The Company continues to maintain its membership of the British Safety Council and is also a member of the CE Marking Association. In addition to demonstrating our commitment to best safety and environmental practice and consistent improvement, these ongoing partnerships enable us to access expert advice and quality training resources to assist us in achieving these goals. In the UK, the Company is accredited under two safe contractor schemes, one managed by Alcumus and the other by Altius, and has also received an assured Vendor award. This accreditation is reviewed annually and requires all Health and Safety policies and procedures to be audited by the scheme. 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. 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. Our 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 can raise any safety concerns directly through our call centres, which 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 relevant safety standards before being launched in the market. We work with our suppliers where appropriate, sharing the benefit of our many years’ experience of developing products to the highest standard of safety. Photobooth security is managed by a multipoint locking system with either one or two security padlocks depending on the 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 Amusement Device Inspection Procedures Scheme (ADIPS) standards. Children’s rides manufactured by Jolly Roger (Amusement Rides) Limited, a Group subsidiary company in the UK, are produced in accordance with industry guidance issued by the British Amusement and Catering Trades Association (BACTA) and conform to CE marking confirming RoHS2 product compliance. 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 ADIPS Scheme administered by BACTA and enables its qualified operatives to inspect children’s rides and issue the required safety certification. 38 PHOTO-ME INTERNATIONAL PLCE NVIRONMENT THE COMPANY RECOGNISES ITS RESPONSIBILITY TOWARDS THE ENVIRONMENT AND THE IMPACT OF ITS BUSINESS ACTIVITIES. The main risks to the business in this area arise from increased legislation and the rising cost of waste disposal. The Company has mitigated its exposure to these risks by: o consistently reducing, in previous years, the amount of waste produced, although in recent years our UK operations saw an increase in packaging waste due to the acquisition of the ASDA Photo Centre business; o 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 generates 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: 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 for 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. G R E E N H O U S E G AS ( G H G ) E M I SS I O N S Reporting of GHG emissions As of 1 October 2013, all quoted companies must report 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. o the ability to automatically shut down (and restart) photobooths during closing hours which saves approximately 30% of power consumption on site; The Group is required to report the emissions it is responsible for (as defined below), and to provide at least one ‘intensity ratio’ together with an explanation of methodology used. o the use of remote telemetry systems to minimise the number of service visits and reduce wastage of consumables; o 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; and o the replacement of most old CRT monitors with new flat screen technology which is more energy-efficient and eliminates associated hazardous waste In the table below, the Group has not reported fugitive emissions (which include leakages from refrigerants used in air conditioning units, etc.) because no data were available and, given the low number of such units in the Group, management did not consider such emissions to be material. Emissions from Scope 1 Scope 1 – travel costs Scope 1 – gas Scope 2 Scope 2 – operating estate Scope 2 – electricity, heat, steam or cooling Total emissions Intensity ratio Year ended 30 April 2019 Year ended 30 April 2018 Tonnes of CO2e Tonnes of CO2e 3,513.50 2,895.21 618.29 20,761.34 20,350.90 410.44 4,547.14 4,048.94 498.20 18,938.35 18,515.86 422.49 24,274.84 23,485.49 Per number of units of operating equipment 0.51592 0.50227 39 ANNUAL REPORT 2019STRATEGIC REPORTC O R P O R AT E R E S P O N S I B I L I T Y STAT E M E N T C O N T I N U E D ASS E SS M E N T PA R A M E T E R S CONSOLIDATION APPROACH The figures on the previous page are based on subsidiary companies owned by Photo-Me, except for those non-material subsidiary companies (mainly new start-up ventures) whose vending estate comprises less than 50 machines. 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 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 Department of Business, Energy & Industrial Strategy, 2016 GHG Conversion Factors for Company Report (2016: DEFRA 2014). METHODOLOGY The Company followed the Greenhouse Gas Protocol Corporate Standard. MATERIALIT Y 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 heating, lighting and power is less than £50,000 per annum per site. INTENSIT Y RATIO As explained below. S C O P E 1 E M I SS I O N S The main components of these emissions are: o Emissions from motor vehicles operated by the Group, including service and installation personnel (servicing and maintaining the operational estate etc.) and administrative staff o Natural gas consumption on the Group’s premises S C O P E 2 E M I SS I O N S The main components of these emissions are: o Purchased electricity for use on 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. In those instances, emissions are controlled by third parties o Emissions from vending equipment The Group’s chosen intensity ratio for external reporting is calculated by dividing total emissions by the average number of units of operating equipment during the year for the reporting companies. 40 PHOTO-ME INTERNATIONAL PLCVIABILIT Y STATEM ENT THE DIRECTORS HAVE ASSESSED THE VIABILITY AND PROSPECTS OF THE GROUP IN ACCORDANCE WITH THE REQUIREMENTS 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 2022 This assessment included stress tests on the future performance and solvency for changes in the base assumptions over the three years and also for the principal risks facing the business in severe but plausible combination scenarios together with the effectiveness of any mitigating actions. Consideration has also been given to the risk of regional changes such as Brexit; however, the Board believes that having diverse geographical operations means that the Group is less susceptible to the effects of regional changes. 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. D E L M A N S I Company Secretary 17 July 2019 41 ANNUAL REPORT 2019STRATEGIC REPORTC O R P O R A T E G O V E R N A N C E 44 BOARD OF DIRECTORS AND COMPANY SECRETARY 45 REPORT OF DIRECTORS 48 CORPORATE GOVERNANCE 52 REMUNERATION REPORT 65 STATEMENT OF DIRECTORS’ RESPONSIBILITIES B OA R D O F D I R E C TO R S A N D C O M PA N Y S E C R E TA RY 1 Sir John Lewis OBE Non-executive Chairman 3 Eric Mergui Chief Operating Officer 5 Françoise Coutaz-Replan Non-executive Director Joined the Board in 2008 and appointed Chairman in 2010. Chairman of the Nomination Committee and a member of the Audit and Remuneration Committees. Until early 2019, a Consultant to Eversheds Sutherland LLP (as now is), and currently a Director of AIM market company, Prime People plc, as well as various private companies. Previously a practising Solicitor and Partner in Lewis, Lewis & Co – which became part of Eversheds Sutherland LLP (as now is) after a series of mergers. 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. 2 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. Appointed to the Board in May 2018. Eric Mergui joined the Group in 1995 and was appointed Chief Operating Officer in 2015. Before this, Mr Mergui headed up Photo-Me’s European operations and oversaw the development of Photo-Me’s business in China. 4 Yitzhak Apeloig Non-executive Director 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 Atreyu Capital Markets Ltd (both 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. Appointed to the Audit Committee on 20 October 2016. 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 Audit Committee on 20 October 2016. 6 Jean-Marcel Denis Non-executive Director 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 Associés (ACA), and sold his interest in ACA in 2005. Subsequently a consultant in Finance & Conseils Associés, which specialises in business valuations. 7 Emmanuel Olympitis Non-executive Director 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. 8 Del Mansi Company Secretary Joined the Group in 2006. A qualified solicitor, he served as interim Company Secretary from April to July 2008. Appointed Group General Counsel in 2009, a role retained on being appointed Company Secretary in May 2013. 7 2 4 8 3 1 5 6 44 P H O T O - M E I N T E R N AT I O N A L P L C R E P O R T O F D I R E C TO R S 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 2019. 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. P R I N C I PA L AC T I V I T I E S 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 pages 138 to 139. The Group entered the self-service fresh fruit juice equipment market in April 2019, with the acquisition of SEMPA Sarl. The Board believes this will become a key business area alongside Identification, Laundry and Kiosks, and be a significant part of the Group’s future growth strategy. R E S U LTS A N D D I V I D E N D S The results for the year are set out in the Group Statement of Comprehensive Income on page 74. The directors recommend a final dividend of 4.73 p per ordinary share which, if approved at the Annual General Meeting (AGM) on 3 October 2019, will be paid on 8 November 2019 to shareholders listed on the register at the close of business on 18 October 2019. The ex-dividend date will be 17 October 2019. This, together with the interim dividend of 3.71p paid on 10 May 2019, makes a total dividend for the year of 8.44p per ordinary share. R E V I E W O F B U S I N E SS A N D F U T U R E D E V E LO P M E N TS 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. R E S E A R C H A N D D E V E LO P M E N T 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 of the financial statements. E M P LOY E E S Information on the Company’s employment practices including: its policy regarding applications for employment by persons with disabilities; the continuing employment of employees who have developed disabilities; and the training, career development and promotion of persons with disabilities employed by the Company, as well as employee communication and involvement, is contained within the Corporate Responsibility Statement on page 37, forming part of this report. C O R P O R AT E R E S P O N S I B I L I T Y 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 2019, can be found in the Corporate Responsibility Statement on pages 34 to 40. B OA R D O F D I R E C TO R S A N D T H E I R I N T E R E STS The current directors of the Company are: Sir John Lewis Chairman, member of the Audit and Remuneration Committees, and Chairman of the Nomination Committee Serge Crasnianski Chief Executive Officer and Deputy Chairman Eric Mergui Chief Operating Officer 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 and a member of the Audit Committee Jean-Marcel Denis Chairman of the Audit Committee and a member of the Nomination and Remuneration Committees Yitzhak Apeloig Non-executive Director and member of the Audit Committee Further details, together with a brief biography of each director, can be found on page 44. Apart from Eric Mergui, who was appointed director on 2 May 2018, 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; 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. Details of the directors’ contracts, emoluments and interests in shares and share options are given in the Remuneration Report on pages 52 to 64. 45 ANNUAL REPORT 2019CORPORATE GOVERNANCER E P O R T O F D I R E C TO R S C O N T I N U E D D I R E C TO R S ’ A N D O F F I C E R S ’ L I A B I L I T Y I N S U R A N C E 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. S U B STA N T I A L S H A R E H O L D E R S As of 5 July 2019, the Company had been notified of the following disclosable interests in the ordinary shares of the Company: Number of ordinary shares % of total voting rights Nature of holding Serge Crasnianski (Director) 84,546,951 22.38 Direct*/Indirect Schroders plc – 14.0471 Dan David Foundation 42,742,775 FIL Investment International 38,053,255 11.32 10.07 Indirect Direct Indirect * Except for 63,750 ordinary shares held in his 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 had 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 S H A R E C A P I TA L 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 of the financial statements. Each ordinary share of the Company carries one vote at general meetings of the Company. R E P O R T O F D I R E C TO R S ’ C O N T I N U E D A U T H O R I T Y TO P U R C H AS E S H A R E S Pursuant to a resolution passed at its 2018 AGM, the Company is authorised to purchase its own shares in the market. The Company will seek approval at the 2019 AGM 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 that 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 as stipulated by the Regulatory Technical Standards and adopted by the European Commission under Article 5 (6) of the EU Market Abuse Regulation 2014. This authority will expire on the earlier of 15 months from the passing of the relevant special resolution or the conclusion of the following AGM. The Company made no repurchases of shares in the year ended 30 April 2019. A D D I T I O N A L I N F O R M AT I O N 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 that 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 appointments 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. 46 PHOTO-ME INTERNATIONAL PLCThe rules governing the appointment of directors are set out in the Corporate Governance Statement on pages 48 to 51. 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 terminated by the site owners following a change of control of the Company. G O I N G C O N C E R N 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. 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 that are essential to its business which ought to be disclosed in this Report of the Directors. D I S C LO S U R E O F I N F O R M AT I O N TO T H E A U D I TO R The directors who held office at the date of approval of this Report of the Directors confirm that: As far as they are each aware, there is no relevant audit information of which the Company’s auditor (Grant Thornton UK 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. R E L AT E D - PA R T Y T R A N S AC T I O N S Details of related-party transactions are set out in note 28 to the financial statements. F I N A N C I A L I N ST R U M E N TS 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. A N N U A L G E N E R A L M E E T I N G The Company’s AGM this year will be held at noon on 3 October 2019 at the offices of Hudson Sandler LLP, 25 Charterhouse Square, London, EC1M 6AE. Notice of the AGM 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. Hard copies of this Annual Report are sent only to shareholders who have requested or request a copy. P O L I T I C A L D O N AT I O N S No member of the Group made any political donations during the year ended 30 April 2019. By order of the Board D E L M A N S I Company Secretary 17 July 2019 47 ANNUAL REPORT 2019CORPORATE GOVERNANCEC O R P O R AT E G OV E R N A N C E STAT E M E N T O F C O M P L I A N C E W I T H T H E U K C O R P O R AT E G OV E R N A N C E C O D E The Financial Conduct Authority requires listed companies incorporated in the UK 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 2019, complied with those provisions of the September 2016 edition of the Code that are applicable to it, except for the following, which is dealt with in more detail below: Ms Coutaz-Replan is a member of the Audit Committee, although she is not considered to be independent. The Code and associated guidance are available on the Financial Reporting Council website at https://www.frc.org.uk/directors/corporate-governance-and- stewardship/uk-corporate-governance-code. Explanations of how the principles have been applied and the provisions complied with are set out below. T H E G R O U P ’S B U S I N E SS M O D E L A N D ST R AT E G Y The Group’s business model and strategy are summarised in the strategic report, 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. T H E B OA R D B OA R D C O M P O S I T I O N Throughout the year under review, the Board comprised 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 with the Company, namely Françoise Coutaz-Replan. Ms Coutaz-Replan resigned as an employee of the Group in August 2015. On 2 May 2018, Mr Eric Mergui was appointed to the Board as Chief Operating Officer; he is not considered independent. P H OTO - M E G R O U P B O A R D AUDIT COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE T H E C H A I R M A N The Chairman has the overall responsibility for managing the Board. The Chief Executive Officer has responsibilities for strategy, operations and results. The Chief Operating Officer has responsibility for the day-to-day operation of the Group and routinely reports to the Chief Executive Officer. A 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, Sir John Lewis served as Chairman and Serge Crasnianski served as Chief Executive Officer and Deputy Chairman. In the Board’s opinion, even though Sir John Lewis has been a Director since 2008 and Chairman since 2010, it is proposed that he remain in place for the time being. D I R E C TO R I N D E P E N D E N C E 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. Although Mr Olympitis has been a Director since December 2009, he is considered by the Board as independent on the basis that he continues to demonstrate total independence in his behaviour and in his interaction with the rest of the Board. In the case of Mr Apeloig, he is an experienced non executive director and a qualified accountant. He is also managing partner of ATE Technology Equipment b.v., a controlling shareholder in The Dan David Foundation which is a substantial shareholder in the Company. The Board considers him to be independent because he continues to demonstrate independence in his behaviour and in his interaction with the rest of the Board. T H E S E N I O R I N D E P E N D E N T D I R E C TO R 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 whom 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. However, with a view to complying with the requirements of the 2018 edition of the Corporate Governance Code (to whose provision the Company became subject as of 1 May 2019), at this year’s annual general meeting, all directors will stand for re-election. D I R E C TO R S ’ C O N F L I C TS O F I N T E R E ST 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. B OA R D E VA L U AT I O N The Chief Executive Officer and the Chairman review the performance of other Executive Directors. The Chairman reviews the performance of the Chief Executive, Chief Operating Officer and each Non-executive 48 PHOTO-ME INTERNATIONAL PLC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. N U M B E R O F M E E T I N G S H E L D J Lewis S Crasnianski E Mergui Y Apeloig F Coutaz-Replan J-M Denis E Olympitis BOARD AUDIT COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE 5 5(5) 5(5) 5(5) 5(5) 5(5) 5(5) 5(5) 7 7(7) n/a n/a 7(7) 7(7)* 7(7)* 7(7) 1 1(1) n/a n/a n/a n/a 1(1) 1(1) 1 1(1) n/a n/a n/a n/a 1(1) 1(1) O P E R AT I O N O F T H E B OA R D The Board is normally scheduled to meet in person four or five times a year, with ad hoc meetings (including by way of conference calls) convened to deal with urgent matters. The Board has a formal schedule of matters reserved to it for decision. These include the 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 met once in the year under review in connection with a proposed new appointment to the Board). The Committees 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 that are available on the Company’s website (www.photo-me.co.uk). Decision-making relating to operational matters is delegated to the Chief Operating Officer and 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. Regular communication between the directors also takes place outside the formal forum of Board/Committee meetings. B OA R D C O M M I T T E E S T H E A U D I T C O M M I T T E E 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 Sir John Lewis (Chairman of the Board) served on the Committee; Françoise Coutaz-Replan (the Group’s former Finance Director) and Yitzhak Apeloig (who is a qualified accountant) were appointed to the Committee on 20 October 2016. The composition of the Committee was compliant with the Code, to the extent the Code permits a smaller company’s Chairman to be a member of the Audit Committee providing he was considered independent on appointment as Chairman, however, it was not Code-compliant to the extent that Ms Coutaz-Replan is not independent. Nonetheless, the Board considers Ms Coutaz-Replan an invaluable support, given her knowledge of the systems and processes gained when she was the Group’s Finance Director from September 2009 until August 2015. The Board considers that Emmanuel Olympitis, Jean-Marcel Denis, Françoise Coutaz- Replan and Yitzhak Apeloig have suitable recent and relevant financial experience to satisfy the requirements of the Code. Meetings are normally held at least twice a year. Seven meetings were held during the year under review. Other directors, 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. E X T E R N A L A U D I TO R The Audit Committee meets with the external auditor, without executive directors present, at least twice 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 the audit and non-audit fees are provided in note 4 to the financial statements. 49 ANNUAL REPORT 2019CORPORATE GOVERNANCEC O R P O R AT E G OV E R N A N C E C O N T I N U E D Grant Thornton UK LLP has been the external auditor of the Group since the Annual General Meeting in October 2018. 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 Grant Thornton UK LLP’s re-election as auditor for the coming year. The Board is committed to putting the audit contract out to tender at least once every 10 years. It conducted a tender process for the external audit role in 2018 in which it invited three firms to tender for the role of external auditor; Grant Thornton UK LLP was the successful tenderer. K E Y M AT T E R S C O N S I D E R E D During the last financial year, the Committee conducted a tender of the external audit function, as described above. It also met to review the interim 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 2019. In July 2019, 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: o The integrity, completeness and consistency of financial reporting, including the adequacy, clarity and appropriateness of disclosures o The areas where significant judgments and estimates are required in the financial statements o 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 o The materiality level to apply to the audit o 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: o 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 2017 and the Committee considered the conclusions and sensitivity calculations that had been undertaken as part of the review. o 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. o 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 and the achievability of the forecasts as compared with the past performance, as well as the impact of external changes in markets or regulations. The Committee’s Terms of Reference are available on the Company’s website. T H E R E M U N E R AT I O N C O M M I T T E E During the year under review, the Remuneration Committee comprised Emmanuel Olympitis (Committee Chairman), Jean- Marcel Denis (Chairman of the Audit Committee) and Sir 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 or she was considered independent on his or her appointment as chairman, which was the case. The Committee meets at least once per year. It met once in the year ended 30 April 2019. 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. T H E N O M I N AT I O N C O M M I T T E E During the year under review, the Nomination Committee comprised Sir 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 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. 50 PHOTO-ME INTERNATIONAL PLCI N T E R N A L C O N T R O L A N D R I S K M A N AG E M E N T I N R E L AT I O N TO T H E F I N A N C I A L R E P O R T I N G P R O C E SS The Group has a thorough assurance process in place in respect of the preparation, verification and approval of periodic financial reports. This process includes: o The involvement of qualified, professional employees with an appropriate level of experience (both in Group finance and throughout the business) o Formal sign-offs from appropriate business segment Managing Directors and Finance Directors o Comprehensive review and, where appropriate, challenge from key internal Group functions o A transparent process to ensure full disclosure of information to the external auditor o Engagement of a professional and experienced firm as external auditor o Oversight by the Audit Committee, involving (amongst others): (i) A detailed review of key financial reporting judgments that have been discussed by management (ii) 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, plus 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, provides 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. S H A R E H O L D E R C O M M U N I C AT I O N A N D E N G AG E M E N T The Chief Executive Officer has regular meetings with the Company’s major institutional shareholders to help ensure, amongst others, 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. AC C O U N TA B I L I T Y A N D I N T E R N A L C O N T R O L 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 generally satisfied 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 that 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 that 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 both the internal auditor and 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. 51 ANNUAL REPORT 2019CORPORATE GOVERNANCE A N N U A L STAT E M E N T D I R E C TO R S ’ R E M U N E R AT I O N R E P O R T Dear Shareholder, I am pleased to present the Directors’ Remuneration Report for the year ended 30 April 2019, which has been prepared by the Remuneration Committee (“the Committee”) and approved by the Board. This report has been prepared in line with all relevant legal requirements, including the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). T H E R E P O R T I S D I V I D E D I N TO T H R E E S E C T I O N S : o This Annual Statement, which summarises remuneration outcomes in 2018/19 and how the Remuneration Policy will be operated in 2019/20 o The Remuneration Policy Report, which details the Company’s policy on the remuneration of executive and non-executive directors, which was last approved by shareholders at the 2017 AGM o The Annual Report on Remuneration, which discloses details of the Committee, how the Remuneration Policy was implemented in the year ended 30 April 2019, and how the policy will operate for the year ending 30 April 2020 As no changes are being proposed to the Remuneration Policy, only the Annual Statement and Annual Report on Remuneration will be subject to a vote at the forthcoming 2019 AGM. This will be an advisory vote. R E M U N E R AT I O N O U TC O M E S I N 2018/ 19 The performance of the Group is summarised on pages 4 to 41 and in the financial statements, on pages 74 to 142. In light of this year’s results, the Committee has determined that no annual bonus should be payable to the CEO or COO in respect of the financial targets. While no bonus was awarded to the CEO in respect of performance against his personal/strategic targets, the COO was awarded a bonus of 63% of salary for the year just ended, based on performance against personal/strategic targets set by the CEO (noting that the COO was appointed to the Board following the start of the 2018/19 financial year and that subsequent bonus targets will be set by the Committee). Further details of the bonus award and targets are set out in the Annual Report on Remuneration. Based on EPS performance over the three years to 30 April 2019, 27.92% of the share options granted to the COO in 2016 will vest this month. No such awards were granted to the CEO. The Committee takes an active interest in shareholder views on our executive Remuneration Policy and is mindful of the concerns of shareholders and other stakeholders. E M M A N U E L O L Y M P I T I S Chairman of the Remuneration Committee 52 PHOTO-ME INTERNATIONAL PLCI M P L E M E N TAT I O N O F T H E R E M U N E R AT I O N P O L I C Y F O R 2019/20 The Committee proposes to operate the Remuneration Policy for the CEO and COO for the year ending 30 April 2020 as follows: U S E O F D I S C R E T I O N In determining remuneration outcomes for the year ended 30 April 2019, the Committee has not exercised discretion (positive or negative). o Following a review of the Executive Directors’ salaries, the CEO’s annual base salary was increased for the current year by 2.05% in line with inflation. There will be no increase to the COO’s salary. As such, the current base salary levels for the CEO and COO are £551,960 and £474,946, respectively o Benefit and pension provision will be in line with the approved Remuneration Policy o Annual bonus will continue to be capped at 150% of salary, with targets based on year-on-year pre-tax profit growth for a majority of the bonus and a number of key personal/strategic targets for a minority of the bonus. The bonus targets and performance against those targets will be disclosed retrospectively in next year’s Directors’ Remuneration Report o The Committee is intending to grant an award of share options over 150% of salary to both the CEO and the COO with vesting, subject to three-year EPS performance targets and continued service. While the Committee did consider scaling back award levels in light of share price performance over the past year, the Committee does not feel that this is necessary or appropriate in light of the relatively modest award level (noting that these awards are structured as market-value options rather than nil or nominal cost awards) and noting that no awards were granted to the COO in 2018 S H A R E H O L D E R E N G AG E M E N T The Committee takes 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 the Company’s voting results at the 2017 AGM (approval of the current Remuneration Policy) and the 2018 AGM (Annual Statement and Remuneration Report), with both resolutions supported by a significant majority of shareholders. In conclusion, the Committee believes that the Company’s Remuneration Policy continues to be aligned with the Company’s strategic objectives of delivering shareholder value and supporting the long-term success of the Company. That said, as the current Remuneration Policy will reach the end of its three-year term next year, the Committee will carry out a detailed review of the Remuneration Policy in advance of the 2020 AGM. E M M A N U E L O L Y M P I T I S Chairman of the Remuneration Committee 17 July 2019 In light of this year’s results, the Committee has determined that no annual bonus should be payable to the CEO or COO in respect of the financial targets. 53 ANNUAL REPORT 2019CORPORATE GOVERNANCER E M U N E R AT I O N P O L I C Y R E P O R T THE POLICY SET OUT BELOW WAS APPROVED BY SHAREHOLDERS AT THE 2017 AGM AND WILL REMAIN IN FORCE UNTIL THE 2020 AGM. 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. 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 that prevents it from taking into account ESG matters, nor do these remuneration structures encourage inappropriate operational risk-taking. PERFORMANCE MEASURES N/A S A L A RY PURPOSE AND LINK TO STRATEGY OPERATION MAXIMUM Reflects the value of the individual and their role Normally reviewed annually, effective 1 May Reflects skills and experience over time Normally paid in cash; pensionable Provides an appropriate level of basic fixed income, avoiding excessive risk arising from over-reliance on variable income Comparison against companies with similar characteristics and comparators taken into account in review The Committee is guided by the requirements of the Company and prevailing market levels However, no executive director will receive a base salary increase in excess of 10% p.a., except to reflect the fact that their salary was set at a lower level initially, with the intention that the salary be increased to a more market- reflective level as the individual gains experience (subject to performance) B E N E F I TS PURPOSE AND LINK TO STRATEGY 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 PERFORMANCE MEASURES N/A OPERATION MAXIMUM Benefits will not normally be provided with a value per executive director in excess of £75,000 p.a. Includes company car and 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 54 PHOTO-ME INTERNATIONAL PLC A N N U A L B O N U S PURPOSE AND LINK TO STRATEGY Incentivises delivery of specific Company, divisional and personal annual goals Maximum bonus only payable for achieving specified targets OPERATION MAXIMUM Normally payable in cash; non-pensionable Up to 150% of base salary p.a. Committee has the discretion to defer up to 50% of the bonus in shares for three years PERFORMANCE MEASURES Performance is assessed on an annual basis, based on the achievement of objectives relating to financial performance, progress of strategic priorities and/or personal targets. The specific measures used in the bonus and their weighting may vary each year depending on business context and strategy Clawback provisions are operated P E N S I O N PURPOSE AND LINK TO STRATEGY OPERATION MAXIMUM PERFORMANCE MEASURES Provides competitive retirement benefits Defined contribution executive directors may be offered cash in lieu of pension Up to 15% of base salary p.a. N/A E X E C U T I V E S H A R E O P T I O N S C H E M E (“ E S O S ”) PURPOSE AND LINK TO STRATEGY Aligns executive directors’ interests with those of shareholders Retention OPERATION MAXIMUM Annual awards of market value options may be granted Up to 150% of base salary p.a. The Committee reviews the quantum of awards annually and monitors the continuing suitability of the performance measures PERFORMANCE MEASURES The Remuneration Committee may set such performance conditions on awards as it considers appropriate (whether financial or non- financial; and whether corporate, divisional or individual) Up to 25% of salary vests at threshold, increasing to 150% vesting at maximum Clawback provisions are operated A two-year post-holding period applies to any awards granted to executive directors after the 2016 AGM 55 ANNUAL REPORT 2019CORPORATE GOVERNANCE S H A R E OW N E R S H I P G U I D E L I N E S PURPOSE AND LINK TO STRATEGY OPERATION MAXIMUM PERFORMANCE MEASURES At least 200% of base salary N/A Provides alignment of interests between executive directors and shareholders Executive directors are required to build and maintain a shareholding equivalent to at least two years’ base salary through the retention of 50% of the net-of-tax vested share awards or through open- market purchases N O N - E X E C U T I V E D I R E C TO R S PURPOSE AND LINK TO STRATEGY Provides fees reflecting time commitments and responsibilities, in line with those provided by similarly sized companies OPERATION MAXIMUM PERFORMANCE MEASURES Cash fee paid on a monthly basis; fees are reviewed annually The Committee is guided by market rates, time commitments and responsibility levels N/A Not entitled to participate in any Group pension scheme. No awards to be granted under the annual bonus or ESOS No non-executive director receives 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) However, aggregate annual fees will not exceed £750,000 or such other figure as provided for in the Company’s Articles of Association from time to time The Board may request that a non-executive director undertake services not within the normal scope of his or 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 56 PHOTO-ME INTERNATIONAL PLC C H O I C E O F P E R F O R M A N C E M E AS U R E S 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 strategic and/or personal objectives if it deems this appropriate with regard to the Company’s key objectives. The earnings per share (EPS) performance condition, applicable to the 2014 Executive Share Option Scheme, was selected by the Committee on the basis that it incentivises the delivery of sustainable long-term financial performance and rewards management for growing the Company while 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 use of other financial/share price-based performance metrics and 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 scheme rules, the Listing Rules and HMRC legislation. The Committee, consistent with market practice, retains discretion over a number of areas relating to the operation and administration of the plan. H OW E M P LOY E E S ’ PAY I S TA K E N I N TO AC C O U N T The Committee is aware of the general pay and conditions in the Group as a whole when determining the directors' Remuneration Policy and its implementation. However, reflecting standard practice, employees are not consulted in the formulation of the policy. H OW T H E E X E C U T I V E D I R E C TO R S ’ R E M U N E R AT I O N P O L I C Y R E L AT E S TO T H E G R O U P The Remuneration Policy described above provides an overview of the structure that operates for 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. H OW S H A R E H O L D E R S ’ V I E W S A R E TA K E N I N TO AC C O U N T 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 the voting result at the 2017 AGM, with over 99.86% shareholder support in respect of the Directors’ Remuneration Policy. A P P R OAC H TO R E C R U I T M E N T A N D P R O M OT I O N S 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. The 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. Consistent with Part 4 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, any caps contained within the policy for fixed pay do not apply to new recruits, although the Committee would not envisage exceeding these caps in practice unless absolutely necessary. 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. A P P R OAC H TO L E AV E R S No executive director has the benefit of provisions in his or her service contract for the payment of predetermined compensation in the event of a 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 and COO, an additional amount equal to the cost of providing any benefits for the period of notice) in lieu of any unserved notice period. 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 or her loss. An annual bonus may be payable with respect to the period of the financial year served, although it will be prorated for time served and paid at the normal pay-out date. 57 ANNUAL REPORT 2019CORPORATE GOVERNANCEThe treatment of any share awards granted to an executive director will be determined based on the relevant scheme 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 six 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 six 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 six 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 rating of options will apply to good leavers’ awards unless the Committee determines that time prorating is inappropriate. The Company has the power to enter into settlement agreements with directors and to pay compensation to settle potential legal claims. In addition, and consistent with market practice, in the event of the termination of an executive director, the Company may make a contribution towards that individual’s legal fees and fees for outplacement services as part of a negotiated settlement. Any such fees will be disclosed as part of the detail of termination arrangements. For the avoidance of doubt, the policy does not include an explicit cap on the cost of  termination payments. S E R V I C E C O N T R AC TS Details of the CEO's and COO’s service contracts are as follows: EXECUTIVE DIRECTOR Serge Crasnianski1 Eric Mergui2 DATE OF CONTRACT 01/05/2010 10/09/2009 NOTICE PERIOD 12 months 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 or she will be entitled to compensation equal to three months’ fees, and in the case of the chairman, six months’ fees. The relevant appointment letter and term dates of the non-executive directors are set out below: NON-EXECUTIVE DIRECTOR Sir John Lewis3 APPOINTMENT LETTER DATE 26/07/2010 YEAR OF LAST ELECTION 2018 EXPECTED YEAR OF EXPIRY OF CURRENT 2021 Yitzhak Apeloig Françoise Coutaz-Replan4 Jean-Marcel Denis Emmanuel Olympitis 08/03/2012 27/08/2015 01/03/2012 11/11/2009 2018 2018 2018 2016 1. Mr Crasnianski’s contract is with Photo-Me Limited, a wholly-owned subsidiary of the Company 2. First appointed to the Board on 2 May 2018, Mr Mergui’s contract is with Photo-Me Limited, a wholly-owned subsidiary of the Company 3. First appointed to the Board on 3 July 2008 4. First appointed to the Board as Group Finance Director on 24 September 2009, and resigned as Executive Director on 27 August 2015 2021 2021 2021 2019 E X T E R N A L A P P O I N T M E N TS 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 an executive director. Whether or not the executive director 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. 58 PHOTO-ME INTERNATIONAL PLCA N N U A L R E P O R T O N R E M U N E R AT I O N Implementation of the Remuneration Policy for the year ending 30 April 2020 B AS E S A L A RY The base salary for each executive director is reviewed annually by the Committee and the current applicable base salaries are as follows: EXECUTIVE DIRECTOR Serge Crasnianski Eric Mergui 1 MAY 2019 £ 551,960 474,9462 1 MAY 20181 £ 540,887 474,9462 % INCREASE 2.05 0 1. Or appointment if later 2. Eric Mergui’s base salary is denominated in euros (€550,800). Exchange rate: 1.159711 GBP/€ P E N S I O N A N D B E N E F I TS Mr Crasnianski will continue to receive a pension contribution equal to 15% of base salary in the form of a salary supplement. Mr Mergui does not receive a pension contribution. B E N E F I TS Benefit provision will continue to be in line with the approved Remuneration Policy. A N N U A L B O N U S The annual bonus will continue to be capped at 150% of salary, with the majority of the bonus (80% of potential for the CEO and 51% of potential for the COO) based on financial targets as follows: Group pre-tax profit less than prior year % OF BASE SALARY CEO Nil COO Nil Group pre-tax profit between 100% and 105% of prior year Committee discretion depending on year-on-year growth Group pre-tax profit 5% more but less than 10% higher than that of prior year Group pre-tax profit 10% or more than prior year 60% 120% 38.25% 76.5% Twenty per cent of the CEO’s bonus (30% of salary) will be based on personal/strategic targets linked to (i) driving the expansion of the Group’s activities with particular emphasis on identifying acquisition targets and subsequent negotiations; (ii) devising and implementing succession management for senior colleagues. 49% of the COO’s bonus (73.5% of salary) will be based on personal/strategic targets linked to (i) identifying and handling strategic acquisitions including post-integration management; (ii) managing the main Group subsidiary companies; and (iii) co-ordinating the international network. The bonus targets and performance against those targets will be disclosed retrospectively in next year’s Directors’ Remuneration Report. LO N G - T E R M I N C E N T I V E S The Committee is intending to grant an award of share options over 150% of salary to both the CEO and the COO with vesting, subject to three- year EPS performance targets and continued service. These EPS targets have yet to be agreed but they will be disclosed in the associated RNS announcement issued post grant. While the Committee did consider scaling back award levels in light of the share price performance over the past year, the Committee does not feel that this is necessary or appropriate in light of the relatively modest award level (noting that these awards are structured as market-value options rather than nil or nominal cost awards) and noting that no awards were granted to either the CEO or the COO in 2018. N O N - E X E C U T I V E D I R E C TO R S The fees for non-executive directors are reviewed at least once every three years; the current applicable fee levels for the roles below are as follows: NON-EXECUTIVE DIRECTOR Sir John Lewis Emmanuel Olympitis Françoise Coutaz-Replan Jean-Marcel Denis Yitzhak Apeloig ROLE Chairman COMMITTEE CHAIRMAN Chair of Nomination Committee Senior Independent Director Chair of Remuneration Committee Non-executive Director Non-executive Director Non-executive Director – Chair of Audit Committee – 30 APRIL 2019 £ 30 APRIL 2018 £ 132,000 55,000 44,000 49,500 44,000 132,000 55,000 44,000 49,500 44,000 59 ANNUAL REPORT 2019CORPORATE GOVERNANCES I N G L E TOTA L F I G U R E O F R E M U N E R AT I O N ( A U D I T E D ) The detailed emoluments received by the Executive and Non-executive Directors for the year ended 30 April 2019 are shown below: EXECUTIVE DIRECTOR Serge Crasnianski5 Eric Mergui8 NON-EXECUTIVE DIRECTOR Sir John Lewis7 Yitzhak Apeloig Françoise Coutaz-Replan6 Jean-Marcel Denis Emmanuel Olympitis YEAR 2019 2018 2019 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 SALARY/FEES £ BENEFITS1 £ BONUS2 £ LTIS5 £ PENSION3 £ TOTAL £ 551,960 540,887 474,946 132,000 132,000 44,000 44,000 44,000 44,000 49,500 49,500 55,000 55,000 15,626 59,934 8,402 – – 298,781 – – – – – – – – – – – – – – – – – – – – – – 0 – – – – – 76,619 – – – – 82,794 81,133 – – – – – – – – – – – 650,380 681,954 782,129 132,000 132,000 44,000 44,000 44,000 44,000 49,500 49,500 55,000 55,000 1. Taxable benefits comprise the provision of a car or car allowance, private medical insurance and, where appropriate, an accommodation allowance 2. Bonus is that awarded in respect of performance in the relevant financial year. Details of the bonus award for 2018/19 is set out below 3. The pension payment to Serge Crasnianski in the year ended 30 April 2019 represented 15% of base salary 4. The emoluments of Serge Crasnianski shown above include fees totalling £405,217 (2018: £394,144), payable to a third party in respect of making available the services of Serge Crasnianski to the Company 5. Details of the share options held by Eric Mergui, which will vest shortly after the year-end and based on performance to 30 April 2019, are set out below 6. Françoise Coutaz-Replan stepped down as an Executive Director on 27 August 2015, and was appointed as a Non-executive Director on the same date 7. The emoluments of Sir John Lewis shown above include fees of £49,500 (2018: £49,500) paid to a third party in respect of making available the services of Sir John Lewis to the Company 8. The emoluments of Eric Mergui shown above include fees totalling £298,781, payable to a third party in respect of making available the services of Eric Mergui to the Company. 9. Exchange rate: 1.159711 GBP/€ A N N U A L B O N U S For the year ended 30 April 2019, the maximum bonus opportunity for Serge Crasnianski and Eric Mergui was 150% of salary, with the majority (80% for the CEO and 51% for the COO) based on financial performance and a minority (20% for the CEO and 49% for the COO) based on non-financial targets. Details of the performance against the profit before tax targets for the 2019 annual bonus are set out below: Group pre-tax profit less than prior year Group pre-tax profit between 100% and 105% of prior year Group pre-tax profit 5% more but less than 10% higher that of prior year Group pre-tax profit 10% or more than prior year Actual Profit Result –15.1% below prior year Details of performance against the personal/strategic targets are as follows: % OF BASE SALARY CEO Nil COO Nil Committee discretion depending on year-on-year growth 60% 120% 0% COO 38.25% 76.5% 0% Maximum Bonus Target 1 Target 2 Target 3 CEO 20% of bonus (30% of salary) Driving the expansion of the Company’s business activities - with particular emphasis on identifying and negotiating acquisitions Devising and implementing succession management for senior colleagues n/a 49% of bonus (73.5% of salary) Identifying and handling strategic acquisitions including post acquisition management in respect of delivering any planned synergies and operational benefits Management of the main subsidiary companies Co-ordination of the international network Committee Assessment of performance against the targets While the Committee was satisfied that significant progress was made in respect of Target 1 and Target 2, the Chief Executive asked that the Committee did not award a bonus for this part of the annual incentive plan. As such, no annual bonus was awarded. Although the bonus targets were originally set by the CEO at the point that the COO was a below Board executive*, the Committee was satisfied that significant progress was made in respect of Target 1 (managing acquisitions), Target 2 (managing the main subsidiary companies) and Target 3 (coordinating the international network) when considered against the performance of the Company and noting the rollout of the strategy to diversity vending operations, the continued expansion of Laundry operations, the deployment of photobooth identification solutions and the speed of the recovery in Japan. Bonus Award - % of max (% of salary) 0% of maximum (0% of salary) As such, the Committee accepted the judgment of the CEO that it was appropriate to award an annual bonus of £298,781 in respect of performance for the year ended 30 April 2019. 42% of maximum (63% of salary) * The Committee accepted the judgment of the CEO that significant progress was made following the COO’s appointment to the Board. The Remuneration Committee now sets the COO’s financial and personal/strategic annual bonus targets The CEO received no bonus for the year. The COO received a bonus for the year of £298,781, the targets for which had been agreed between him and the CEO before the former’s appointment to the Board. 60 PHOTO-ME INTERNATIONAL PLC E X E C U T I V E S H A R E O P T I O N S C H E M E ( E S O S ) ( A U D I T E D ) The ESOS awards granted to Eric Mergui on 13 July 2016 completed their performance period on 30 April 2019 and accordingly have been included in the 2019 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 EPS FOR 2019 Below 8.0p VESTING (% OF PARTICIPANT’S SALARY AT DATE OF GRANT) None 8.0p 8.4p 8.8p 9.2p 9.6p 10.0p 25% 50% 75% 100% 125% 150% Actual Between 8.0p & 10.0p 8.26p Pro rata between targets 41.88% of salary (27.92% of award) Based on the above, 93,242 of 334,000 share options held by Eric Mergui will vest in July 2019. As these awards have an exercise price of 141.50 pence (i.e. significantly above the share price at 30 April 2019, resulting in no intrinsic gain at the year-end), the value in the single figure for Eric Mergui has been shown as £nil. S C H E M E I N T E R E STS AWA R D E D I N T H E Y E A R ( A U D I T E D ) The Company made no share option awards to executive directors during the year ended 30 April 2019. D I R E C TO R S ’ I N T E R E STS I N S H A R E S ( A U D I T E D ) 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 2019 and the date of signing the financial statements. EXECUTIVE DIRECTOR Serge Crasnianski Eric Mergui NON-EXECUTIVE DIRECTOR Sir John Lewis YitzhakApeloig Beneficially owned at 30 APRIL 2019 84,610,7014 1 MAY2018 84,610,7014 – – – – – – Françoise Coutaz-Replan5 200,000 200,000 607,600 Jean-Marcel Denis Emmanuel Olympitis – – 45,000 45,000 – – ESOS AWARDS1 738,000 ESOS AWARDS2 – REQUIREMENT (% OF SALARY) 200% SHAREHOLDING (% OF SALARY)3 GUIDELINE Yes 13,965% 375,000 719,000 200% 0% No – – – – – – – – – – – – – – – – – – – 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 200% of base salary 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 2019, being 91.1p. The shareholding guideline is calculated using only beneficially owned shares 4. Of the shares beneficially owned by Serge Crasnianski, 79,719,900 shares (2018: 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 Director 61 ANNUAL REPORT 2019CORPORATE GOVERNANCED I R E C TO R S ’ I N T E R E STS I N S H A R E O P T I O N S ( A U D I T E D ) 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 2019 and the date of signing the financial statements.) DATE OF GRANT Serge Crasnianski 9 July 2013 Eric Mergui 9 July 2015 13 July 2016 21 July 2017 738,000 375,000 334,000 385,200 Françoise Coutaz-Replan 13 Dec 2011 4 July 2012 9 July 2013 10 July 2014 9 July 2015 250,000 232,000 200,000 195,000 212,600 NUMBER OF OPTIONS GRANTED DURING YEAR AS AT 1 MAY 2018 EXERCISED DURING YEAR LAPSED DURING YEAR AS AT 30 APRIL 2019 EXERCISE PRICE DATE FROM WHICH EXERCISABLE EXPIRY DATE – – – – – – – – – – – – – – – – – – – – – – 250,000 232,000 – – – – – – – – – – – – 738,000 90.63p 9 July 2016 8 July 2020 375,000 334,000 385,200 133.33p 9 July 2018 8 July 2022 141.50p 13 July 2019 12 July 2023 157.00p 21 July 2020 20 July 2024 – – 200,000 195,000 212,600 53.50p 13 Dec 2014 12 Dec 2018 39.17p 90.63p 4 July 2015 3 July 2019 9 July 2016 8 July 2020 145.33p 10 July 2017 9 July 2021 133.33p 9 July 2018 8 July 2022 R E L AT I V E I M P O R TA N C E O F T H E S P E N D O N 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 2019 39,888 31,873 2018 42,372 26,478 % CHANGE -5.9 20.4 1. Based on the figure shown in note 5 to the Financial Statements 2. Based on the cash returned to shareholders in 2018 through dividends, as shown in note 9 to the Financial Statements. The Company did not undertake any buy-backs in the year ended 30 April 2019 P E R C E N TAG E I N C R E AS E I N T H E R E M U N E R AT I O N O F T H E C E O The table below shows the change in the salary, benefits and annual bonus for the CEO between the current and previous financial years compared with the change for a comparator group of selected employees of the Group. ELEMENT OF REMUNERATION Salary Benefits Annual bonus CEO % CHANGE 2.05 EMPLOYEES % CHANGE¹ 1.5 –73.9 Nil Nil Nil 62 PHOTO-ME INTERNATIONAL PLCP E R F O R M A N C E G R A P H The graph below shows the Company’s performance, measured by total shareholder return (TSR) (share price growth plus dividends reinvested), compared with the performance of the FTSE SmallCap Index (calculated on the same basis) over the past 10 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. TOTA L S H A R E H O L D E R R E T U R N Photo-Me International plc FTSE SmallCap 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0 30 APRIL 2009 30 APRIL 2010 30 APRIL 2011 30 APRIL 2012 30 APRIL 2013 30 APRIL 2014 30 APRIL 2015 30 APRIL 2016 30 APRIL 2017 30 APRIL 2018 30 APRIL 2019 C E O R E M U N E R AT I O N The table below shows the total remuneration for the CEO over the same 10-year period as the TSR chart above. All share awards are valued at the date of vesting. Source: Datastream (Thomson Reuters) 30 APRIL 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2010 CEO Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski Serge Crasnianski2 Thierry Barel3 TOTAL (£) 650,380 681,954 1,498,113 1,429,209 1,031,628 914,278 899,487 898,693 893,312 739,548 90,327 ANNUAL (% OF MAX) 0% LONG-TERM INCENTIVES (% OF MAX)1 – 0% 100% 100% 100% 100% 100% 100% 100% 100% 0% – – 100% – – – – – – – 1. Shows the number of share options that vested as a percentage of the maximum number of share options that could have vested. For the years ended 30 April 2011 to 30 April 2019 (but excluding 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 CEO 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 CEO but excludes any fees paid (£5,429) for performing the role of Non-executive Director 3. Thierry Barel resigned from the role of CEO on 3 July 2009. The total remuneration figure shown includes all payments received prior to his resignation as CEO, but excludes a termination payment of £92,800 63 ANNUAL REPORT 2019CORPORATE GOVERNANCEPAYM E N TS F O R LO SS O F O F F I C E / PAST D I R E C TO R S No payments were made for loss of office, and no payments were made to past directors. C O M M I T T E E R O L E A N D M E M B E R S H I P The Remuneration Committee comprises three Non-executive Directors: Emmanuel Olympitis (Committee Chairman, member of the Audit and Nomination Committees, and Senior Independent Director); Sir John Lewis (Chairman of the Board and the Nomination Committee, and member of the Audit and Remuneration Committees); and Jean-Marcel Denis (Chairman of the Audit Committee and member of the Nomination and Remuneration Committees). The Board considers Mr Olympitis and Mr Marcel to be independent, and Mr Lewis to have been independent on appointment as Chairman. Biographies of the members of the Committee are set out on page 44. Details of their membership of the Committee and attendance at the meetings during the year are as follows: NAME Emmanuel Olympitis Sir John Lewis Jean-Marcel Denis POSITION Committee Chairman APPOINTMENT DATE 11 November 2009 NUMBER OF MEETINGS ATTENDED (MAXIMUM POSSIBLE) 1(1) Non-executive Chairman Non-executive Director 3 July 2008 1 March 2012 1(1) 1(1) It remains the Committee’s policy that it shall meet on an ad hoc basis when the needs of the Company require it. At the invitation of the Chairman, the CEO and COO may attend meetings of the Committee, except when their 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. The Committee’s terms of reference are published in the “Investor Relations” section of the Company’s website at www.photo-me.com. A D V I S E R S FIT Remuneration Consultants LLP advised the Committee during the year ended 30 April 2019 in respect of the preparation of this Remuneration Report. Fees paid to FIT in this respect totalled £4,000 (exclusive of VAT). The Committee is satisfied that the advice provided by FIT is objective and independent and fees were charged based on time and material. The Committee also receives advice from the CEO in relation to the remuneration of the COO and certain senior executives, but not in relation to his own remuneration. STAT E M E N T O F S H A R E H O L D E R V OT I N G The table below shows the advisory vote on the 2017/18 Directors’ Remuneration Report at the 2018 AGM Remuneration Report and the last binding vote on the Remuneration Policy, which was at the 2017 AGM. RESOLUTION Directors’ Remuneration Report (excluding the Remuneration Policy) Directors’ Remuneration Policy VOTES CAST IN FAVOUR VOTES CAST AGAINST % TOTAL VOTES CAST (EXCLUDES WITHHELD VOTES) % % VOTES WITHHELD¹ 314,930,872 99.63 98,604 0.032 319,556,053 100 1,074,156 319,144,977 99.86 445,370 0.14 319,590,347 100 1,165,003 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 E M M A N U E L O L Y M P I T I S Chairman of the Remuneration Committee 17 July 2019 64 PHOTO-ME INTERNATIONAL PLCSTAT E M E N T O F D I R E C TO R S ’ R E S P O N S I B I L I T I E S THE DIRECTORS OF THE COMPANY, WHO ARE NAMED ON PAGE 44, 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. 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 (IFRS) 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: o select suitable accounting policies and then apply them consistently; o make judgments and accounting estimates that are reasonable and prudent; R E S P O N S I B I L I T Y STAT E M E N T O F T H E D I R E C TO R S I N R E S P E C T O F T H E A N N U A L F I N A N C I A L R E P O R T Each of the directors of the Company, whose names and functions are listed on page 44, confirms that, to the best of his or her knowledge: o the financial statements, prepared in accordance with IFRS 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 o 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. FA I R , B A L A N C E D A N D U N D E R STA N D A B L E 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 51. o state whether they have been prepared in accordance with IFRS as adopted by the EU; and o 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 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. 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. S I G N I F I C A N T AC C O U N T I N G P O L I C I E S , C R I T I C A L E ST I M AT E S A N D K E Y J U D G E M E N TS Our significant accounting policies are set out on pages 82 to 88 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 2018/2019 consolidated financial statements. 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. By order of the Board S I R J O H N L E W I S Non-executive Chairman 17 July 2019 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. 65 ANNUAL REPORT 2019CORPORATE GOVERNANCEF I N A N C I A L S T A T E M E N T S 68 INDEPENDENT AUDITOR'S REPORT 74 GROUP STATEMENT OF COMPREHENSIVE INCOME 75 STATEMENTS OF FINANCIAL POSITION 76 GROUP STATEMENT OF CASH FLOWS 77 COMPANY STATEMENT OF CASH FLOWS 78 GROUP STATEMENT OF CHANGES IN EQUITY 79 COMPANY STATEMENT OF CHANGES IN EQUITY 80 NOTES TO THE FINANCIAL STATEMENTS 143 FIVE YEAR SUMMARY 145 COMPANY INFORMATION & ADVISORS 146 SHAREHOLDER INFORMATION I N D E P E N D E N T A U D I TO R ’S R E P O R T TO T H E M E M B E R S O F P H OTO - M E I N T E R N AT I O N A L P LC F O R T H E Y E A R E N D E D 30 A P R I L 2019 O P I N I O N O U R O P I N I O N O N T H E F I N A N C I A L STAT E M E N TS I S U N M O D I F I E D We have audited the financial statements of Photo-Me International plc (the ‘Company’) and its subsidiaries (the ‘Group’) for the year ended 30 April 2019 which comprise the Group Statement of Comprehensive Income, the Statements of Financial Position, the Group and Statement of Cash Flows, the Group and Company Statements of Changes in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: o the financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 30 April 2019 and of the Group’s profit for the year then ended; o the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; o the Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and o 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. B AS I S F O R O P I N I O N We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. C O N C L U S I O N S R E L AT I N G TO P R I N C I PA L R I S KS , G O I N G C O N C E R N A N D V I A B I L I T Y STAT E M E N T We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to: o the disclosures in the annual report set out on page 30 to 33 that describe the principal risks and explain how they are being managed or mitigated; o the directors’ confirmation, set out on page 30 of the annual report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; o the directors’ statement, set out on page 47 of the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Group and the Company ’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; o whether the directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or o the directors’ explanation, set out on page 41 of the annual report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. OV E R V I E W O F O U R A U D I T A P P R OAC H o Overall materiality: £1,577,000, which represents 3.7% of the Group’s profit before tax; o Key audit matters were identified as: — Impairment of goodwill; — Impairment of property, plant and equipment; and — Impairment of other intangible assets. o We have performed full scope audit procedures on the financial statements of the Company, and on the financial information of 9 other components. 68 PHOTO-ME INTERNATIONAL PLCK E Y A U D I T M AT T E R S Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key Audit Matters – Group and Company How the matter was addressed in the audit – Group Impairment of goodwill The Group has goodwill recorded in the financial statements of £26.6m (Company – £nil). As explained in Note 11 management has undertaken an annual impairment assessment for goodwill in accordance with the requirements of International Accounting Standard (IAS) 36 ‘Impairment of Assets’. The process for measuring and recognising impairment under IAS 36 is complex and requires significant judgment. Goodwill has been allocated for management’s impairment testing to eleven (2018: nine) cash-generating units (“CGUs”), allocated between geographical areas and activity. Key assumptions used by management include future growth and discount rates of each CGU. We have therefore identified the impairment of goodwill as a significant risk, which was one of the most significant assessed risks of material misstatement. Impairment of property, plant and equipment The Group has property, plant and equipment (“PPE”) recorded in the financial statements of £95.4m (Company - £14.5m). The carrying value of photo booths and vending machines is numerically significant. There is a risk of impairment of these assets due to a number of factors such as changes in the regulatory environment, technology and consumer preference. There is inherent uncertainty involved in the forecasting of future cash flows which impacts the estimated recoverable amount of PPE. Our audit work included, but was not restricted to: o assessing the Group’s accounting policy and disclosures for compliance with IAS 36; o testing the arithmetical accuracy and integrity of the underlying data used by management in their impairment assessment, by confirming the consistency of formulae used and agreeing inputs to supporting documentation including historic profit and loss data and individual market results; o using our in-house valuation specialists as an auditor’s expert to assess the reasonableness of the discount rate applied to cash flows for each CGU; o challenging management’s assumptions concerning forecast cash flows, based on historical trends, knowledge of country-specific markets and any changes in customer preferences and regulations; o evaluating historical accuracy of forecasting and discount rate by comparing to actual performance; and o assessing management’s sensitivity analysis on the key assumptions used. The Group’s accounting policy on Impairment of goodwill is shown in notes 1.4 and 1.8 to the financial statements and related disclosures are included in note 11. Key observations Based on the results of our work, we determined the impairment of goodwill to be reasonable. Our audit work included, but was not restricted to: o assessing the Group’s accounting policy and disclosures for compliance with the financial reporting framework IFRS; o evaluating the design and implementation of key controls by management to identify impairments of PPE; o testing the arithmetical accuracy and integrity of the underlying data used by management in their impairment reviews, by checking the consistency of formulae used and agreeing inputs to supporting documentation including historic profit and loss data and individual market results; 69 ANNUAL REPORT 2019FINANCIAL STATEMENTSI N D E P E N D E N T A U D I TO R ’S R E P O R T C O N T I N U E D TO T H E M E M B E R S O F P H OTO - M E I N T E R N AT I O N A L P LC F O R T H E Y E A R E N D E D 30 A P R I L 2019 Key Audit Matters – Group and Company How the matter was addressed in the audit – Group There is also a risk that depreciation rates applied to specific Groups of assets do not truly reflect the useful economic lives (‘UEL’) of these assets and therefore that the asset valuation may be overstated. o assessing and challenging management’s assumptions used in their impairment assessment including forecast cash flows, historical trends, knowledge of country-specific markets and any changes in customer preferences and regulations; We have therefore identified the recoverability of PPE as a significant risk, which was one of the most significant assessed risks of material misstatement. Impairment of property, plant and equipment Impairment of other intangible assets Other intangible assets as recorded in the financial statements predominantly include capitalised development costs, software, patents and licenses amounting to £15.2m (Company £nil). These assets have a combination of finite and indefinite useful economic lives. In accordance with the requirements of IAS 36 , management must assess intangible assets for indicators of impairment at the reporting date and test annually for impairment where the asset has an indefinite useful life. The estimated recoverable amount associated with this assessment is subjective due to the high inherent uncertainty involved in forecasting and discounting future cash flows. We have therefore identified the impairment of other intangible assets as a significant risk, which was one of the most significant assessed risks of material misstatement. o for assets with indications of impairment but assessed by management otherwise, challenging their assumptions of the achievability of the country-specific plans, based on our understanding and research of the relevant market and its competitive environment; o focussing on management’s impairment assessments in relation to the Group’s Spanish and UK components, based on the loss-making nature of the current Spanish market and the impact of regulatory factors in the UK have led to a fall in revenues, respectively; and o assessing the appropriateness of UELs determined for these assets in relation to their type, based on market expectations and consideration of past performance. The Group’s accounting policy on measurement and impairment of PPE is shown in notes 1.5 and 1.8 to the financial statements and related disclosures are included in note 12. Key observations Based on the results of our work, we identified no issues in relation to the recoverability of PPE. Our audit work included, but was not restricted to: o assessing the accounting policy and disclosures for compliance with the financial reporting framework IFRS; o testing the arithmetical accuracy and integrity of the underlying data used by management, by checking the consistency of formulae used and agreeing inputs to supporting documentation including historic profit and loss data and individual market results; o using our in-house valuation specialists as an auditor’s expert to assess the reasonableness of the discount rate applied to cash flows for each intangible asset; o challenging management’s assumptions around forecast cash flows, based on historical trends, knowledge of country specific markets and any changes in customer preferences and regulations; o assessing historical accuracy of forecasting and discount rate by comparing to actual performance; and o performing a sensitivity analysis on the key assumptions used. The Group’s accounting policy on Impairment is shown in notes 1.4 and 1.8 to the financial statements and related disclosures are included in note 11. Key observations Based on the results of our work, we determined the impairment of other intangible assets to be reasonable. 70 PHOTO-ME INTERNATIONAL PLCO U R A P P L I C AT I O N O F M AT E R I A L I T Y We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. Materiality was determined as follows: Materiality measure Group Company Financial statements as a whole £1,577,000 which was calculated as 3.7% of the Group’s profit before tax. £366,000 which is 1% of the Company’s revenue. Performance materiality used to drive the extent of our testing Specific materiality This benchmark is considered the most appropriate because this is a key measure reported to investors on the Group’s financial performance. This benchmark is considered the most appropriate due to the Company being a trading entity. 60% of financial statement materiality. 60% of financial statement materiality. We determined a lower level of specific materiality for certain areas such as directors' remuneration and related party transactions. We determined a lower level of specific materiality for certain areas such as directors' remuneration and related party transactions. Communication of misstatements to the audit committee £78,850 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £17,500 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. A N OV E R V I E W O F T H E S C O P E O F O U R A U D I T Our audit approach was based on a thorough understanding of the Group’s business and is risk based, undertaking substantive testing on significant transactions and material account balances, and included: o evaluation by the Group audit team of identified components to assess the significance of that component and to determine the planned audit response based on a measure of materiality. For example, significance as a percentage of the Group’s total assets, revenues and profit before tax; o full scope and targeted audit procedures accounted for 79% of Group revenue and 84% of Group profit before tax. Targeted audit procedures accounted for 7% of Group revenue and 2% of Group profit before tax. The remaining 14% of Group revenue and 14% of Group profit before tax is represented by 34 reporting components, none of which individually represented more than 5% of any of Group revenue, Group profit before tax or total Group assets. For these 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 components; o of the Group’s 47 reporting components, we subjected 10 to full scope audit procedures and 3 to specified audit procedures. The latter were not individually financially significant enough to require a full scope audit for Group purposes, but did present specific individual risks that needed to be addressed – for example, interim visit, evaluation the Group’s internal controls environment including its IT systems and controls; o the Group audit team instructing 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 team determined the component materialities, which ranged from £35,000 to £946,000, having regard to the mix of size and risk profile of the Group across the components. The work on 5 of the 10 full scope components was performed by component auditors and the rest, including the audit of the Company, was performed by the Group audit team; and o the Group Engagement Partner visiting 2 component locations in France and Japan, to assess the audit risk and strategy being adopted by the component auditors. Telephone conference meetings were held with the component auditors, including planning calls and post reporting calls, where the findings reported to the Group audit team were discussed in more detail and any further work required of the component auditor by the Group audit team was discussed. 71 ANNUAL REPORT 2019FINANCIAL STATEMENTSI N D E P E N D E N T A U D I TO R ’S R E P O R T C O N T I N U E D TO T H E M E M B E R S O F P H OTO - M E I N T E R N AT I O N A L P LC F O R T H E Y E A R E N D E D 30 A P R I L 2019 E X P L A N AT I O N AS TO W H AT E X T E N T T H E A U D I T WAS C O N S I D E R E D C A PA B L E O F D E T E C T I N G I R R E G U L A R I T I E S , I N C L U D I N G F R A U D The objectives of our audit are to identify and assess the risks of material misstatement of the financial statements due to fraud or error; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud or error; and to respond appropriately to those risks. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, our procedures included the following: o we obtained an understanding of the legal and regulatory frameworks applicable to the Company and the Group and industry in which they operate. We determined that the following laws and regulations were most significant: IFRS, Companies Act 2006, UK Corporate governance code, taxation laws and pension laws. o we understood how the Company and the Group are complying with those legal and regulatory frameworks by, making inquiries to the management, those responsible for legal and compliance procedures and the company secretary. We corroborated our inquiries through our review of board minutes and papers provided to the Audit Committee. o we assessed the susceptibility of the Company’s and Group’s financial statements to material misstatement, including how fraud might occur. Audit procedures performed by the Group engagement team and component auditors included: — identifying and assessing the design effectiveness of controls management has in place to prevent and detect fraud — understanding how those charged with governance considered and addressed the potential for override of controls or other inappropriate influence over the financial reporting process — challenging assumptions and judgments made by management in its significant accounting estimates; — identifying and testing journal entries, in particular any journal entries posted with unusual account combinations; — assessing the extent of compliance with the relevant laws and regulations as part of our procedures on the related financial statement item. o we communicated relevant laws and regulations identified at Group level to the component auditors and both the Group engagement team and component auditors performed the audit procedures as above. Any instances of non-compliance with laws and regulations were communicated by/to components and considered in our audit approach, if applicable. o we did not identify any key audit matters relating to irregularities, including fraud. OT H E R I N F O R M AT I O N The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions: o fair, balanced and understandable set out on page 65 – the statement given by the directors that they consider 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 performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or o audit committee reporting set out on page 49 - the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee; or o directors’ statement of compliance with the UK Corporate Governance Code set out on page 48 – the parts of the directors’ statement required under the Listing Rules relating to the Company compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code. O U R O P I N I O N S O N OT H E R M AT T E R S P R E S C R I B E D BY T H E C O M PA N I E S AC T 20 06 A R E U N M O D I F I E D In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: o the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and o the strategic report and the report of the directors have been prepared in accordance with applicable legal requirements. 72 PHOTO-ME INTERNATIONAL PLCO U R O P I N I O N S O N OT H E R M AT T E R S P R E S C R I B E D BY T H E C O M PA N I E S AC T 2006 A R E U N M O D I F I E D In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: o the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and o the strategic report and the report of the directors have been prepared in accordance with applicable legal requirements. M AT T E R S O N W H I C H W E A R E R E Q U I R E D TO R E P O R T U N D E R T H E C O M PA N I E S AC T 2006 In the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the report of the directors. M AT T E R S O N W H I C H W E A R E R E Q U I R E D TO R E P O R T BY E XC E P T I O N We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: o adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or o the 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 o certain disclosures of directors’ remuneration specified by law are not made; or o we have not received all the information and explanations we require for our audit. R E S P O N S I B I L I T I E S O F D I R E C TO R S F O R T H E F I N A N C I A L STAT E M E N TS As explained more fully in the statement of directors’ responsibilities set out on page 65, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. A U D I TO R ’S R E S P O N S I B I L I T I E S F O R T H E A U D I T O F   T H E F I N A N C I A L STAT E M E N TS Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. OT H E R M AT T E R S W H I C H W E A R E R E Q U I R E D TO   A D D R E SS Following the recommendation of the Audit Committee, we were appointed by the Board of Directors on 6 March 2019 to audit the financial statements for the year ended 30 April 2019 and subsequent financial periods. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company and we remain independent of the Group and the Company in conducting our audit. Our audit opinion is consistent with the additional report to the Audit Committee. U S E O F O U R R E P O R T This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company ’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. M A R K H E N S H A W Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 17 July 2019 73 ANNUAL REPORT 2019FINANCIAL STATEMENTSF I N A N C I A L STAT E M E N TS G R O U P STAT E M E N T O F C O M P R E H E N S I V E I N C O M E F O R T H E Y E A R E N D E D 30 A P R I L 2019 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 & buildings Restructuring costs Operating profit after specific items Other gains and losses Finance revenue Finance cost Profit before tax Total tax charge Profit for the 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 gains/(losses) Total items that will not be classified to profit and loss Other comprehensive (loss)/income 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. The notes on pages 80 to 142 are an integral part of these consolidated financial statements. 74 Notes 2019 £’000 2018 £’000 3 4 14 4 4 4 6 6 7 10 10 228,118 229,814 (164,637) (168,070) 63,481 1,601 61,744 1,686 (22,393) (17,518) 50 42,739 194 46,106 44,564 – (1,825) 42,739 361 20 (527) 42,593 (11,314) 31,279 (860) 3 (857) (216) 42 (174) (1,031) 30,248 31,226 53 31,279 30,228 20 30,248 8.27p 8.26p 46,416 2,320 (2,630) 46,106 3,708 658 (297) 50,175 (9,889) 40,286 16 (12) 4 150 (23) 127 131 40,417 40,134 152 40,286 40,205 212 40,417 10.64p 10.60p PHOTO-ME INTERNATIONAL PLCSTAT E M E N TS O F F I N A N C I A L P O S I T I O N AS AT 30 A P R I L 2019 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 Financial instruments held at amortised cost Other financial assets - available for sale Financial instruments held at FVTPL Deferred tax assets Trade and other receivables Current assets Inventories Trade and other receivables Current tax Cash and cash equivalents 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 Deferred tax liabilities Trade and other payables Current liabilities Financial liabilities Provisions Current tax Trade and other payables Total equity and liabilities Group 2019 £’000 Company 2018 £’000 2019 £’000 2018 £’000 Notes 11 11 12 13 14 14 15 15 15 15 24 16 17 16 18 20 21 22 24 25 21 23 25 26,594 15,222 95,353 648 415 – – 982 – 1,387 912 1,764 13,435 13,960 92,556 676 1,583 – 1,710 – 4,286 – 1,935 2,116 143,277 132,257 22,339 20,917 876 84,591 128,723 272,000 1,889 10,588 12,369 117,131 141,977 1,870 143,847 53,385 5,635 5,430 – 64,450 15,850 218 6,753 40,882 63,703 272,000 22,902 20,613 4,480 58,657 106,652 238,909 1,887 10,366 13,193 117,811 143,257 1,553 144,810 27,540 5,524 2,671 224 35,959 6,139 196 8,307 43,498 58,140 238,909 – – 14,493 – 35 47,747 – 975 – 1,176 670 – 65,096 3,857 21,613 – 3,162 28,632 93,728 1,889 10,588 2,197 35,791 50,465 – 50,465 – – – – – – 67 13,691 – 35 47,614 974 – 4,074 – 945 – 67,400 2,170 30,148 35 11,500 43,853 111,253 1,887 10,366 2,064 67,798 82,115 – 82,115 – – – – – – – 1,197 42,066 43,263 93,728 – – 1,541 27,597 29,138 111,253 The notes on pages 80 to 142 are an integral part of these consolidated financial statements. The company recognised a loss after tax for the year of £141,000 (2018: profit after tax of £22,155,000). The accounts were approved by the Board on 17 July 2019 and signed on its behalf by: Serge Crasnianski Chief Executive Officer John Lewis Non-executive Chairman 75 ANNUAL REPORT 2019FINANCIAL STATEMENTSF I N A N C I A L STAT E M E N TS G R O U P STAT E M E N T O F C AS H F LOW S F O R T H E Y E A R E N D E D 30 A P R I L 2019 Cash flow from operating activities Profit before tax Finance cost Finance revenue Other gains Operating profit Share of post tax profit from associates Amortisation of intangible assets Depreciation of property, plant and equipment Loss/(profit) 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 Proceeds from disposal of associate Repayment of loans advanced to associates Investment in intangible assets Proceeds from sale of intangible assets Purchase of property, plant and equipment Payment of deferred consideration Proceeds from sale of property, plant and equipment Purchase of available for sale investments Dividends received from for sale investments Interest received Dividends received from associates Net cash utilised in 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 Net cash utilised in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Exchange gain on cash and cash equivalents Cash and cash equivalents at end of year The notes on pages 80 to 142 are an integral part of these consolidated financial statements. 76 Notes 2019 £’000 2018 £’000 42,593 527 (20) (361) 42,739 (50) 2,992 24,024 165 (707) 354 511 (597) (5,604) 108 63,935 (527) (6,223) 57,185 (13,528) 4,437 1,612 (2,167) 155 (28,169) (225) 2,282 – – 18 36 (35,549) 224 (167) (8,397) 43,748 741 (31,873) 4,276 25,912 58,657 22 84,591 50,175 297 (658) (3,708) 46,106 (194) 2,768 22,301 (2,361) (836) (318) (2,613) (927) (1,064) (1,905) 60,957 (297) (8,318) 52,342 (1,398) – – (3,218) 201 (40,378) – 4,689 (134) 285 144 304 (39,505) 1,372 (118) (3,695) 26,382 687 (26,478) (1,850) 10,987 47,505 165 58,657 4 4 30 19 19 19 19 9 18 PHOTO-ME INTERNATIONAL PLCC O M PA N Y STAT E M E N T O F C AS H F LOW S F O R T H E Y E A R E N D E D 30 A P R I L 2019 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 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 Cash generated from operations Interest paid Taxation paid Net cash generated from / (used in) operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Dividends received from for sale investments Dividends received from associates and subsidiaries Net cash generated from investing activities Cash flows from financing activities Issue of Ordinary shares to equity shareholders 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 2019 £’000 2018 £’000 184 – 2,861 (2,239) 806 67 3,897 (22) 7 (1,687) 8,535 14,469 26,072 – (359) 25,713 (5,127) 451 – 2,275 (2,401) 224 (1) (31,873) (31,650) (8,338) 11,500 3,162 24,587 (2) (4,297) (16,497) 3,791 163 3,711 (2,330) 115 (305) 5,198 4,439 14,782 2 (1,057) 13,727 (8,239) 2,498 285 16,801 11,345 1,372 (1) (26,478) (25,107) (35) 11,535 11,500 9 18 77 ANNUAL REPORT 2019FINANCIAL STATEMENTSF I N A N C I A L STAT E M E N TS G R O U P STAT E M E N T O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R E N D E D 30 A P R I L 2019 At 1 May 2017 Profit for year Other comprehensive income/(expense) Exchange differences Tax on exchange Translation reserve taken to income statement on disposal of subsidiaries Remeasurement losses in defined benefit pension scheme and other post-employment benefit obligations Deferred tax on remeasurement gains Total other comprehensive (expense)/income Total comprehensive (expense)/income Transactions with owners of the Parent Shares issued Share options Dividends Total transactions with owners of the Parent At 30 April 2018 At 1 May 2018 Profit for year Other comprehensive income/(expense) Exchange differences Tax on exchange Remeasurement losses in defined benefit pension scheme and other post-employment benefit obligations Deferred tax on remeasurement gains Total other comprehensive (expense)/income Total comprehensive (expense)/income Transactions with owners of the Parent Shares issued Share options Dividends Acquisition of non-controlling interest Total transactions with owners of the Parent At 30 April 2019 Share capital £’000 1,882 – Share premium £’000 8,999 – Other reserves £’000 1,781 – Translation reserve £’000 11,468 – Retained earnings £’000 103,831 40,134 Attributable to owners of the Parent £’000 127,961 40,134 Non- controlling interests £’000 1,341 152 Total £’000 129,302 40,286 – – – – – – – – – – – – – – – – – – – – – 158 (12) (202) – – – 158 (12) 60 – 218 (12) (202) – (202) – – 150 (23) 150 (23) – – 150 (23) (56) (56) 127 40,261 71 40,205 60 212 131 40,417 5 – – 5 1,887 1,887 – 1,367 – – 1,367 10,366 10,366 – – – – – 1,781 1,781 – – – – – 11,412 11,412 – – 197 (26,478) (26,281) 117,811 117,811 31,226 1,372 197 (26,478) (24,909) 143,257 143,257 31,226 – – – – 1,553 1,553 53 1,372 197 (26,478) (24,909) 144,810 144,810 31,279 – – – – – – 2 – – – – – – – – – 222 – – – – – – – – – – – – – (827) 3 – – (827) 3 (33) – (860) 3 – – (216) 42 (216) 42 – – (216) 42 (824) (174) (998) (33) (1,031) (824) 31,052 30,228 20 30,248 – – – – – 141 (31,873) 224 141 (31,873) – – – – – 297 224 141 (31,873) 297 2 1,889 222 10,588 – 1,781 – 10,588 (31,732) 117,131 141,977 (31,508) 297 (31,211) 1,870 143,847 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 and the interests not acquired following the Group's acquisition of a 96% interest in Sempa SARL as described in note 30. The notes on pages 80 to 142 are an integral part of these consolidated financial statements. Details of share capital and reserves are given in note 20. 78 PHOTO-ME INTERNATIONAL PLCC O M PA N Y STAT E M E N T O F C H A N G E S I N E Q U I T Y F O R T H E Y E A R E N D E D 30 A P R I L 2019 At May 1 2017 Profit for year Other comprehensive income Total comprehensive income for year Transactions with owners of the Parent Shares issued Share options Capital contributions relating to share-based payments (net of disposals) Dividends Total transactions with owners of the Parent At 30 April 2018 At May 1 2018 Loss for year Other comprehensive income Total comprehensive income for year Transactions with owners of the Parent Shares issued Share options Capital contributions relating to share-based payments (net of disposals) Dividends Total transactions with owners of the Parent Share capital £’000 1,882 Share premium £’000 8,999 Other reserves £’000 1,887 – – 5 – – – 5 1,887 1,887 – – 2 – – – 2 – – 1,367 – – – 1,367 10,366 10,366 – – 222 – – – 222 – – – – 177 – 177 2,064 2,064 – – – – 133 – 133 Retained earnings £’000 72,101 22,155 Total £’000 84,869 22,155 22,155 22,155 – 20 – (26,478) (26,458) 67,798 67,798 (141) 1,372 20 177 (26,478) (24,909) 82,115 82,115 (141) (141) (141) – 7 – 224 7 133 (31,873) (31,873) (31,866) (31,509) At 30 April 2019 1,889 10,588 2,197 35,791 50,465 Details of share capital and reserves are given in note 20. 79 ANNUAL REPORT 2019FINANCIAL STATEMENTSF I N A N C I A L STAT E M E N TS N OT E S TO T H E F I N A N C I A L STAT E M E N TS F O R T H E Y E A R E N D E D 30 A P R I L 2019 A U T H O R I S AT I O N O F T H E F I N A N C I A L STAT E M E N TS A N D STAT E M E N T O F C O M P L I A N C E W I T H I F R SS The Group and the Company financial statements of Photo-Me International plc (the “Company”) for the year ended 30 April 2019 were authorised for issue by the directors on 17 July 2019 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 the symbol PHTM. The registered number of the Company is 735438 and its registered office is at Unit 3B, Blenheim Rd, Epsom, KT19 9AP. The principal activities of the Group are shown on page 45. The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and IFRS Interpretation Committee interpretations as endorsed by the European Union (“EU”), and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. 1 AC C O U N T I N G P O L I C I E S 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 87. 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 B AS I S O F P R E PA R AT I O N The consolidated financial statements have been prepared under the historical cost convention except for certain derivative financial instruments, financial instruments held at FVTPL and available-for-sale financial assets that are measured at fair value. 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 judgements The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. 1) Development costs – notes 1.4 and 11 Management determine when the criteria for capitalisation of development costs have been met including commercial viability and ability to reliably measure costs as an intangible asset based on discounted expected cash flows and the costs can be reliably measured. Judgement is required in determining the practice for capitalising development costs and is required in assessing whether the development costs meet the criteria for capitalisation. This judgement has been applied consistently year to year. 2) Taxation – note 7 During the previous year, the Group implemented a new transfer pricing policy with the help of specialist external advisers. In conjunction with the external advisers, Management has determined that the transfer pricing policy will be deductible as implemented. The Group recognises deferred tax assets and liabilities based upon management’s judgement of the expected recoverability of the balance. The estimate will include assumptions regarding future income streams of the Group and the future movement in corporation tax rates in the respective jurisdictions. The estimation of provisions in respect of current taxation depends on management’s judgements in respect of taxation enquiries and the uncertainty surrounding resolution. Group and Company The following are areas of estimation uncertainty: Going concern The financial statements of the Group and the Company have been prepared on the going concern basis. 1) 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. 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. 80 PHOTO-ME INTERNATIONAL PLC  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. The carrying value for significant asset classes of operating equipment is tested annually for impairment based on a value in use calculation. Key sensitivities in the value in use calculation include revenue, volumes, selling prices operating costs and discount rates. Other key factors in determining value in use include technological developments and regulatory changes. 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. 2) 3) Taxation – notes 1.17, 7 and 24 The Group recognises deferred tax assets and liabilities based upon management’s judgement of the expected recoverability of the balance. The estimate will include assumptions regarding future income streams of the Group and the future movement in corporation tax rates in the respective jurisdictions. The estimation of provisions in respect of current taxation depends on management’s judgements in respect of taxation enquiries and the uncertainty surrounding resolution. 1.2 B AS I S O F C O N S O L I D AT I O N 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 If the business combination is achieved in stages, the carrying value of the acquirer’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. The principal 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. 81 ANNUAL REPORT 2019FINANCIAL STATEMENTS 1 AC C O U N T I N G P O L I C I E S C O N T I N U E D 1.3 F O R E I G N C U R R E N C Y T R A N S L AT I O N 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. 1.4 I N TA N G I B L E ASS E TS 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. 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 2019 or 2018. 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. 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 and Development costs are accounted for in line with all relevant criteria as mandated by IAS 38. 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: Research and development costs Useful lives Amortisation Finite Straight-line basis, with a maximum life of four years from commencement of commercial production, with no residual value Software Finite Straight-line basis, with a maximum life of three years, with no residual value Customer related Finite Patents and licences Droit au Bail Finite Indefinite Not amortised, but subject to impairment testing Straight-line basis, with a maximum life of 20 years, with no residual value. The majority of customer related intangible assets are depreciated over their useful lives of between three and five years Straight-line basis, with a maximum life of 20 years, with no residual value. Most patents are depreciated over a period of 10 years or less Internally generated Acquired Acquired Acquired Acquired 82 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC 1. 5 P R O P E R T Y, P L A N T A N D E Q U I P M E N T 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 2% – 5% straight-line Leasehold improvements Photobooths and vending machines Plant, machinery, furniture, fixtures and motor vehicles 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. Capitalised assets held under finance lease are depreciated 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 judgement 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. 1.6 I N V E ST M E N T P R O P E R T Y 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. 1.7 L E AS E S 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, including any fixed element of site agreements 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 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 I M PA I R M E N T 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 separately identifiable cash flows exist (cash-generating units) and the recoverable amount is determined for the cash-generating unit (CGU). 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. 1.9 F I N A N C I A L I N ST R U M E N TS Group Policy applicable from 1 May 2018 (i) Trade receivables Trade receivables are initially measured at fair value, and subsequently at their amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts. (ii) Financial assets held at amortised cost These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. 83 ANNUAL REPORT 2019FINANCIAL STATEMENTS 1 AC C O U N T I N G P O L I C I E S C O N T I N U E D (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) 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. (v) Trade and other payables Trade payables are initially recorded at fair value and subsequently recorded at amortised cost using the effective interest rate method. Recognition and measurement For investments designated as financial assets at fair value through profit or loss are based on current bid prices. For unlisted investments the Group uses various valuation techniques to determine fair values. Classification of financial assets Financial instruments are designated in accordance with the business model under which the instrument is held. Changes to the classification of financial instruments on transition are shown in note 32. Impairment of financial assets The Group calculates the expected credit loss (ECL) as mandated by IFRS 9 on the Group’s trade and other receivable balances outstanding at the reporting date. This includes receivables arising from equipment sales and the Group’s B2B laundry business but excludes vending revenue. The ECL is based on the 5 year average historic credit losses as a proportion of trade and other debtors compared to the total provision for bad doubtful debts at the reporting date, with business units bearing a similar credit risk profile segmented together. No ECL was required at 1 May 2018 or 30 April 2019. Policy applicable until 30 April 2018 (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) 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. (vi) Trade and other payables Trade payables are initially recorded at fair value and subsequently recorded at amortised cost using the effective interest rate method. 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. 84 FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC 1.10 I N V E N TO R I E S 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 includes 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. Inventories are stated net of provisions for slow moving and obsolete inventory based on expected future usage. 1.12 C AS H A N D C AS H E Q U I VA L E N TS 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 S H A R E C A P I TA L 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 E M P LOY E E B E N E F I TS 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 with defined benefits being based upon the employee’s length of service and final pensionable salary. The Company also operates a defined contribution pension scheme. Defined benefit 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. Defined contribution scheme Contributions to defined contribution schemes are expensed as incurred. Other post-employment benefits In addition to the pension schemes noted above, contracts of employment in certain Group companies require provision to be made 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 fair value is expensed on a straight-line basis over the vesting period, based on management’s estimate of the number of shares that will eventually 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. 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. 85 ANNUAL REPORT 2019FINANCIAL STATEMENTS 1 AC C O U N T I N G P O L I C I E S C O N T I N U E D 1.15 P R OV I S I O N S 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. 1.16 TA X AT I O N 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 year end. 1.17 S E G M E N T R E P O R T I N G 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. 1.18 R E V E N U E R E C O G N I T I O N Revenue is is recognised at the point in time when value and control is transferred to the customer to the extent that the Group fulfils its contractual obligations and is recognised when it is probable that the Group will collect the related consideration. Revenue is the fair value of consideration received or receivable and is measured net of discounts, VAT and other sales-related taxes. Vending revenue from the operation of photo booths, laundries, kiddy rides and kiosks is recognised when the services are provided which is when payment is received. Vending revenue is total consideration received during the period including that held in machines at the balance sheet date. There are no vending transactions requiring unbundling of components. Revenue from the sale of equipment, spare parts and consumables is recognised upon delivery of products and acceptance, if applicable, by the customer. Equipment, spare parts and consumables are sold on their own and on unbundling required for accounting purposes. Revenue from the provision of services, principally maintenance contracts, is recognised evenly over the period in which the service is available to the customer. Services are sold on their own as stand alone products with no unbundling required. 1.19 OW N W O R K C A P I TA L I S E D Some of the Group’s subsidiaries manufacture vending equipment, which is then sold to the Group’s operating 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. 1.20 D I V I D E N D D I ST R I B U T I O N S 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. 1.21 G OV E R N M E N T G R A N TS 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. 1.22 C O M PA N Y I N V E ST M E N TS 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. 86 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC1. 23 S P E C I F I C I T E M S 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 judgement need to be disclosed separately by virtue of their size, nature and frequency. 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 providing a clear understanding of the Group’s performance, as Specific items are by definition material, unusual and rare. Management consider their exclusion necessary to provide a more clear understanding of the Group’s underlying performance. For those years where Specific items are shown in the Group statement of Comprehensive Income an alternative earnings 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. Underlying results are reported results adjusted to exclude the effect of Specific items. 2 N E W STA N D A R D S , A M E N D M E N TS A N D I N T E R P R E TAT I O N S New accounting standards Adopted by the Group The Group has adopted the following new standards and amendments for the first time in these financial statements with no material impact. IFRS 9 Financial Instruments IFRS 15 Revenue from contracts with Customers. IFRS 9 Financial instruments The Group adopted IFRS 9 Financial Instruments on 1 May 2018. Adoption of IFRS 9 did not have a material impact on the Group’s financial position or performance; therefore, no restatement of the comparative figures has been required. Classification IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their intrinsic cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL and eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. The adoption of IFRS 9 Financial Instruments has not had a material impact on the accounting for trade receivables, loans, investments in debt securities and investments in equity securities that are managed on a fair value basis. At 30 April 2018, the Group had equity investments with a carrying value of £4,286,000 classified as available for sale that are held to maximise cash flows through sale. On 1 May 2018, Under IFRS 9, the Group has designated these investments as measured at FVTPL, consequently, all fair value gains and losses will be reported in the income statement. Impairment of financial assets IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward- looking ‘expected credit loss’ (ECL) model. This requires considerable judgement about how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model applies to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments. 88.1% (2018: 88.0 %) of the Group’s revenue consists of prepaid vending activities with no inherent credit risk. The ECL was calculated with reference to the Group’s current provision for doubtful debts as a proportion of trade receivables at year end compared to the 5 year average profit and loss charge in respect of bad debts as a proportion of average debtors. Historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables of which the current state of the economy (such as Brexit, market interest rates or growth rates) and particular industry issues in the countries in which it sells its goods are judged to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. The ECL calculation was prepared on a segmented basis with business units with a similar credit risk profile segmented together. Based on the above calculation, the Company and the Group’s existing provisions were sufficient to cover the ECL 1 May 2018 and 30 April 2019. Classification – Financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities, however, under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognised in profit or loss, whereas under IFRS 9 these fair value changes are generally presented as follows: o the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and o the remaining amount of change in the fair value is presented in profit or loss. The Group has not designated any financial liabilities at FVTPL and it has no current intention to do so. Adoption of IFRS 9 did not indicate any material impact on the classification of financial liabilities at 1 May 2018. Changes to the classification of financial assets on transition are shown in note 32. 87 ANNUAL REPORT 2019FINANCIAL STATEMENTSIFRS 15 Revenue from contracts with customers IFRS 15 Revenue from contracts with customers was adopted on 1 May 2018. Adoption of IFRS 15 Revenue from contracts with customers did not have a material impact on the Group’s financial position or performance; and therefore, no restatement of the comparative figures has been required. No other new standards, amendments or interpretations to standards effective for the first time for the financial year beginning on 1 May 2019 have had a material impact on our financial position or performance, nor the disclosures in these consolidated financial statements. Not adopted by the Group Certain new accounting standards and interpretations have been published that are not mandatory for the year ended 30 April 2019 and have not been early adopted. With the exception of IFRS 16 Leases, none of the accounting standards issued but not yet effective are expected to have a significant impact on our annual financial statements, including IFRIC 23 Uncertainty over Income Tax Treatments. IFRIC 23 clarifies how to apply the recognition and measurement requirements in IAS 12 Taxes when there is uncertainty over income tax treatments. In particular, the interpretation addresses whether uncertain tax treatments should be considered separately or together with one or more other uncertain tax treatments, and addresses the assumptions an entity makes about the examination of tax treatments by taxation authorities. IFRIC 23 is effective from 1 January 2019. IFRS 16 Leases The Group adopted IFRS 16 on 1 May 2019. IFRS 16 mandates the recognition of a right-of-use asset and a corresponding liability for all arrangements that meet the criteria of a lease and do not qualify for an exemption. The right-of-use (ROU) asset is depreciated over the term of the lease with the liability amortising over the life of the lease with a resulting interest charge. IFRS 16 defines a lease as a contract, or part of a contract, that conveys the right to use and enjoy substantially all the economic benefits of an identified asset, for a period of time in exchange for a consideration. The Group has arrangements across a number of categories that may meet the definition of a lease under IFRS 16. These include: Site agreements: The Group operates approximately 47,000 vending units. These units are deployed under a fee paying agreement with the site occupier. These agreements vary widely in their terms and conditions. The Group is examining, on an individual basis, the degree to which these agreements meet the definition of a lease under IFRS 16, with particular regard to the presence of an identified asset with no substitution rights. While the standard sets out the definition of a lease, judgement is required in assessing the degree to which those criteria are met, particularly with regard to the presence of an identified asset with no substitution rights. Property and motor vehicles: The Group occupies a number of buildings and utilises a number of motor vehicles under rental agreements. Following an examination of the agreements, the Group has determined that these arrangements qualify as leases under IFRS 16. IFRS 16 will be adopted on the modified retrospective basis, meaning that the carrying amount of the initial right-of-use assets will equal the respective lease liabilities for all leases entered into before 1 May 2019; with no restatement of prior year comparatives required. The impact of the change in accounting standard on each line item in the financial statements will be provided. The following practical expedients will be applied: o the Company will apply a single discount rate to lease arrangements for assets with similar characteristics; o the Company will exclude other initial direct costs from the measurement of the ROU asset for all asset classes (Site agreements, Property and Motor vehicles); o the Company will apply the use of hindsight to determine the lease term; o the Company will conduct impairment testing immediately before the date of initial application; and o the Company will elect to not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The lease payments associated with these leases is recognised as an expense on a straight-line basis over the lease term. For arrangements meeting the definition of a lease, costs will be recognised in the form of depreciation of the right-of-use asset and interest on the lease liability, which may impact the phasing of operating profit and profit before tax, compared to the cost profiles and presentation in the income statement under IAS 17. This will also impact the classification of associated cash flows in the Consolidated Cash Flow Statement. Except for IFRS 16 as noted above, the Directors do not currently anticipate that the adoption of any other standard or interpretation that has been issued but is not yet effective will have a material impact on the financial statements of the Group in future periods. 88 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC3 S E G M E N TA L A N A LYS I S 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 & 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, being the CODM, believe that the economic characteristics of the European operations, together with the fact that they are similar in terms of operations, use common systems and the nature of the regulatory environment allow them to be aggregated into one reporting segment. The CODM monitors performance of the segments at the underlying operating profit level before Specific 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 Chief Operating Decision Maker. The segment results are as follows: 2019 Total revenue Inter segment sales Revenue from external customers EBITDA Depreciation and amortisation Underlying operating profit Specific items (see note 4) Operating profit excluding associates Share of post-tax profits from associates Operating profit Other gains Finance revenue Finance costs Profit before tax Tax Profit for year Capital expenditure Asia £’000 Continental Europe £’000 United Kingdom & Ireland £’000 Corporate costs £’000 Total £’000 44,538 138,935 – (8,274) 44,538 130,661 9,350 49,267 (4,673) (15,727) 6,502 (1,825) 4,677 33,540 – 54,962 (2,043) 52,919 13,167 (6,119) 7,048 – – – – 238,435 (10,317) 228,118 (2,079) 69,705 (497) (27,016) (2,576) 44,514 – (1,825) 33,540 7,048 (2,576) 42,689 2,755 19,893 7,493 379 50 42,739 361 20 (527) 42,593 (11,314) 31,279 30,520 89 ANNUAL REPORT 2019FINANCIAL STATEMENTS3 S E G M E N TA L A N A LYS I S C O N T I N U E D Asia £’000 Continental Europe £’000 United Kingdom & Ireland £’000 Corporate costs £’000 Total £’000 2018 Total revenue Inter segment sales Revenue from external customers EBITDA Depreciation and amortisation Underlying operating profit Specific items (see note 4) Operating profit excluding associates Share of post-tax profits from associates Operating profit Other gains Finance revenue Finance costs Profit before tax Tax Profit for year Capital expenditure 44,979 131,064 (6) (9,930) 44,973 10,289 121,134 45,967 (4,879) (14,027) 5,410 31,940 – – 5,410 31,940 65,432 (1,725) 63,707 16,194 (5,794) 13,030 (2,630) 10,400 – – – 241,475 (11,661) 229,814 (1,469) 70,981 (369) (25,069) (4,158) 2,320 (1,838) 46,222 (310) 45,912 194 46,106 3,708 658 (297) 50,175 (9,889) 40,286 43,677 5,248 26,429 11,410 590 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 Europe UK Total revenue from external customers Sales of equipment, spare parts & consumables Sales of services Other sales Vending revenue Total revenue There were no key customers in the year ended 30 April 2019 (2018: none). 90 Group 2019 £’000 44,538 130,601 52,979 228,118 2019 £’000 22,347 4,595 244 27,186 200,932 228,118 2018 £’000 44,975 127,050 57,789 229,814 2018 £’000 22,964 4,366 285 27,615 202,199 229,814 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC 4 P R O F I T F O R T H E Y E A R 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 and investment property – owned – leased Amortisation and impairment of capitalised research and development expenditure is reflected in 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 – land and buildings – other Inventory cost Cost of inventories recognised as an expense Inventory provision reversed Inventory provision reversed relates to provisions made in previous years. During the year the Group provided £215,000 in respect of obsolete stock (2018: £1,661,000). Other items Research and development current year expenditure, not capitalised Own work capitalised Trade receivables impairment (note 15) Net foreign exchange gains Loss/(gains) on sale of property, plant and equipment Direct expenses for investment properties generating rental income 2019 £’000 1,959 1,033 2,992 2018 £’000 1,824 944 2,768 23,865 159 22,150 151 24,024 22,301 787 246 1,033 2019 £’000 506 1,126 1,632 700 244 944 2018 £’000 686 1,225 1,911 20,760 (1,220) 19,540 24,299 (694) 23,605 2019 £’000 2018 £’000 392 – 128 (550) 165 26 302 (311) (137) (664) (2,361) – 91 ANNUAL REPORT 2019FINANCIAL STATEMENTSN OT E S TO T H E F I N A N C I A L STAT E M E N TS C O N T I N U E D F O R T H E Y E A R E N D E D 30 A P R I L 2019 4 P R O F I T F O R T H E Y E A R C O N T I N U E D Audit and non-audit services The following fees for audit and non-audit services were paid or are payable to the Company’s auditor, Grant Thornton UK LLP (2018: KPMG LLP) and its associates. Audit fee of the company Audit fees of the subsidiaries Total audit fees Audit related services – interim review 2019 £’000 2018 £’000 95 194 289 20 309 86 243 329 26 355 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 the Group’s auditor 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 the Group’s auditor 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 Groups’ auditors for audit and other services were Other operating income Other operating income Other operating income principally includes rental income from investment property (note 13). 2019 £’000 74 75 149 2019 £’000 – 2018 £’000 105 101 206 2018 £’000 561 2019 £’000 1,601 2018 £’000 1,686 92 FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCOther gains and losses Other gains and losses in the current year comprises profits arising on financial instruments held at FVTPL and profit on disposal of associate; and in the prior year on financial assets classified as available for sale. They have been disclosed separately in order to improve a reader’s understanding of the financial statements and are not disclosed within operating profit as they are non-trading in nature. Other gains and losses Gain on disposal of Stilla Technologies SA Fair value loss on financial instrument held at FVTPL Gains on available for sale financial instruments Group 2019 £’000 3,258 (2,897) – 361 2018 £’000 – – 3,708 3,708 Year ended 30 April 2019 The gain of £3,258,000 in the current year relates to the disposal of the Group’s interest in Stilla Technologies SA, previously an associated undertaking (see note 14). The fair value loss of £2,897,000 on the financial instrument held at FVTPL relates to the mark to market adjustment on the Group’s interest in Max Sight Group Holdings Limited (see note 14). Year ended 30 April 2018 The gain of £3,708,000 relates to the gain on the deemed disposal of the Group’s interest in Max Sight Limited and Fullwise Limited as described in note 14. Specific items Specific items Profit on sale of land & buildings Restructuring costs Group 2019 £’000 – (1,825) (1,825) 2018 £’000 2,320 (2,630) (310) Year ended 30 April 2019 Restructuring costs relate to the re-alignment the Group’s Japanese operations to current market conditions which included streamlining of administrative functions, relocation and removal of low revenue and unprofitable units to better locations. Year ended 30 April 2018 Profit on sale of land in relates to the profit realised following the sale of the former head office building in Bookham. Restructuring costs relate to the refocusing of Photo-Me Retail Limited operations to unattended digital printing kiosk activities and the closure of manned retail outlets. Reconciliation of profit before tax to underlying profit before tax Underlying profit before tax Profit before tax Adjustments to exclude: Gain on disposal of Stilla Technologies SA Fair value loss on financial instrument held at FVTPL Gains on available for sale financial instruments Profit on sale of land & buildings Restructuring costs Group 2019 £’000 2018 £’000 42,593 50,175 (3,258) 2,897 – – 1,825 44,057 – – (3,708) (2,320) 2,630 46,777 93 ANNUAL REPORT 2019FINANCIAL STATEMENTSN OT E S TO T H E F I N A N C I A L STAT E M E N TS C O N T I N U E D F O R T H E Y E A R E N D E D 30 A P R I L 2019 5 E M P LOY E E S 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 Directors’ emoluments Full details of directors’ remuneration and share options are given in the Remuneration Report on pages 52 to 64. 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 F I N A N C E R E V E N U E A N D C O STS Finance income Bank interest Other interest Dividends received from investments Other financial income Finance costs Bank loans and overdrafts at amortised cost Other loans at amortised cost and finance leases 94 Group 2019 £’000 39,888 8,361 141 212 297 48,899 2018 £’000 42,372 8,596 197 212 293 51,670 Group 2019 number 957 149 1,106 229 9 567 33 161 107 1,106 2019 £’000 1 19 – – 20 481 46 527 2018 number 1,167 204 1,371 474 49 522 28 171 127 1,371 2018 £’000 5 138 285 230 658 286 11 297 FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC7 TA X AT I O N E X P E N S E 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 Impact of change in rate Total deferred tax Tax charge in the statement of comprehensive income Tax relating to items (credited)/charged to other components of comprehensive income Corporation tax Deferred tax Tax (credit)/charge in other comprehensive income 2019 £’000 2018 £’000 5,274 186 5,460 2,512 193 2,705 8,165 505 2,570 74 3,149 11,314 2019 £’000 (3) (42) (45) 5,517 (1,198) 4,319 3,230 1,302 4,532 8,851 934 19 85 1,038 9,889 2018 £’000 – 12 12 95 ANNUAL REPORT 2019FINANCIAL STATEMENTSReconciliation of total tax charge The difference between the Group tax charge and the standard UK corporation tax rate of 19% (2018: 19%) is explained below: Profit before tax Tax using the UK corporation tax rate of 19% (2018: 19.9%) Effect of: – non-taxable items – change in UK tax rates – overseas tax rates – income not assessable – losses not recognised in deferred tax (relieved)/incurred – adjust deferred tax opening/closing balances to average current tax rate – adjustments to tax in respect of prior years – Foreign exchange movements Total tax charge Effective tax rate 2019 £’000 42,593 8,093 (396) 75 2,369 (624) – 1,175 652 (30) 11,314 26.6% 2018 £’000 50,175 9,533 33 28 367 (711) 537 – 102 – 9,889 19.7% The Group tax charge of £11.3m (2018: £9.9m) corresponds to an effective tax rate of 26.6% (2018: 19.7%). The Group undertakes business in 18 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 in accordance with local regulations; and ensures compliance with the Group’s tax policy and guidelines. 8 P R O F I TS AT T R I B U TA B L E TO M E M B E R S O F T H E PA R E N T C O M PA N Y The loss for the year, after tax, dealt with in the financial statements of the Parent Company is £141,000 (2018: profit after tax £22,155,000), including dividends received from subsidiaries. 9 D I V I D E N D S PA I D A N D P R O P O S E D Interim 2018 paid on 11 May 2018 2017 paid on 11 May 2017 Final 2018 approved at AGM held on 24 October 2018 2017 approved at AGM held on 25 October 2017 Pence per share 2019 £’000 Pence per share 2018 £’000 3.710 14,005 3.090 11,633 4.730 17,868 8.440 31,873 3.940 7.030 14,845 26,478 Year ended 30 April 2019 – Proposed dividends not yet paid The Board declared an interim dividend of 3.71p per share for the year ended 30 April 2019, which was paid on 11 May 2019. The Board proposes a final dividend for the year ended 30 April 2019 of 4.73p per share which is subject to shareholder approval at the Annual General Meeting to be held on 3 October 2019. Year ended 30 April 2018 – Paid after 30 April 2018 The Board declared an interim dividend of 3.71p per share for the year ended 30 April 2018, amounting to £14,005,000 which was paid on 11 May 2018. The Board proposed a final dividend for the year ended 30 April 2018 of 4.73p per share, amounting to £17,868,000 which was approved by shareholders at the Annual General Meeting held on 24 October 2018 and paid on 9 November 2018. 96 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC10 E A R N I N G S P E R S H A R E Basic earnings per share amounts are calculated by dividing net earnings attributable to shareholders of the Parent of £31,226,000 (2018: £40,134,000) by the weighted average number of shares in issue during the year. 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 being 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: 2019 Weighted average number of shares ‘000 Earnings £’000 31,266 377,662 190 31,266 377,852 Earnings per share pence 8.27 (0.01) 8.26 2018 Weighted average number of shares ‘000 377,190 1,555 Earnings £’000 40,134 40,134 378,745 Earnings per share pence 10.64 (0.04) 10.60 Basic earnings per share Effect of dilutive share options Diluted earnings per share 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. Alternative earnings per share Profit for the year attributable to owners of the Parent Specific items net of tax Gains on financial instruments classified as available for sale Earnings after specific items Details of Specific items are set out in note 4. £’000 31,226 1,825 (361) 32,690 2019 Earnings per share pence Diluted earnings per share pence 8.27 0.48 (0.10) 8.65 8.26 0.48 (0.10) 8.64 2018 Earnings per share pence Diluted earnings per share pence 10.64 (0.05) 10.60 (0.05) (0.98) 9.61 (0.98) 9.57 £’000 40,134 (190) (3,708) 36,236 97 ANNUAL REPORT 2019FINANCIAL STATEMENTS 11 G O O D W I L L A N D OT H E R I N TA N G I B L E ASS E TS Goodwill Group Cost: At 1 May 2017 Exchange differences Additions At 30 April 2018 At 1 May 2018 Exchange differences Additions (see note 30) At 30 April 2019 Impairment charges: At 1 May 2017 At 30 April 2018 At 1 May 2018 At 30 April 2019 Net book value: At 30 April 2019 At 30 April 2018 At 30 April 2017 The addition to goodwill in 2019 relates to acquisitions in Spain and France and in 2018 to acquisitions in the United Kingdom. Company The Company has no goodwill. £’000 12,110 69 1,554 13,733 13,733 (71) 13,230 26,892 298 298 298 298 26,594 13,435 11,812 98 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC  The table below shows the allocation of goodwill acquired through business combinations between segments. Goodwill has been allocated for impairment testing purposes to eleven (2018: nine) 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 – Photo-Me Ireland Limited CGU 2 – Photo-Me Northern Ireland CGU 3 – Jolly Roger (Amusement Rides) Limited CGU 4 – Fowler UK.com Limited CGU 5 – Inox Equip Limited and Tersus Equip Limited Total UK & Ireland Continental Europe CGU 1 – Photomaton SAS CGU 2 – Fotofix-Schnellphotoautomaten G.m.b.H. CGU 3 – Copyphot SA CGU 4 – LaWash Group CGU 5 – Sempa SARL Total Continental Europe Asia CGU 1 – Nippon Auto-Photo Kabushiki Kaisha Total Asia Total Total 2019 £’000 154 14 317 1,273 1,554 3,312 309 1,982 558 2,528 10,660 16,037 7,245 7,245 2018 £’000 154 14 317 1,273 1,554 3,312 315 2,021 542 – – 2,878 7,245 7,245 26,594 13,435 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. Cash flows include a forecast period of five years, based on actual operating results, budgets and economic market research with a terminal value based on a long term growth rate applied thereafter. Key assumptions Growth rate 1%-3% (2018: 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 6.5%–7.5% (2018: 6.9%–8.3%) 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 7.2%, (2018:8.3%), Ireland 7.7% (2018: 7.9%), France 7.7% (2018: 7.8%), Germany 6.5% (2018:7.5%), Spain 6.95% (2018: n/a), Switzerland 7.1% (2018: 6.9% ) and Japan 7.5% (2018: 6.9%). The Board is confident, overall, that these discount rates reflect the circumstances in each region, and are in accordance with IAS 36. 99 ANNUAL REPORT 2019FINANCIAL STATEMENTS11 G O O D W I L L A N D OT H E R I N TA N G I B L E ASS E TS C O N T I N U E D 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 2019 (2018: none). Other intangible assets Group Cost: At 1 May 2017 Exchange differences Additions – Internally generated – External Disposals At 30 April 2018 At 1 May 2018 Exchange differences Additions – Subsidiaries acquired – Internally generated – External Disposals At 30 April 2019 Amortisation: At 1 May 2017 Exchange differences Provided during year Disposals At 30 April 2018 At 1 May 2018 Exchange differences Subsidiaries acquired Provided during year Disposals At 30 April 2019 Net book value: At 30 April 2019 At 30 April 2018 At 30 April 2017 Capitalised development costs £’000 Other intangible assets £’000 Total £’000 7,883 142 12,657 20,540 174 316 2,510 – (493) 10,042 10,042 (51) – 708 (476) 13,063 13,063 (53) – 2,555 1,631 – (774) 10,848 2,200 45 1,824 (493) 3,576 3,576 (48) – 1,959 (774) 4,713 6,135 6,466 5,683 – 536 (2,681) 13,420 4,889 11 944 (275) 5,569 5,569 7 12 1,033 (2,288) 4,333 9,087 7,494 7,768 2,510 708 (969) 23,105 23,105 (104) 2,555 1,631 536 (3,455) 24,268 7,089 56 2,768 (768) 9,145 9,145 (41) 12 2,992 (3,062) 9,046 15,222 13,960 13,451 Capitalised research and development expenditure is amortised over a maximum of four years, with no residual value. 100 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCIncluded in the net book value of other intangible assets is £3,447,000 corresponding to droit au bail (2018: £3,478,000). Droit au 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 carried at 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 the fair value is less than their carrying value, an impairment loss is recognised and charged to cost of sales. Management believes that no reasonably possible change in the basis of this assessment would cause the carrying value of these rights to exceed their recoverable value. Also included in other intangible assets is £2,212,000 (2018: £2,549,500) relating to the licence which grants the right to use space in Asda stores following the acquisition of the Photo Division of Asda Stores Limited in the financial year ending 30 April 2017. The useful life of this intangible asset is finite and is being amortised over the term of the licence agreement (10 years) to October 2026. The amortisation charge is included within cost of sales. The Group tests the carrying value of the Asda licence annually for impairment, or more frequently if there are indications of impairment. For the purpose of impairment testing, the recoverable amount of the cash generating unit was measured on the basis of its value in use, by applying cash flow projections based on financial forecasts covering the period to October 2026. The key assumptions for the value in use calculation were those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the forecast period. The estimated growth rates were based on past performance and expectation of future changes in the market. The growth rate used was 2% (2018: 2%) and the pre-tax rate used to discount the forecast cash flows was 10% (2018: 5.93%). Company Cost: At 1 May 2017 Disposals – External At 30 April 2018 At 1 May 2018 At 30 April 2019 Amortisation: At 1 May 2017 Provided during year Disposals – External At 30 April 2018 At 1 May 2018 Provided during year At 30 April 2019 Net book value: At 30 April 2019 At 30 April 2018 At 30 April 2017 Other intangible assets £’000 Total £’000 780 780 (4) 776 776 776 550 163 (4) 709 709 67 776 – 67 230 (4) 776 776 776 550 163 (4) 709 709 67 776 – 67 230 101 ANNUAL REPORT 2019FINANCIAL STATEMENTS12 P R O P E R T Y, P L A N T A N D E Q U I P M E N T Group Cost: At 1 May 2017 Exchange difference Additions – new subsidiaries – internal – external Disposals At 30 April 2018 Exchange difference Additions – new subsidiaries – internal – external Disposals At 30 April 2019 Depreciation At 1 May 2017 Exchange difference New subsidiary Provided during year Disposals At 30 April 2018 Exchange difference New subsidiary Provided during year Disposals At 30 April 2019 Net book value: At 30 April 2019 At 30 April 2018 At 30 April 2017 Land & Buildings £’000 Photobooths and vending machines £’000 Plant, machinery, furniture, fixtures and motor vehicles £’000 Total £’000 5,621 218,283 66 2,569 28,137 1,067 252,041 3,702 – – 814 (180) – 1,424 34,164 (14,765) 49 – 4,057 (627) 49 1,424 39,035 (15,572) 6,321 241,675 32,683 280,679 (8) (610) (513) (1,131) 1,002 – 466 (231) 40 1,383 23,555 274 93 1,316 1,476 2,856 26,877 (13,935) (1,465) (15,631) 7,550 252,108 33,928 293,586 3,999 151,698 21,355 177,052 43 – 165 (138) 1,243 – 20,693 (12,731) 820 20 1,427 (471) 2,106 20 22,285 (13,340) 4,069 160,903 23,151 188,123 (1) 127 203 (35) (370) 23 22,081 (12,333) (402) 147 (773) 297 1,724 24,008 (1,054) (13,422) 4,363 170,304 23,566 198,233 3,187 2,252 1,622 81,804 80,772 66,585 10,362 9,532 6,782 95,353 92,556 74,989 Internal additions for photobooths and vending machines of £1,383,000 (2018: £1,424,000) relate to own work capitalised, being equipment produced by the subsidiaries and capitalised by the group companies. 102 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCIncluded in the above are assets held under finance leases, as follows: Net book value Additions/reclassifications Depreciation charge 2019 Plant, machinery, furniture, fixtures and motor vehicles £’000 401 184 159 2018 Plant, machinery, furniture, fixtures and motor vehicles £’000 392 81 151 The Group tests all significant operating equipment asset classes for impairment annually, or more frequently if there are indications of impairment. Impairment reviews on operating equipment are all conducted on a value in use basis. For the purpose of impairment testing, the recoverable amount of the CGUs was measured on the basis of its value in use, by applying cash flow projections based on financial forecasts covering a period of up to eight years, in line with the useful economic life of the asset class. The key assumptions for the value in use calculation were those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the forecast period. The estimated growth rates were based on historic performance trends and budgets. The growth rate used to extrapolate cash flow projections beyond the period covered by the financial forecasts ranged from 0% to 3% (2018: 0%- 3%). A conservative pre-tax discount rate of 8.3% (2018: 10%) was applied to the cash flows. No impairment losses were identified and consequently no impairment losses were recognised in 2019 (2018: none). 103 ANNUAL REPORT 2019FINANCIAL STATEMENTS12 P R O P E R T Y, P L A N T A N D E Q U I P M E N T C O N T I N U E D Company Cost: At 1 May 2017 Additions – internal – external Disposals – external At 30 April 2018 Additions – internal – external Disposals – external At 30 April 2019 Depreciation At 1 May 2017 Provided during year Disposals – external At 30 April 2018 Provided during year Disposals – external At 30 April 2019 Net book value: At 30 April 2019 At 30 April 2018 At 30 April 2017 Land & Buildings £’000 Photobooths and vending machines £’000 Plant, machinery, furniture, fixtures and motor vehicles £’000 Total £’000 8 – – – 8 – – (8) – 8 – – 8 – (8) – – – – 38,322 415 38,745 6,120 1,502 (3,412) 42,532 3,374 1,421 – 617 (92) 940 – 332 6,120 2,119 (3,504) 43,480 3,374 1,753 (4,371) 42,956 (157) 1,115 (4,536) 44,071 29,181 3,643 (3,296) 29,528 3,807 (4,012) 29,323 13,633 13,004 9,141 226 68 (41) 253 90 (88) 255 860 687 189 29,415 3,711 (3,337) 29,789 3,897 (4,108) 29,578 14,493 13,691 9,330 Internal additions for photobooths and vending machines of £3,374,000 (2018: £6,120,000) relate to new equipment produced by subsidiaries and equipment previously capitalised by the Group’s subsidiaries and sold to the parent. 104 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC13 I N V E ST M E N T P R O P E R T Y Group Cost: At 1 May 2017 Exchange differences At 30 April 2018 Exchange differences At 30 April 2019 Depreciation At 1 May 2017 Exchange difference Provided during year At 30 April 2018 Exchange differences Provided during year At 30 April 2019 Net book value: At 30 April 2019 At 30 April 2018 At 30 April 2017 £’000 12,774 573 13,347 (259) 13,088 12,112 543 16 12,671 (247) 16 12,440 648 676 662 The investment property is freehold and is stated at cost. The property was valued by an independent professional valuer in April 2018, with a value of €7.7m based on a market value for similar properties. The Group sold the rights to the future rental stream on the property for the period up to April 2019 in the year ended 30 April 2011, receiving €9.2m (£8.2m) in respect of this. Rental income from the investment property was £1,106,000 (2018: £1,093,000) (note 4) and finance costs were £2,000 (2018: £7,000). Company The Company has no investment property. 105 ANNUAL REPORT 2019FINANCIAL STATEMENTS14 I N V E ST M E N TS I N ASS O C I AT E S A N D S U B S I D I A R I E S Investment in associates Group Cost: At 30 April 2017 Exchange differences Deemed disposal of Max Sight Limited and Fullwise Limited Share of profits Dividends At 30 April 2018 Exchange differences Disposal of Stilla Technologies SA (see note 4) Share of profits Dividends At 30 April 2019 £’000 2,095 (2) (400) 194 (304) 1,583 (4) (1,178) 50 (36) 415 On 1 August 2018, the Group disposed of its interest in Stilla Technologies SA, a French company specialising in universal and flexible digital PCR (dPCR) genetic testing, for €5,000,000, resulting in a gain of £3,258,000 (see note 4). The Group’s interest in Stilla Technologies SA was held by MGInvest Investments Limited, a subsidiary of Photo-Me International. On 28 February 2018, Max Sight Group Holdings Limited was listed on the Hong Kong Growth Enterprise Market. In preparation for the listing, Max Sight Limited and Fullwise Limited (included in ‘Other’ below) were merged with certain other companies to form an enlarged group (Max Sight Group Holdings Limited), resulting in a dilution of Photo-Me’s shareholding. Following the listing, Photo-Me’s interest in Max Sight Group Holdings Limited was approximately 13.75% of the total issued share capital and voting rights. As a result, Max Sight Limited and Fullwise Limited ceased to be associates and accordingly, Max Sight Limited and Fullwise Limited were de-recognised as associated entities resulting in a deemed disposal. The amounts shown below in respect of Max Sight Limited for the year ended 30 April 2018 are the Group’s share of revenue and profit for the period in which Max Sight Limited and Fullwise Limited were associates. The summarised financial information of the principal associates, relating to the Group’s share, is set out below. All associated companies are unlisted. Country of incorporation Assets £’000 Liabilities £’000 Revenue £’000 Share of profit £’000 Dividends received Interest % Name At 30 April 2018 Max Sight Ltd Hong Kong Photo Direct Pty Ltd Australia Stilla Technologies SA France Other associates At 30 April 2019 Photo Direct Pty Ltd Australia Other associates – 445 1,178 62 1,685 446 69 515 – 83 – 19 102 72 28 100 394 943 – 107 1,444 782 8 790 94 96 – 4 194 49 1 50 269 35 –- – 304 36 – 36 – 26.95 50.00 26.95 There were no items of other comprehensive income in the year ended 30 April 2019 (2018: nil). 106 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCCompany Costs: At 1 May 2017 Capital increase relating to share-based payment (net) Disposals At 30 April 2018 Capital increase relating to share-based payment (net) At 30 April 2019 Provision: At 1 May 2017 Decrease At 30 April 2018 At 30 April 2019 Net book value: At 30 April 2019 At 30 April 2018 At 30 April 2017 Associated undertakings £’000 Subsidiary undertakings £’000 Total £’000 407 – (369) 38 – 38 7 (4) 3 3 35 35 400 47,830 48,237 177 (21) 177 (390) 47,986 48,024 133 133 48,119 48,157 393 (21) 372 372 400 (25) 375 375 47,747 47,614 47,437 47,782 47,649 47,837 The net capital increase relating to share-based payments relates to share options in the parent company, Photo-Me International plc, granted to employees of subsidiary undertakings of the Group. Refer to note 20 for further details on the Group’s share option schemes. Included in the Company’s investment in subsidiary undertakings is £33,843,000 (2018: £33,843,000) relating to the Company’s investment in Nippon Auto-Photo Kabushiki Kaisha. The details of all the Group’s subsidiaries and associates are given in note 29. 15 F I N A N C I A L I N ST R U M E N TS Group Treasury The Group has a centralised treasury function. 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 Group’s Treasury Company. The Board has defined an investment strategy, amounts and types of products to which the surplus cash may be invested. The Board monitors the performance of the Treasury function and is responsible for making changes to the personnel and limits of authority of Treasury personnel. 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). The key objectives for Group Treasury are 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. 107 ANNUAL REPORT 2019FINANCIAL STATEMENTS15 F I N A N C I A L I N ST R U M E N TS C O N T I N U E D Liquidity risk Liquidity risk is the risk that the Group will face in meeting its 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 satisfactory net cash position throughout the year and preceding year as a result of cash generation from the business. During the current year and prior 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 the Treasury Company bank accounts which are interest bearing. The strong cash generation and retention from the business together with available credit resources, help mitigate liquidity risk. 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, 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. No derivatives or swaps have been used in the year ending 30 April 2019 (30 April 2018: none). With a satisfactory net cash position, the Group largely finances its working capital and capital expenditure programmes from its own resources. 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 ) FA I R VA L U E S O F F I N A N C I A L I N ST R U M E N TS BY C L ASS 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 at fair value through profit and loss (FVTPL), amortised cost, to maturity, available-for-sale financial assets and derivatives The fair value is based on quoted prices at the reporting 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 reporting 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 reporting 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 reporting 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 reporting 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 reporting date if the effect is material. 108 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCIFRS 13 requires an analysis of financial instruments carried at fair value, which are classified as financial instruments held at FVTPL (2018: Other financial assets – available for sale) 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 liabilities that are not based on observable market data At 30 April 2019, the Group held financial instruments amounting to £1,387,000 (2018: £4,286,000). These amounts included the Group's interest in Max Sight Group Holdings Limited of £1,176,000 (2018: £4,074,000) which is a listed investment valued at level 1. Other financial instruments of £211,000 (2018: £212,000) are valued at level 3. Financial instruments by category The tables below show financial instruments by category Group At 30 April 2019 Assets per statement of financial position Financial instruments held at amortised cost Financial instruments held at FVTPL 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 2018 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 Loans and receivables £’000 Financial instruments £’000 982 – 17,800 84,591 103,373 – 1,387 – – Total £’000 982 1,387 17,800 84,591 1,387 104,760 Other financial liabilities at amortised cost £’000 67,393 1,842 37,366 Total £’000 67,393 1,842 37,366 106,601 106,601 Loans and receivables £’000 Available for sale £’000 1,710 – – 4,286 17,676 58,657 78,043 – – 4,286 Total £’000 1,710 4,286 17,676 58,657 82,329 109 ANNUAL REPORT 2019FINANCIAL STATEMENTS15( A ) FA I R VA L U E S O F F I N A N C I A L I N ST R U M E N TS BY C L ASS C O N T I N U E D Liabilities per statement of financial position Borrowings Leases Trade and other payables excluding non – financial liabilities Company At 30 April 2019 Assets per statement of financial position Financial instruments – held at amortised cost Financial instruments – held at FVTPL Trade and other receivables Cash and cash equivalents Liabilities per statement of financial position Trade and other payables excluding non - financial liabilities At 30 April 2018 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 Trade and other payables excluding non - financial liabilities 110 Other financial liabilities at amortised cost £’000 33,325 354 40,736 74,415 Loans and receivables £’000 Financial instruments £’000 – – 19,394 3,202 22,596 982 1,176 – – 2,158 Other financial liabilities at amortised cost £’000 Total £’000 33,325 354 40,736 74,415 Total £’000 982 1,176 19,394 3,202 24,754 Total £’000 41,608 41,608 41,608 41,608 Loans and receivables £’000 Available for sale £’000 974 – 27,386 11,500 39,860 – 4,074 – – 4,074 Other financial liabilities at amortised cost £’000 Total £’000 974 4,074 27,386 11,500 43,934 Total £’000 26,819 26,819 26,819 26,819 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC 15( B ) F I N A N C I A L STAT E M E N T R I S K M A N AG E M E N T 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 Liquidity risk (ii) (iii) Market risk 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. 111 ANNUAL REPORT 2019FINANCIAL STATEMENTS15( B ) F I N A N C I A L STAT E M E N T R I S K M A N AG E M E N T C O N T I N U E D (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 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. Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the group, and a failure to make contractual payments for a period of greater than 120 days past due or an impairment amount being required under the ECL model mandated by IFRS 9. Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. The Group does not require collateral in respect of trade and other receivables. The Group does not have trade receivable and contract assets for which no loss allowance is recognised because of collateral. The Directors have concluded that the credit risk of trade and other receivables has not increased significantly since initial recognition. The Directors have come to this conclusion having considered micro and macro economic factors including Brexit, the Group’s knowledge of its customers, payment history of the customers and industry trends. Details of how the ECL is calculated are set out in note 2. No ECL was required following the adoption of IFRS 9 on 1 May 2018 or 30 April 2019. 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 Company 2019 £’000 144 (1) 128 (14) 257 2018 £’000 282 7 (137) (8) 144 2019 £’000 607 – 645 – 2018 £’000 607 – – – 1,252 607 112 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCAt 30 April 2019, trade receivables of £3,935,000 (2018: £3,391,000) 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 2019 £’000 6,377 778 1,313 1,844 3,935 2018 £’000 7,085 1,399 433 1,559 3,391 Company 2019 £’000 65 – – 90 90 10,312 10,476 155 2018 £’000 642 64 10 101 175 817 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 £16,503,000 (2018: £26,164,000) are all current. (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 2019 and 30 April 2018 has reduced liquidity risk for the Group. The Group has adequate undrawn facilities and, 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 2019 and 30 April 2018, the Group and the Company have comfortably complied with such requirements. 113 ANNUAL REPORT 2019FINANCIAL STATEMENTS15( B ) F I N A N C I A L STAT E M E N T R I S K M A N AG E M E N T C O N T I N U E D The table below summarises the maturity profile of the Group’s and Company’s financial liabilities (including trade and other payables) at 30 April 2019 and 30 April 2018 based on contractual undiscounted payments. Group contractual cash flows At 30 April 2019 Interest bearing loans and borrowings and interest free loans Finance leases Trade and other payables At 30 April 2018 Interest bearing loans and borrowings and interest free loans Finance leases Trade and other payables Company contractual cash flows At 30 April 2019 Trade and other payables At 30 April 2018 Trade and other payables Within one year £’000 Year 2 £’000 Year 3 £’000 Year 4 £’000 Year 5 £’000 Over 5 years £’000 Total £’000 15,471 14,864 15,019 12,896 7,955 2,464 68,669 133 47,412 139 – 55 – 22 – 4 – – – 353 37,412 63,016 15,003 15,074 12,918 7,959 2,464 116,434 6,406 6,363 6,321 6,278 4,207 5,025 34,600 133 39,945 139 – 55 – 22 – 4 – – – 353 39,945 46,484 6,502 6,376 6,300 4,211 5,025 74,898 Within one year £’000 41,549 27,001 Year 2 £’000 Year 3 £’000 Year 4 £’000 Year 5 £’000 Over 5 years £’000 Total £’000 – – – – – – – – – 41,549 – 27,001 Financial instruments held at amortised cost and held to maturity 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. (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). 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. 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. 114 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC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. 2019 Profit for the year Total equity 2018 Profit for the year Total equity Reported £’000 10% increase £’000 10% decrease £’000 31,279 143,847 29,046 141,614 33,106 145,674 40,286 144,810 40,601 145,125 40,028 144,552 Borrowings At 30 April 2019 and 30 April 2018 the Group had no borrowings which were not denominated in the functional currency of the Group company concerned. 115 ANNUAL REPORT 2019FINANCIAL STATEMENTS15( B ) F I N A N C I A L STAT E M E N T R I S K M A N AG E M E N T C O N T I N U E D Analysis of net cash by currency Group 2019 Sterling Euro Swiss Franc US Dollar Japanese yen Other currencies 2018 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 – Financial asset held at amortised cost/held to maturity Other items Interest free and interest bearing loans Interest bearing finance leases Bank £’000 26,270 48,426 2,278 29 5,409 2,179 Financial assets £’000 Loans £’000 Leases £’000 Total £’000 974 – (5) 27,239 – 8 – – – (67,393) (1,490) (20,457) – – – – – – (347) – 2,286 29 5,062 2,179 84,591 982 (67,393) (1,842) 16,338 13,573 35,006 2,820 139 4,669 2,450 974 728 8 – – – – (33,325) – – – – (28) (21) – – (305) – 14,519 2,388 2,828 139 4,364 2,450 58,657 1,710 (33,325) (354) 26,688 2019 £’000 2018 £’000 83,646 58,050 945 982 (67,393) (1,842) 16,338 607 1,710 (33,325) (354) 26,688 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. 116 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCIFRS 7 sensitivity analysis With current low interest rates and the Group’s 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 2019 of £67,393,000 (30 April 2018 of £33,325,000), of which £67,393,000 (30 April 2018 of £33,325,000) is subject to fixed interest rates between 0.49% and 1.2%. An increase of 1% in the fixed rate of interest would result in an extra £600,000 (30 April 2018: £400,000) of interest expense. Terms and debt repayment schedule The table below shows the maturity profile and interest rates of the Groups borrowings at 30 April 2019 and 30 April 2018. Floating rate interest borrowings (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 2019 (2018: none). Group Finance leases Loans Status Fixed rate Fixed rate Currency Various Euro Interest rate 0.0% –7.2% Year of maturity 2023 0.49%-1.20% 2022-2025 2019 Carrying amount £’000 1,842 67,393 69,235 2018 Carrying amount £’000 354 33,325 33,679 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’s and Company’s investment in Max Sight Group Holdings Limited, which at 30 April 2019 amounted to £1,176,000 (30 April 2018: £4,074,000) and is listed and is thus subject to variations in the quoted price. The Group’s other investments in equity securities are not listed, and are not material thus the Group does not have any significant exposure to price risk on these equity investments. 15( C ) C A P I TA L R I S K M A N AG E M E N T 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; supplemented by external borrowing as required. The Group has had a strong net cash position throughout the current and comparative year. 117 ANNUAL REPORT 2019FINANCIAL STATEMENTS15( C ) F I N A N C I A L STAT E M E N T R I S K M A N AG E M E N T C O N T I N U E D 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 2019 £’000 84,591 (69,235) 15,356 143,847 2018 £’000 58,657 (33,679) 24,978 144,810 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. During the year ended 30 April 2019 the Group increased its net borrowings by £35,556,000 (30 April 2018: £22,997,000) in order to take advantage of historically low interest rates in order to reduce the Group’s weighted average cost of capital and to increase the Group’s capacity to invest in product offerings as it continues to evaluate potential acquisitions. 15( D ) OT H E R F I N A N C I A L ASS E TS H E L D AT A M O R T I S E D C O ST, AT F V T P L , TO M AT U R I T Y A N D AVA I L A B L E F O R S A L E Group Non-current Financial assets held at amortised cost 2019 £’000 982 982 Financial instruments held at FVTPL 2019 £’000 1,387 1,387 Assets held to maturity 2018 £’000 1,710 1,710 Assets available for sale 2018 £’000 4,286 4,286 Financial assets held to maturity reclassified as Financial assets held at amortised cost following adoption of IFRS 9 consist of restricted bank deposit accounts – see note 19. Included in financial instruments held at FVTPL for the Group and the Company at 30 April 2019 is the Group’s interest in Max Sight Group Holdings Limited of £1,176,000, which was previously classified as a financial asset available for sale with a a carrying value of £4,074,000 at 30 April 2018 (see note 14 and note 32). Company Non-current Financial assets held at amortised cost 2019 £’000 975 975 Financial instruments held at FVTPL 2019 £’000 1,176 1,176 Assets held to maturity 2018 £’000 974 974 Assets available for sale 2018 £’000 4,074 4,074 Financial assets held at amortised cost and assets held to maturity consist of restricted bank deposit accounts – see note 19. 118 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC16 T R A D E A N D OT H E R R E C E I VA B L E S Non-current assets Trade receivables – external Other receivables Prepayments and accrued income Current assets Trade receivables – related parties Amounts due from subsidiaries Amounts due from associated undertakings Other receivables Prepayments and accrued income Group 2019 £’000 1,607 135 22 1,764 2018 £’000 1,599 472 45 2,116 10,312 10,476 – – – 5,747 4,858 20,917 492 – 1,120 3,516 5,009 20,613 Company 2019 £’000 2018 £’000 – – – – 155 – – – – – 817 – 16,503 26,164 – 1,851 3,104 21,613 – 406 2,761 30,148 All trade receivables arise from contracts with customers. 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 I N V E N TO R I E S Raw materials and consumables Work-in-progress Finished goods Group 2019 £’000 2018 £’000 14,157 15,399 346 7,836 347 7,156 22,339 22,902 Company 2019 £’000 1,858 – 1,999 3,857 2018 £’000 1,426 – 744 2,170 The replacement value of inventories is not materially different from that stated above. 18 C AS H A N D C AS H E Q U I VA L E N TS 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 2019 £’000 2018 £’000 83,646 58,050 945 84,591 84,591 607 58,657 58,657 Company 2019 £’000 3,162 – 3,162 3,162 2018 £’000 11,500 – 11,500 11,500 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. 119 ANNUAL REPORT 2019FINANCIAL STATEMENTS 19 N E T C AS H Cash and cash equivalents per statement of financial position Financial instruments held at amortised cost / held to maturity Non-current borrowings Current borrowings Non-current finance leases Current finance leases Notes 18 15 21 21 21 21 Group 2019 £’000 2018 £’000 84,591 58,657 982 (52,322) (15,071) (1,063) (779) 1,710 (27,319) (6,006) (221) (133) Company 2019 £’000 3,162 975 2018 £’000 11,500 974 – – – – – – – – 16,338 26,688 4,137 12,474 At 30 April 2019, £982,000 of the total net cash (2018: £1,710,000 ) 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 instruments held at amortised cost / 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 current and non-current borrowings outstanding. 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. Group 2018/19 Cash and cash equivalents per statement of financial position and cash flow Financial asset held at amortised cost Financial assets - available for sale Non-current loans Current loans Leases 2017/18 Cash and cash equivalents per statement of financial position and cash flow Financial asset held to maturity Non-current loans Current loans Leases 1 May £’000 Exchange differences £’000 Other movements £’000 Cash flow £’000 30 April £’000 58,657 1,710 – (27,319) (6,006) (354) 26,688 47,505 2,389 (7,894) (2,344) (444) 39,212 22 13 – 532 117 (28) 656 165 8 (354) (46) 47 (180) – – – 25,912 84,591 (741) – 982 – 18,213 (43,748) (52,322) (17,579) (1,627) 8,397 (15,071) 167 (1,842) (993) (10,013) 16,338 – – 7,311 (7,311) (75) (75) 10,987 58,657 (687) (26,382) 3,695 118 1,710 (27,319) (6,006) (354) (12,269) 26,688 Other movements for finance leases relates to new finance leases during the year. 120 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC Company 2018/19 1 May £’000 Cash flow £’000 30 April £’000 Cash and cash equivalents per statement of financial position and cash flow 11,500 (8,338) Financial asset held at amortised cost 2017/18 Cash and cash equivalents per statement of financial position and cash flow Financial asset held to maturity Other movements for finance leases relates to new finance leases during the year. 974 1 12,474 (8,337) 3,162 975 4,137 11,535 973 12,508 (35) 1 (34) 11,500 974 12,474 121 ANNUAL REPORT 2019FINANCIAL STATEMENTS20 S H A R E C A P I TA L A N D R E S E R V E S Share capital Company and Group Allotted, issued and fully paid: Ordinary shares of 0.5p each At 1 May Issued in year – share options exercised At 30 April 2019 Number 2018 Number 2019 £’000 2018 £’000 377,499,637 376,474,871 1,887 482,000 1,024,766 2 377,981,637 377,499,637 1,889 1,882 5 1,887 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 4 Jul 2011 At 30 April 2018 45,000 13 Dec 2011 250,000 4 Jul 2012 9 Jul 2013 11 Jul 2014 262,000 998,000 485,000 9 Jul 2015 1,187,600 15 Dec 2015 13 Jul 2016 21 Jul 2017 Date options granted 12 Jul 2010 4 Jul 2011 57,400 903,300 705,200 4,893,500 At 30 April 2017 15,000 105,000 13 Dec 2011 250,000 4 Jul 2012 9 Jul 2013 262,000 1,098,000 11 Jul 2014 1,331,700 9 Jul 2015 1,347,600 15 Dec 2015 57,400 1,123,300 13 Jul 2016 21 Jul 2017 Granted during year Lapsed or forfeited during year Exercised during year At 30 April 2019 Exercise price Date from which exercisable Last date on which exercisable (45,000) – (250,000) – – 65.25p 4 Jul 2014 3 Jul 2018 53.50p 13 Dec 2014 12 Dec 2018 – – – (40,000) (50,000) – (50,000) – (232,000) 30,000 39.17p 4 Jul 2015 3 Jul 2019 – – – – – – 998,000 445,000 90.63p 9 Jul 2016 8 Jul 2020 145.33p 11 Jul 2017 10 Jul 2021 1,137,600 133.33p 9 Jul 2018 8 Jul 2022 57,400 153.25p 15 Dec 2018 14 Dec 2022 853,300 705,200 141.50p 13 July 2019 12 July 2023 157.00p 21 Jul 2020 21 Jul 2024 (185,000) (482,000) 4,226,500 Granted during year Lapsed or forfeited during year Exercised during year (15,000) At 30 April 2018 Exercise price Date from which exercisable Last date on which exercisable – 36.33p 12 Jul 2013 11 Jul 2017 (60,000) 45,000 65.25p 4 Jul 2014 3 Jul 2018 – – 250,000 262,000 53.50p 13 Dec 2014 12 Dec 2018 39.17p 4 Jul 2015 3 Jul 2019 (100,000) 998,000 90.63p 9 Jul 2016 8 Jul 2020 (846,700) 485,000 145.33p 11 Jul 2017 10 Jul 2021 – – – – – – (156,934) (3,066) 1,187,600 133.33p 9 Jul 2018 8 Jul 2022 – (220,000) – – – 57,400 153.25p 15 Dec 2018 14 Dec 2022 903,300 705,200 141.50p 13 July 2019 12 July 2023 157.00p 21 Jul 2020 21 Jul 2024 – 985,200 (280,000) – – – – – – – – – – – – – – – – – – – 5,590,000 985,200 (656,934) (1,024,766) 4,893,500 Full details of directors’ share options are given in the Remuneration report on pages 52 to 64. 122 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC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 2019 is 129.0p (2018: 121.2p) and the weighted average exercise price of options exercisable at 30 April 2019 is 118.5p (2018: 91.9p). The weighted average share price for options exercised during the year ended 30 April 2019 was 46.6p (30 April 2018: 133.7p). The weighted average remaining years for options outstanding at the year end date is 3.2 years (2018: 4 years). 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 2019 and 30 April 2018: 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 04 July 2011 13 December 2011 04 July 2012 3 years 65.40% 64.00p 65.25p 3.25years 3.13% 1.32% 24.46p 3 years 63.20% 50.25p 53.50p 3.25years 4.48% 0.50% 16.38p 09 July 2013 11 July 2014 3 years 48.50% 94.00p 90.63p 3.25years 3.83% 0.62% 26.20p 3 years 39.10% 141.00p 145.33p 3.25years 2.66% 1.28% 32.20p 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 3.25 years 4.02% 0.82% 21.00p 123 ANNUAL REPORT 2019FINANCIAL STATEMENTS20 S H A R E C A P I TA L A N D R E S E R V E S C O N T I N U E D 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 15 December 2015 13 July 2016 21 July 2017 3 years 26.16% 154.00p 153.25p 3.25 years 3.32% 0.90% 21.78p 3 years 26.35% 146.75p 141.50p 3.25 years 3.99% 0.11% 19.72p 3 years 36.00% 159.00p 157.00p 3.25 years 4.00% 0.62% 30.61p The charge for share-based payments is £141,000 (2018: £197,000) and for the Company the charge is £7,000 (2018: £20,000). Share price volatility is based on historical data. 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 2019 and 30 April 2018 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 (2018: £201,000) arising on the redemption of the deferred shares and £1,997,000 (2018: £1,864,000) relating to the fair value of options granted to employees of Group undertakings (note 14). 21 F I N A N C I A L L I A B I L I T I E S Non-current liabilities Non-current instalments due on bank loans Finance lease creditors Current liabilities Current instalments due on loans Finance lease creditors 124 Group 2019 £’000 52,322 1,063 53,385 15,071 779 15,850 2018 £’000 27,319 221 27,540 6,006 133 6,139 Company 2019 £’000 2018 £’000 – – – – – – – – – – – – NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC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 (2018: four) years (note 12). The total finance lease creditor at 30 April 2019 was £1,842,000 of which £779,000 was due within one year and the remaining £1,063,000 due between two and five years, (2018: total finance lease creditor £354,000, £133,000 due within one year and £221,000 due within two to five years). 22 P O ST - E M P LOYM E N T B E N E F I T O B L I G AT I O N S 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. 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 plan assets above the amount included in net pension interest. Defined contribution 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: Overseas employment benefit obligations Overseas defined benefit scheme Group 2019 £’000 4,578 1,057 5,635 2018 £’000 4,592 932 5,524 Company 2019 £’000 – – – 2018 £’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 then employee’s length of service and final pensionable salary. The actuarial valuation of the UK Pension scheme has revealed a surplus at 30 April 2019, 30 April 2018, 30 April 2017 and 30 April 2016. This surplus has not been recognised as an asset, in accordance with IFRIC 14, as in the 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. 125 ANNUAL REPORT 2019FINANCIAL STATEMENTS22 P O ST - E M P LOYM E N T B E N E F I T O B L I G AT I O N S C O N T I N U E D The Fund is administered by a corporate Trustee, with Trustee Directors, which is legally separate from the Company. The Trustee Directors include representatives of both the Company and Fund members. The Trustee Directors are required by law to act in the interest of all relevant beneficiaries and are responsible for the investment policy with regard to the assets plus the day to day administration of the benefits. The level of benefits provided by the Fund depends on a member’s length of service and salary at date of leaving or retiring from the Fund. Annual pension increases between leaving the Fund and retirement are linked to increases in the Retail Prices Index (RPI). After retirement, annual pension increases are at 3.0% pa for pension accrued before April 1997 and in line with increases in the RPI, up to a maximum of 5.0% pa, for pension accrued from April 1997. The benefit payments are from a trustee administered fund containing assets held in trust and governed by UK regulations and practice. The amount of Company contributions is decided jointly by the Trustee Directors and the Company. The Fund’s investment strategy is decided by the Trustee Directors, in consultation with the Company. The Trustee Directors exercise their powers of investment (or delegation where these powers have been delegated to a fund manager) in a manner calculated to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In order to avoid an undue concentration of risk a spread of assets is held. The diversification is both within and across asset classes. The assets are invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the Fund. Day to day selection of stocks is delegated to fund managers appointed by the Trustee Directors. As regards the review and selection of their fund managers, the Trustee Directors take expert advice. UK legislation requires that pension schemes are funded prudently. The most recent triennial funding valuation of the Fund was carried out by a qualified actuary with an effective date of 1 June 2015. At this date the Fund had a funding level of 104% and a surplus of approximately £0.3 million on a technical provisions basis, consistent with the projected unit basis required under IAS 19. This basis uses actuarial assumptions adopted by the Trustee Directors of the Fund that are consistent with the Fund continuing on an ongoing basis with support from the Company. Risks associated with the Fund The fund exposes the Company to a number of risks, the most significant of which are described below. Asset volatility The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will create a deficit. Changes in bond yields A decrease in corporate bond yields will increase the value placed on the Fund’s liabilities for IAS 19, although this will be partially offset by an increase in the value of the Fund’s bond holdings and insurance policies backing pensions in payment. Inflation risk Some of the Fund’s benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit. Life expectancy The majority of the Fund’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the liabilities. 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 Actuarial gains on fund liabilities arising in demographic assumptions Actuarial losses/(gains) from changes in financial assumptions Actuarial (gains)/losses on liabilities from experience Benefits paid Present value of defined benefit obligation at end of year 126 2019 £’000 5,947 7 156 (80) 242 (9) (323) 5,940 2018 £’000 6,639 8 162 (296) (139) (87) (340) 5,947 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC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 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 surplus Effect of limit of recognition of an asset Amount recognised in statement of financial position 2019 £’000 6,657 175 160 6 (323) 6,675 2019 £’000 5,940 (6,675) (735) 735 – 2018 £’000 7,223 176 (409) 7 (340) 6,657 2018 £’000 5,947 (6,657) (710) 710 – 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 (2018: loss of £1,375,000) in respect of the Company’s defined benefit scheme. This has been charged to retained earnings. Amount recognised in profit and loss 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 (gains)/losses 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. 2019 £’000 2018 £’000 7 – 7 7 (160) 242 (80) (9) 6 (1) 6 8 – 8 8 409 (139) (296) (87) 112 (1) 7 127 ANNUAL REPORT 2019FINANCIAL STATEMENTS22 P O ST - E M P LOYM E N T B E N E F I T O B L I G AT I O N S C O N T I N U E D An analysis of the assets of the plan is as follows: Bonds Insurance policies Other 2019 2018 £’000 3,988 2,650 37 6,675 % 60 40 – 100 £’000 3,914 2,730 13 6,657 % 59 41 – 100 There were no financial instruments of the Company included in the plan assets (2018: none) and there were no property assets occupied by the Company (2018: none). Principal actuarial assumptions Discount rate for scheme liabilities Rate for increase in salaries Price inflation Pension increases 30 April 2019 30 April 2018 2.40 1.50 3.40 3.30 2.70 1.50 3.20 3.00 The mortality tables used for 2019 are SAPS S2N Light tables for males and S2N all lives for females, with CMI 2014 projections and a long term rate of improvement of 1.5% pa. The mortality tables used for 2018 are S2NXA Light tables with CMI 2014 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 Fair value of defined benefit obligation Fair value of assets Surplus/(deficit) Experience (losses)/gains on fund assets Experience gains/(losses)on plan liabilities 2019 2018 23.2 years (age 88.2) 23.4 years (age 88.4) 24.4 years (age 89.4) 24.3 years (age 89.3) 24.4 years (age 89.6) 25.0 years (age 90.0) 25.8 years (age 90.8) 26.1 years (age 91.1) 2019 £’000 5,940 6,675 735 2019 £’000 160 (9) 2018 £’000 5,947 6,657 710 2018 £’000 (409) (87) 2017 £’000 6,639 7,223 584 2017 £’000 653 49 2016 £’000 6,303 6,716 413 2016 £’000 (75) 76 2015 £’000 6,562 6,938 376 2015 £’000 581 (40) Liabilities for 2019, 2018, 2016, 2015 and 2014 relate to gains/(losses) in respect of liability experience only, and excludes any change in liabilities in respect of changes to the actuarial assumptions used. 128 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC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. Year ended 30 April 2019 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 Net Interest £’000 Total profit and loss charge £’000 7 7 7 7 – – – – 7 7 7 7 Plan assets £’000 6,675 6,697 6,678 6,823 Defined benefit obligation £’000 5,940 6,007 5,959 6,217 Surplus £’000 735 690 719 606 The sensitivity information shown above has been prepared using the same method as adopted when adjusting the results of the latest valuation to the reporting date. This is the same approach as has been adopted in previous years. 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: 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 2019 and 30 April 2018. This actuarial valuation incorporated the following principal assumptions in arriving at the present value of the obligations: Discount rate Rate of increase in salaries Retirement age Inflation rate Mortality table 2019 1.20% 1.75% 2018 1.45% 1.75% 61-63 years 61-63 years 1.75% 1.75% TGH/TGF 05 TGH/TGF 05 Management believes that the book value for retirement obligations in France fairly states the position at 30 April 2019 and 30 April 2018. The movement on these schemes is as follows: At 1 May Exchange differences Utilised and other movements At 30 April 2019 £’000 4,592 26 (40) 2018 £’000 4,441 59 92 4,578 4,592 Utilised and other movements for 2019 include amounts reflected in other comprehensive income, amounts charged to profit and loss and amounts paid to employees. 129 ANNUAL REPORT 2019FINANCIAL STATEMENTS22 P O ST - E M P LOYM E N T B E N E F I T O B L I G AT I O N S C O N T I N U E D 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 2019 and 30 April 2018 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 Remeasurement losses on plan liabilities Prepaid risk premiums Benefits deposited/(paid) Administration costs 2019 £’000 3,826 2018 £’000 4,062 105 38 196 28 144 (38) (157) 2 (218) 45 196 25 (131) (56) (99) 2 Present value of defined benefit obligation at 30 April 4,144 3,826 2019 £’000 2,894 81 190 21 96 (157) (38) 2018 £’000 3,047 (165) 226 19 (78) (99) (56) 3,087 2,894 2019 £’000 932 24 101 1,057 2018 £’000 1,015 (53) (30) 932 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)/deposited 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 130 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCAmounts recognised in comprehensive income Amount recognised in profit and loss Amounts recognised in comprehensive income Current service cost Administrative expenses Net pension interest Total charge Amount recognised in other comprehensive income Return on scheme assets Actuarial losses 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 2019 £’000 2018 £’000 196 2 7 205 (96) 144 48 253 2019 2018 £’000 164 2,016 908 3,088 % 5 65 30 100 £’000 69 1,955 870 2,894 30 April 2019 % 0.60 n/a 1.20 0.00 196 2 6 204 78 (131) (53) 151 % 2 68 30 100 30 April 2018 % 0.70 n/a 1.20 0.00 The normal retirement age for males is between 60 – 65 years and for females between 59 – 64 years for both 2019 and 2018. The mortality tables used in 2019 and 2018 were the BVG 2015 GT tables; 2017, 2016 and 2015 used the BVG 2010 GT tables. 131 ANNUAL REPORT 2019FINANCIAL STATEMENTS22 P O ST - E M P LOYM E N T B E N E F I T O B L I G AT I O N S C O N T I N U E D 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 – as a percentage of the present value of plan liabilities Difference between expected and actual return on plan assets – as a percentage of the present value of plan assets 2019 £’000 4,144 3,087 (1,057) 2019 £’000 (144) 3% 96 3% 2018 £’000 3,826 2,894 (932) 2018 £’000 131 3% (78) (3%) 2017 £’000 4,062 3,047 (1,015) 2017 £’000 (186) (5%) 218 7% 2016 £’000 3,526 2,604 (922) 2016 £’000 (107) 3% 168 6% 2015 £’000 3,381 2,491 (890) 2015 £’000 (571) (17%) 94 3% The 2016, 2015 and 2014 figures in the table above represent actuarial gains on plan liabilities and plan assets. 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. 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 Increase/(decrease) in defined benefit obligation £’000 4,144 4,336 3,965 4,110 4,175 4,206 4,080 – 192 (179) (34) 31 62 (64) The Group’s best estimate for contributions to be paid by the company next year to the scheme is £189,000 (2018: £204,000). The amount recognised in the income statement for this scheme was £211,000 (30 April 2018: £211,000). 132 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC23 P R OV I S I O N S Group At 30 April 2017 Exchange differences Utilised and other movements Charged to income statement At 30 April 2018 Amount shown as current liability At 30 April 2018 Exchange differences Utilised and other movements Charged to income statement At 30 April 2019 Amount shown as current liability Employee related claims £’000 Product warranties £’000 49 10 (52) 4 11 11 11 – 13 86 110 110 44 2 – 82 128 128 128 (5) (38) 23 108 108 Other £’000 1,979 70 Total £’000 2,072 82 (1,992) (2,044) – 57 57 57 – (300) 243 – – 86 196 196 196 (5) (325) 352 218 218 Employee related claims Certain overseas Group undertakings have made provision for claims made by former employees. Other provisions Other provisions include provisions for potential legal claims against certain Group companies. During the year, Management determined that certain provisions were no longer required and were therefore released. 24 D E F E R R E D TA X AT I O N Deferred tax comprises: Timing differences relating to property, plant and equipment Other timing differences in recognising revenue and expense items in other periods for taxation purposes: – Capitalised development costs – post-employment benefit provisions – losses – acquisition related intangibles – other short term temporary differences The closing balance comprises: Deferred tax assets Deferred tax liabilities Group 2019 £’000 3,279 101 (645) (209) 581 1,411 4,518 (912) 5,430 4,518 2018 £’000 3,605 344 (645) (209) – (2,359) 736 (1,935) 2,671 736 Company 2019 £’000 (656) – – – – (14) (670) (670) – (670) 2018 £’000 (701) – – – – (244) (945) (945) – (945) 133 ANNUAL REPORT 2019FINANCIAL STATEMENTS24 D E F E R R E D TA X AT I O N C O N T I N U E D Deferred tax movements Opening balance Exchange differences Arising on acquisition of subsidiary Charge for the year in income statement Amounts (credited)/charged to other comprehensive income Closing balance Group Company 2019 £’000 736 42 633 3,149 (42) 4,518 2018 £’000 (554) 238 2 1,038 12 736 2019 £’000 (945) – – 275 – (670) 2018 £’000 (1,835) – – 890 – (945) 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 remittance of earnings and it is possible that such earnings will not be remitted in the foreseeable future. Unrecognised deferred tax assets Deferred tax assets amounting to £1,220,000 (2018: £1,249,000) arising on temporary differences of £5,052,000 (2018: £5,114,000), 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 2019 £’000 – 228 992 1220 2018 £’000 – 251 998 1,249 In addition, the Group has an unrecognised deferred tax asset on gross capital losses of £3,756,000 (2018: £3,756,000), of which £3,627,000 (2018: £3,627,000) relate to the Company, which have not been recognised as their future economic benefit is not certain. Factors that may affect future tax charges There will be a reduction in the corporation tax rates in two of the major jurisdictions in which the Group operates, in the UK to 17% from 2020 and in France to 25% from 2022 respectively. The deferred tax assets and liabilities have been recognised based on the respective corporation tax rates at which they are anticipated to unwind in each jurisdiction. 134 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC25 T R A D E A N D OT H E R PAYA B L E S 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 2019 £’000 – – – 2018 £’000 224 – 224 24,699 27,309 – 3,517 6,880 5,786 – 2,988 6,883 6,318 Company 2019 £’000 2018 £’000 – – – 4,038 36,373 517 442 696 – – – 4,256 21,463 596 504 778 40,882 43,498 42,066 27,597 26 O P E R AT I N G L E AS E S A N D S I T E AG R E E M E N TS 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 2019 £’000 1,872 3,548 1,025 6,445 1,641 1,210 – 2,851 3,513 4,758 1,025 9,296 6,609 6,002 – 12,611 2018 £’000 1,032 2,060 709 3,801 1,769 2,002 – 3,771 2,801 4,062 709 7,572 10,383 21,196 3,067 34,646 Company 2019 £’000 305 648 711 2018 £’000 208 684 709 1,664 1,601 566 186 – 752 871 834 711 2,416 1,303 27 – 1,330 738 789 – 1,527 946 1,473 709 3,128 1,635 1,158 58 2,851 135 ANNUAL REPORT 2019FINANCIAL STATEMENTS26 O P E R AT I N G L E AS E S A N D S I T E AG R E E M E N TS C O N T I N U E D 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. In January 2016 the IASB issued IFRS16 Leases which is effective for annual reporting periods beginning on or after 1 January 2019. Under this standard all leases, both finance and operating will be included in the statement of financial position. The Group is currently studying the impact of IFRS 16 on its operating leases and examining the extent to which commission arrangements meet the definition of a lease under IFRS 16. 27 C A P I TA L C O M M I T M E N TS A N D C O N T I N G E N T L I A B I L I T I E S 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 2018 £’000 – – 2017 £’000 – – Company 2018 £’000 2017 £’000 – – – – Contingent liabilities The Company and subsidiary undertakings have given guarantees in the normal course of business to third parties, including to the Group’s bankers. No losses are expected from guarantees given by the Company and subsidiary undertakings. In the opinion of the Directors, adequate provision has been made for claims and legal disputes and the Directors therefore consider that no contingent liability for litigation exists. The Group has no contingent liabilities with regard to its interest in the associated undertakings (2018: none). 136 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC28 R E L AT E D PA R T I E S The Group’s related parties are its associated undertakings, subsidiary undertakings and its key management personnel, which comprises the Board of Directors as set out on page 44. The following transactions were carried out with related parties: Directors’ compensation Salaries and other short-term employee benefits excluding long-term incentives and pension contributions Share-based payments – charge Group 2019 £’000 1,433 61 1,494 2018 £’000 682 – 682 Company 2019 £’000 – – – 2018 £’000 – 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 52 to 64●. 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 in respect of this was £nil (2018: £nil). No director who served during the year was a member of the Company’s defined benefit pension scheme (2018: none). Directors of the Company control 22.45% of the Ordinary shares of the Company. The interests of the directors are shown on page 61 of the Remuneration report. Transactions with subsidiaries Sales Purchases Amounts owed by subsidiaries Amounts owed to subsidiaries Other items Intercompany fees charged by subsidiaries Property, plant and equipment - acquired from subsidiaries Dividend income - from subsidiaries Transactions with Associates Dividends received from associates 2019 £’000 2018 £’000 17 6,646 16,503 36,373 101 7,887 26,164 21,462 3,049 6,716 3,374 6,120 2,239 16,497 36 304 137 ANNUAL REPORT 2019FINANCIAL STATEMENTS 29 G R O U P U N D E R TA K I N G S 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 2019 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 90% of the Group’s revenue and operating profit. Company name UK & Ireland Principal Activity Group interest Registered office address Country of incorporation Fowler UK.Com Limited Operations Jolly Roger (Amusement Rides) Limited Production 100% 100% Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP MgInvest Investments Limited Investment 100%* Unit 3B, Blenheim Road, Epsom, KT19 9AP Photo-Me (2016) Limited Photo-Me (Retail) Limited Photo-Me Limited Photo-Me Trustees Limited Xpand Investments Limited Power-Me Limited Inox Equip Limited Tersus Equip Limited Impact (Web Services) Limited Dormant Operations Corporate Dormant Investment Dormant Operations Operations Dormant 100% 100% 100% 100% 100% 100% 100% 100% 100% Photo-Me Ireland Limited Operations 100% Continental Europe Prontophot Austria G.m.b.H. Operations 100% Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit 3B, Blenheim Road, Epsom, KT19 9AP Unit A4, Alexander House, Tallaght Cross East, Tallaght, Dublin 24 Unit A4, Alexander House, Tallaght Cross East, Tallaght, Dublin 24 Prontophot Belgium NV Operations 100% Boulevard Paepsem 8a, 1070 Anderlecht Belgium Photo-Me Czech Republic s.p.o.l. s.r.o. KIS SAS Photomaton SAS Operations 100%* Dormant Trading 100%* Husova 2117, 256 01 Benešov Czech Republic 100%* 7 Rue Jean-Pierre Timbaud, 38130 Echirolles France Viktor Kaplan Strasse 9B, 2201 Gerasdorf bei Wien Austria UK UK UK UK UK UK UK UK UK UK UK Republic of Ireland Republic of Ireland Sempa SARL Operations 96%* Photo-Me France SAS SCI du Lotissement d’Echirolles Investment Property 100% 61%* 4 Rue de la Croix Faron, 93217 La Plaine Saint-Denis 73 D rue du Général Mangin, 38000, Grenoble France France 7 Rue Jean-Pierre Timbaud, 38130 Echirolles France 2110 Avenue Du Général De Gaulle, 38130 Echirolles France SCI Immobilière du 21 Property 100%* 7 Rue Jean-Pierre Timbaud, 38130 Echirolles France Fotofix-Schnellphotoautomaten G.m.b.H. Kis Italia Srl Prontophot Holland B.V KIS Poland s.p.z.o.o. Operations 100% Medienstrasse 4, 47807 Krefeld Germany Dormant Operations Operations 100% 100% 100% Via Tiziano 32, 20145 Milano Italy Loonseweg 14, 5527 AC Hapert Netherlands ul. Targowa 46/5, 03-733 Warszawa Poland 138 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCCompany name Animate Fotofixe Limitada Principal Activity Operations Group interest 100% Registered office address Rua Sto António do Zaire, n°138, 2685-492 Camarate Country of incorporation Portugal KIS Automatic Services SL Operations 100% Global Network Investment SL Smart Real Estate & Refurbishment SL Prontophot (Schweiz) AG Operations Operations Operations 100% 100% 100% Calle Freixa 26-28, Planta Bj, 08021 Barcelona Spain Provença 385, entrelo. 2º, 08025 Barcelona Spain Provença 385, entrelo. 2º, 08025 Barcelona Spain Sonnentalstrasse 5, 8600 Dübendorf Switzerland Asia & ROW Photo Direct Pty Ltd (associated) Sales & Servicing 26.95% Unit 4, 109 Whitehorse Rd, Blackburn, Victoria 3130 Photo-Me (Shanghai) Co Limited Operations 100%* Photo-Me Beijing Co Limited Operations 100%* Photomaton Maroc SARL (associated) Operations Nippon Auto-Photo Kabushiki Kaisha Operations 50% 100% Photo-Me Korea Company Limited Operations 100%* Photomatico (Singapore) Pte Limited KIS (Thailand) Limited Operations Dormant 100% 49% Room 1102 Tongyong Tower, No. 1346 Gong he Xin Road, Zha bei District, Shanghai 200070 Room 1124, Ocean Natural Xintiandi, No.106 East Majiapu Road, Fengtai District, Beijing 100000 131, Bd d’Anfa, Casablanca, 20250 Room 1302, Atlas Tower Roppongi, Roppongi 7-7-13, Minato-Ku, 106 0032 Room #203-1, Daeryung techno town 1st, Gasan Digital 2 ro 18, Geumcheon-gu, Seoul, 08592 26 Sin Ming Lane, Singapore 573971 53/3, 4th Floor, Unit 4, Goldenland Bldg, Soi Mahardlekluang 1, Badmiri Rd, Lumpini Phathumwan, 10330 Bangkok Australia China China Morocco Japan Korea Singapore Thailand * Investments in subsidiaries not owned directly by Photo-Me International plc. 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 is 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: SCI du Lotissement d’Echirolles Photo-Me Beijing Co Limited Photo-Me Shanghai Co Limited 31 December 31 December 31 December KIS Technolgy Company Limited 31 March Photo Direct Pty Ltd 30 June 139 ANNUAL REPORT 2019FINANCIAL STATEMENTS30 B U S I N E SS C O M B I N AT I O N S La Wash Group On 23 May 2018, the Group acquired the entire issued share capital of La Wash Group, consisting of Global Network Investment SL and Smart Real Estate & Refurbishment SL, for a consideration of €5 million, obtaining control of the group on that date. Based in Barcelona, the La Wash Group is a leader in the Spanish business-to-business laundry services market. The acquisition was funded from the Group's cash resources. Deferred consideration A further £220,000 of consideration is payable to the vendor of the acquired businesses based on earnings in the year ended 30 April 2019. Goodwill The goodwill acquired of £2,570,000 arising from the acquisition is attributable to the value of the assembled workforce and the ability of the senior staff to generate future business. Acquired receivables The contractual and fair value of trade receivables acquired was £284,000. The following amounts have been included in the Group's post acquisition results in respect of the acquired businesses: The fair values of the assets and liabilities acquired, cash outlay on acquisition and results of the acquired business included in Group results in the year ended 30 April 2019 are shown in the table below. Sempa On 24 April 2019, the Group acquired 96% of the issued share capital of Sempa SARL for a consideration of €20,640,000 million, obtaining control of the Company on that date. Sempa SARL is the French market leading provider of fresh fruit juice equipment. This acquisition is in line with Photo-Me's strategy to diversify its vending operations and will develop a new product offering alongside its Identification, Laundry and Kiosk businesses. The acquisition was financed with borrowings from the Group’s bankers. Due to the proximity of the transaction to the reporting date, the purchase price allocation, including determination of the fair value of intangible assets recognised on consolidation has not been finalised. Goodwill The goodwill of £10,660,000 arising from the acquisition is attributable to the anticipated operational benefits and improvements to the Group’s commercial offering, the value of the assembled workforce and the ability of the senior staff to generate future business. Acquired receivables The provisional fair value of trade receivables acquired was £512,000. The gross contractual amounts receivable were £559,000 which £47,000 were not expected to be received. No amounts have been included in the Group's post acquisition results in respect of the acquired business. 140 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCThe fair values of the assets and liabilities acquired with La Wash and the provisional fair values of assets and liabilities acquired with Sempa are shown below: Intangible assets - Customer relationships Intangible assets - Brand value Intangible assets - Software Property, plant and equipment Total fixed assets Inventory Trade and other receivables Cash and cash equivalents Total current assets Total assets Trade and other payables Deferred tax Current tax Total current liabilities Borrowings Total liabilities Total identifiable net assets acquired excluding goodwill Goodwill Non-controlling interest La Wash Group £’000 2,369 218 21 31 2,639 61 458 57 576 3,215 (595) (633) (167) (1,395) – (1,395) 1,820 2,570 – Sempa SARL £’000 – – 1 1,001 1,002 120 580 8,497 9,197 10,199 (1,234) – (49) (1,283) (1,481) (2,764) 7,435 10,660 (297) Total £’000 2,369 218 22 1,032 3,641 181 1,038 8,554 9,773 13,414 (1,829) (633) (216) (2,678) (1,481) (4,159) 9,255 13,230 (297) Total identifiable net assets acquired 4,390 17,798 22,188 Satisfied by Cash Deferred consideration to be paid Total consideration Cash consideration per cash flow Cash consideration Net cash acquired with subsidiaries Initial cash outlay on purchase of subsidiaries The following results were included in the Group’s results for the year ended 30 April 2019 Revenue Profit before tax 4,170 220 4,390 4,170 (57) 4,227 17,798 21,968 – 220 17,798 22,188 17,798 (8,497) 9,301 21,968 (8,554) 13,528 £’000 3,784 943 £’000 – – £’000 3,784 943 141 ANNUAL REPORT 2019FINANCIAL STATEMENTS31 E V E N TS A F T E R B A L A N C E S H E E T D AT E On 4 May 2019 the Group acquired the 4% non-controlling interest in Sempa SARL for €860,000, taking its interest in Sempa SARL to 100%. 32 T R A N S I T I O N TO I F R S 9 F I N A N C I A L I N ST R U M E N TS The table below shows reclassification of assets and liabilities on transition to IFRS 9 and the initial effect on equity at 1 May 2018. Of which Remeasurement due to new rules for classification and measurement Effect on equity 1 May 2018 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Financial assets Equity investments IAS 39 Classification at 30 April 2018 IFRS 9 Classification at 1 May 2018 Available for sale Fair value through profit and loss Cash restricted in its use Held to maturity Amortised cost Amortised cost Trade and other receivables (non current) Trade and other receivables (current) Cash and cash equivalents Loans and receivables Loans and receivables Loans and receivables IAS 39 Carrying amount 30 April 2018 IFRS 9 Carrying amount 1 May 2018 4,286 4,286 1,710 2,116 1,710 2,116 Amortised cost 20,613 20,613 Amortised cost 58,657 58,657 87,382 87,382 151,527 151,527 238,909 238,909 Total financial assets Non-financial assets Total assets Financial liabilities Loans and borrowings (non current) Trade and other payables (non current) Amortised cost Amortised cost (27,540) (27,540) Amortised cost Amortised cost (224) (224) Loans and borrowings (current) Amortised cost Amortised cost (6,139) (6,139) Trade and other payables (current) Total financial liabilities Non-financial liabilities Total liabilities Amortised cost Amortised cost (43,498) (43,498) (77,401) (77,401) (16,698) (16,698) (94,099) (94,099) 142 NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 APRIL 2019FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLC5 Y E A R S U M M A RY I N C O M E STAT E M E N T ( U N A U D I T E D ) Revenue UK & Ireland Continental Europe Asia Total revenue Operating profit after special items before finance costs Net finance (cost)/income & Other gains 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 2019 £’000 2018 £’000 2017 £’000 2016 £’000 2015 £’000 52,919 130,661 44,538 228,118 42,739 (146) 42,593 (11,314) 31,279 63,707 121,134 44,973 53,639 111,670 49,344 45,783 93,712 44,499 44,652 94,345 38,205 229,814 214,653 183,994 177,202 46,106 4,069 50,175 (9,889) 40,286 46,807 1,232 48,039 (12,901) 35,138 39,734 38,370 372 40,106 (10,907) 29,199 126 38,496 (10,452) 28,044 31,226 40,134 34,991 29,066 27,900 53 152 147 133 144 31,279 40,286 35,138 29,199 28,044 8.27p 8.26p 3.71p 4.73p – 8.44p 10.64p 10.60p 3.71p 4.73p – 8.44p 9.30p 9.27p 3.09p 3.94p – 7.03p 7.77p 7.72p 2.575p 3.285p 2.815p 8.675p 7.49p 7.43p 2.34p 2.54p – 4.88p 143 ANNUAL REPORT 2019FINANCIAL STATEMENTS5 Y E A R S U M M A RY C O N T I N U E D STAT E M E N T O F F I N A N C I A L P O S I T I O N ( U N A U D I T E D ) 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 Reserves Equity of the Parent Non-controlling interests Total equity Total non-current liabilities Total current liabilities Total equity and liabilities Net cash 2019 £’000 41,816 96,001 415 5,045 2018 £’000 27,395 93,232 1,583 10,047 2017 £’000 25,263 75,651 2,095 8,136 2016 £’000 20,312 56,723 1,713 8,092 128,723 106,652 85,753 103,382 – – 96 96 2015 £’000 16,687 48,721 848 7,486 82,474 – 272,000 238,909 196,994 190,318 156,216 1,889 10,588 129,500 141,977 1,870 1,887 10,366 131,004 143,257 1,553 143,847 144,810 64,450 63,703 272,000 16,338 35,959 58,140 238,909 26,688 1,882 8,999 117,080 127,961 1,341 129,302 19,045 48,647 196,994 39,212 1,877 8,156 111,608 121,641 1,109 122,750 17,656 49,912 190,318 62,415 1,866 7,131 94,510 103,507 904 104,411 7,549 44,256 156,216 60,669 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. F I N A N C I A L & O P E R AT I N G STAT I ST I C S Capital expenditure – photobooth & vending machines £’000 Capital expenditure – research & development £’000 EBITDA £’000 EBITDA % of revenue Number of vending sites 2019 2018 2017 2016 2015 24,938 1,631 69,705 30.6 47,000 35,588 2,510 70,981 30.9 47,000 33,787 2,390 69,034 32.2 48,000 19,402 2,935 56,530 30.7 45,500 18,287 2,560 55,087 31.1 44,600 144 FINANCIAL STATEMENTSPHOTO-ME INTERNATIONAL PLCC O M PA N Y I N F O R M AT I O N & A D V I S O R S R E G I ST E R E D I N E N G L A N D A N D WA L E S Number 735438 R E G I ST E R E D O F F I C E Unit 3B Blenhiem Road Epsom KT19 9AP Tel: +44 (0)1372 453399 Fax: +44 (0)1372 459064 Web: www.photo-me.com e-mail: ir@photo-me.co.uk A U D I TO R Grant Thornton UK LLP 30 Finsbury Square London EC2A 1AG B R O K E R S Canaccord Genuity Limited 88 Wood Street London EC2V 7QR finnCap Limited 60 New Broad Street London EC2M 1JJ B A N K E R S Lloyds Bank plc 25 Gresham Street London EC2V 7HN Santander UK plc 2 Triton Square Regent’s Place London NW1 3AN F I N A N C I A L P U B L I C R E L AT I O N S Hudson Sandler LLP 29 Cloth Fair London EC1A 7NN R E G I ST R A R S Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 145 ANNUAL REPORT 2019FINANCIAL STATEMENTSF I N A N C I A L STAT E M E N TS S H A R E H O L D E R I N F O R M AT I O N A N A LYS I S O F R E G I ST E R E D S H A R E H O L D I N G S AT 5 J U LY 2018 Category: Individuals Nominees Other corporate bodies Total Size of holding: 1-1,000 1,001-10,000 10,001 - 100,000 100,001 - 500,000 500,001 - 1,000,000 1,000,000 and above Total Number of Holdings Number of Ordinary Shares % of Issued Share Capital 1,822 396 39 7,393,779 366,921,563 3,696,295 1.96 97.06 0.98 2,257 378,011,637 100.00 1,096 806 205 89 27 34 532,542 2,505,164 6,952,117 22,729,293 19,540,091 325,752,430 2,257 378,011,637 0.14 0.66 1.83 6.01 5.16 86.18 100.00 C A P I TA L G A I N S TA X 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 I N V E STO R R E L AT I O N S W E B S I T E Investor relations information, including share price, is available through the Company’s website www.photo-me.com 146 PHOTO-ME INTERNATIONAL PLCT R A N S F E R O F F I C E A N D R E G I ST R AT I O N S E R V I C E S Link Asset Services act on behalf of the Company. All shareholder enquiries, notifications of change of address, dividend mandates, etc. should be referred to them at: Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU 0871 664 0300 Tel: Overseas Tel: 00 44 208 639 3399 Fax: 0871 644 0399 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 +44 (0)1372 453399 +44 (0)1372 459064 Tel: Fax: e-mail: ir@photo-me.co.uk F I N A N C I A L C A L E N D A R Annual General Meeting Half year results (to 31 October 2019) Full year results (to 30 April 2020) Dividend 3 October 2019 Announcement in December 2019 Announcement in July 2020 Final (year to 30 April 2019) – ex dividend date 17 October 2019 – record date – payment date 18 October 2019 8 November 2019 Designed and produced by Invicomm www.invicomm.com +44(0)207 205 2586 I N N O V A T I O N A N D D I V E R S I F I C A T I O N PHOTO-ME INTERNATIONAL PLC Unit 3B Blenheim Road, Epsom KT19 9AP T +44(0)1372 453399 F +44(0)1372 451044 W www.photo-me.com 

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