Company Announcements

 

10 December 2019

Photo-Me International plc

("Photo-Me" or "the Group")

 

                   INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2019

                                                                                

Continued strong Laundry performance

 

Photo-Me International plc (PHTM.L), the instant-service equipment group, announces its results for the six months ended 31 October 2019.

 

Results summary

 

	Reported			At constant currency
	Six months ended 31 Oct 2019	Six months ended 31 Oct 2018	Change	Six months ended 31 Oct 20181	Change1
Revenue	£123.9m	£119.8m	3.3%	£122.0m	1.8%
Underlying revenue4	£120.3m	£119.8m	0.4%	£122.0m	(1.4)%
EBITDA	£45.9m	£39.1m	17.4%	£39.8m	15.3%
EBITDA excluding IFRS 16 impact	£43.3m	£39.1m	10.7%	£39.8m	8.8%
Profit before tax3	£28.3m	£26.0m	8.8.%	£26.5m	6.8%
Profit before tax excluding IFRS 16 impact	£28.4m	£26.0m	9.2%	£26.5m	7.2%
Adjusted profit before tax3	£28.5m	£26.7m	6.7%	£27.1m	5.2%
Cash generated from operations	£41.1m	£36.1m	13.7%
Net cash2	£25.2m	£32.4m	(22.2%)
EPS (diluted)	6.0p	5.3p	13.2%
Adjusted EPS	6.0p	5.5p	9.1%
Interim dividend per Ordinary share	3.7p	3.7p	-

 

¹ For constant currency comparatives, average rates of exchange used were £/€ 1.129 (H1 2019: 1.122), £/Yen 145.171 (H1 2019: 135.00)

² Refer to the note 8 to the financial statements for the reconciliation of net cash to cash and cash equivalents as per the financial

   statements

³ The profit before tax is adjusted with the UK restructuring cost (£0.2m)

⁴ Underlying revenue excludes Sempa revenue

 

 

Financial summary

 

·    Revenue was up 3.3% to £123.9 million (up 1.8% at constant currency).
 

·    Underlying revenue (excluding Sempa) up 0.4% to £120.3 million (down 1.4% at constant currency).
 

·    EBITDA improved by 17.4% to £45.9 million. Excluding IFRS16 impact, EBITDA improved by 10.7% to £43.3 million. This reflects profit growth through laundry expansion, the acquisition of Sempa and a higher depreciation than in the prior year period.  At constant currency, EBITDA was up 8.8%.

 

·    Profit before tax increased by 8.8% to £28.3 million and adjusted profit before tax improved 6.7% to £28.5 million (up 5.2% at constant currency). Excluding IFRS16 impact, profit before tax increased by 9.2% to £28.4 million.

 

·    Net cash position of £25.2 million (H1 2019: £32.4 million), following the distribution of £31.9 million to shareholders in dividend payments, £29.3 million in investments and the £10.2 million net cash consideration relating to the acquisition of Sempa.   

 

·    Interim dividend maintained at 3.71 pence per Ordinary share, in line with the stated dividend policy (H1 2019: 3.71 pence per Ordinary share).

 

Operational summary

 

·    Continued focus on Laundry expansion, with total laundry units deployed (owned, sold and as a result of acquisitions) up 9.1% and total revenue from laundry operation was up 6.9%.

 

·    Revenue from Revolution laundry operations increased by 25.2% and number of Revolution units in operation increased by 13.8%.  Revolution now accounts for 6.3% of the total Group vending estate (H1 2019: 5.0%). 

 

·    Excluding the UK, Identification revenue increased 0.8%. Including the UK, Identification revenue declined by 3.3% reflecting the challenging market conditions in UK.
 

·    Entry into the fresh fruit and vegetable juice market through the acquisition of Sempa Sarl ("Sempa") which completed in April 2019. In H1 2020, Sempa contributed £3.5 million of revenue and £1.8 million of profit before tax to the Group.  This new business area called 'KIS Food' is expected to contribute £3.2 million profit before tax in FY 2020.
 

Serge Crasnianski, CEO, said:

 

"The first half of the year saw robust performance despite a number of challenging headwinds. the Group remains focused on further expanding our Laundry market presence across a number of the core geographies in which we operate and across our product offering, from 24/7 self-service machines and laundrettes to B2B laundry services. Our Identification business remains resilient and looking ahead, we expect to benefit from the introduction of mandatory renewal for ID cards in France from 2021 onwards. Our entry into the food market earlier in the year also provides the Group with a new additional platform for growth and will become an important component of our future growth strategy.

 

"The Group remains highly cash generative with £41.1 million of cash generated during the period, reflecting EBITDA margin improvement. The Board remains confident that the Group will continue to perform in line with market expectations for the current financial year."

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

Enquiries:

Photo-Me International plc	+44 (0) 1372 453 399 / ir@photo-me.co.uk
Serge Crasnianski, CEO
Stéphane Gibon, CFO
Hudson Sandler	+44 (0) 20 7796 4133
Wendy Baker/ Emily Dillon/ Nick Moore	photo-me@hudsonsandler.com

 

An audio webcast of the analyst and investor conference call will be available to download later today at www.photo-me.com.

 

NOTES TO EDITORS

Photo-Me International plc (LSE: PHTM) operates, sells and services a wide range of instant-service vending equipment, primarily aimed at the consumer market.

 

The Group operates approximately 46,900 vending units across 18 countries and its technological innovation is focused on three principal areas:

 

·    Identification: photobooths and integrated biometric identification solutions

·    Laundry: unattended laundry services, launderettes, B2B services

·    Kiosks: high-quality digital printing

 

The Group entered the self-service fresh fruit juice equipment market in April 2019, with the acquisition of Sempa. This will become a key business area ('KIS Food') alongside Identification, Laundry and Kiosks, and will be a significant part of the Group's future growth strategy.

 

In addition, the Group operates vending equipment such as children's rides, amusement machines and business service equipment.

 

Whilst the Group both sells and services this equipment, the vast majority of units are operated and maintained by Photo-Me. Photo-Me pays the site owner a commission based on turnover, which varies depending on the country and location of the machine.

 

The Group has built long-term relationships with major site owners and its equipment is generally sited in prime locations in areas of high footfall such as supermarkets, shopping malls (indoors and outdoors) and public transport venues. The equipment is maintained and serviced by an established network of 700 field engineers.

 

The Company's shares have been listed on the London Stock Exchange since 1962.

 

 

CHAIRMAN'S STATEMENT

 

Results

 

The Group's first half performance was in line with expectations, delivering further revenue and profit growth and further expansion of the Laundry business. Total revenue increased by 3.3% to £123.9 million and by 0.4% to £120.3 million on an underlying revenue basis.

 

Expansion of laundry operations remained a key growth driver, with total revenue from Revolution machines up 25.2% to £17.4 million. Excluding the UK, Identification revenue increased by 0.8% but overall declined by 3.3% to £76.5 million, reflecting lower activity in the UK photobooth market. As previously announced, the UK photobooth market was challenging due to uncertainty around the UK's exit from the EU and the Government's policy to accept photos taken at home for passport identification. Together these factors resulted in lower consumer activity which impacted overall performance of this business area. Kiosks revenue increase by 6.1% to £7.0 million.

 

Reported EBITDA excluding IFRS16 impact increased by 10.7% to £43.3 million, driven by laundry expansion in France Portugal and Ireland, a contribution from the acquisition of Sempa and a higher depreciation charge compared with H1 2019. This resulted in EBITDA margins expanding to 37.0% of revenue, a 13.5% increase (H1 2019: 32.6% excluding the impact of one-off items). On a constant currency basis, EBITDA was up 15.3% from £39.8 million.

 

Profit before tax increased by 8.8% to £28.3 million, and at constant currency by 6.8%. Adjusted profit before tax increased by 6.7% to £28.5 million, reflecting prior year adjustments for discontinued operations and exceptional items detailed in the table below (Adjusted profit before tax H1 2019: £26.7 million).

 

Reconciliation of Reported Profit Before Tax to Adjusted Profit Before Tax

 

	Six months to 31 October 2019	Six months to 31 October 2018
Reported profit before tax	£28.3m	£26.0m
Discontinued operations
-     Profit on disposal of Stilla Technologies SA	-	£3.2m
-     Loss of Max Sight Holding investment	-	(£2.7m)
Exceptional items - restructuring costs	£0.2m	£1.2m
Adjusted profit before tax	£28.5m	£26.7m

 

The Group remains highly cash generative, with cash generated from operations of £41.1 million in the period, an increase of 13.7% year-on-year, reflected in the improvement in EBITDA.

 

The Group's net cash position at 31 October 2019 was £25.2 million, compared to a net cash position of £32.4 million at 31 October 2018 and a net cash position of £16.3 million as at 30 April 2019. The reduction compared with 31 October 2018 is due to the £10.2 million net consideration paid for the Sempa acquisition, as well as £31.9 million paid out by the Group in dividends and £31.7 million in investments.

 

In the first half, there was a £0.2 million restructuring cost in the UK compared with a £1.2 million restructuring cost related the Group's Japanese subsidiary in H1 2019. The Group does not anticipate any restructuring costs in H2 2020.

 

Strategy update

 

The Group has continued to make strategic and operational progress in line with its strategy to diversify its range of products and services, driven by the expansion of its laundry business and the acquisition of Sempa, as announced in April 2019. 

 

Overall Group trading has been in line with the Board's expectations, underpinned by continued growth in Continental Europe and Asia, led by the Laundry business, and despite trading in the Identification division in the UK remaining challenging. This has been due to continued uncertainty around the UK's European Union exit negotiations, leading to continued lower consumer activity. Furthermore, the UK is the only European country where photos taken on a smart device or camera at home can legitimately be used for passport photo identification. 

 

The acquisition of Sempa represented the launch of a new growth initiative for Photo-Me, under the new business area KIS Food. To date, Sempa has performed well and in line with management's expectations. Good progress has been made on integrating the Sempa operations within the Group and on the expansion of this juicing machine estate both through acquisition and development in house. Trials are already underway.

 

Details of strategic progress by business area are set out in the Business Review.

 

Appointment of Non-Executive Director

 

On 18 July 2019, the Group announced the appointment of Mr Jean-Marc Janailhac as an Independent Non-executive Director, effective from 22 July 2019. Mr. Janailhac is a seasoned entrepreneur with a wealth of experience, including being a senior adviser of Macquarie Capital (Europe) Limited and a Non-executive Director of Athena Investments A/S.

 

Dividends

 

The Board is declaring a maintained interim dividend of 3.71 pence per Ordinary Share (H1 2019: 3.71 pence per share). This is line with the Board's intention to maintain a total dividend of 8.44 pence per ordinary share for the current financial year ending 30 April 2020.

 

The interim dividend will be paid on 11 May 2020 to shareholders on the register on 14 April 2020. The ex-dividend date will be 9 April 2020.

 

Outlook

 

The Group remains focused on its strategy to further diversify its product offering both organically through innovation, and through smaller bolt-on acquisitions.

Expansion of Laundry, particularly in new markets such as Germany, Austria and Switzerland, remains a key priority, including increasing the Group's presence in the B2B and the laundrette markets, which continue to represent a material opportunity for the Group. Looking ahead, this business area will continue to account for an increasing proportion of the Group's total revenue in the medium term.

KIS Food is an important component of the Group's future growth strategy and we will continue to progress with the development and rollout of the offer in this business area. Our initial focus will remain within French supermarkets, whilst the Group looks to expand into other Pan-European geographies in the future.

 

Whilst consumer uncertainty continues to weigh on our business in the UK, we remain confident that the Group will continue to perform well during the coming period, and in line with market expectations, in the current financial year.

 

CHIEF EXECUTIVE'S BUSINESS AND FINANCIAL REVIEW

 

BUSINESS REVIEW

 

Photo-Me has three principal areas of business; Identification, Laundry and Kiosks.

 

The Group has recently announced the establishment of a new business area to further diversity operations, KIS Food. This business is expected to form a core part of the Group's growth strategy in the future. 

 

In addition, the Group operates 9,912 Other Vending Equipment, such as children's rides and, photocopiers. Whilst these are not principal business areas or core to the growth strategy, these machines are profitable and benefit from synergies relating to other areas of the business, such partnerships with site owners and the Group's network of field engineers and account for 5.6% of the Group's total vending estate's revenue.

 

In the first half, the Group remained focused on driving the growth of its Laundry operations, identifying and accessing growth opportunities in KIS Food, and the deployment of secure photo ID upload technology in its Identification business.

 

Identification

Photobooths and integrated biometric identification solutions

	31 October 2019	31 October 2018	Change
Number of units in operation	28,439	28,421	0.1%
Percentage of total Group vending estate (number of units)	61.0%	61.0%
Revenue	£76.5m	£79.1m	(3.3%)
Capex	£5.4m	£3.9m	38.5%

 

Outside of the UK, revenue from Identification remained stable at +0.8% year-on-year, underpinned by a robust performance in France (the Group's largest market) and Japan. There continues to be strong opportunities for the Group to work with governments and deploy secure upload photo ID technology, particularly in Continental Europe where, under European regulations, ID photos taken at home are not permitted for official documents due to security risks.

 

The Group now has more than 12,000 photobooths connected to government organisations for the secure upload of photo ID in the UK and Continental Europe, and it is anticipated that this number will continue to grow as discussions with governments to deploy this technology progress.

 

During the first half, we have invested in Identification, specifically in Japan and the UK to strengthen our position in high-footfall sites and consolidate our leading market position.

 

 

Laundry

Unattended Revolution laundry services, launderettes, business-to-business laundry services

	31 October 2019	31 October 2018	Change
Total laundry units deployed (owned, sold and as a result of acquisitions)	5,179	4,636	11.7%
Total revenue from laundry operations	£25.6m	£21.9m	16.9%
Revolution (excludes Launderettes and B2B):
Number of Revolutions in operation	2,995	2,527	18.5%
Percentage of total Group vending estate (number of units)	6.4%	5.0%
Total revenue from Revolutions	£17.4m	£13.9m	25.2%
Revolution capex	£6.5m	£4.3m	51.2%

*There were 2,732 full time units in operation during H1 2020 compared with 2,232 in H1 2019.

 

The expansion of Laundry operations remains a key driver of growth and further good progress has been made during the period, with an average growth rate of 50 machines in operation per month.

 

The number of Revolution machines in operation has increased by 18.5% as the rollout in Continental Europe and the UK & Republic of Ireland continued. In the first half total revenue from Revolutions was up 25.2% compared with H1 2019. The expansion strategy has included building further Laundry presence in newer markets such as Germany, Austria, the UK and Switzerland.

 

In the UK, there has been an improving trend in B2B activity, albeit this remains at an early stage of recovery. The Group still expects to report growth for the full year.

 

During the period, Revolution capex increased by 51.2% to £6.5 million to support Laundry expansion and Revolution machine upgrades. Revolution installations increased by 23% year on year to 263 machines in H1 2020. The machine upgrades are almost complete which will lead to a decrease in capex requirement in H2 2020.

 

Revolution machines now account for 6.4% of Group's total vending estate. As anticipated, year-on-year, the Laundry business has continued to contribute an increasing proportion of the Group's revenue and profits.

 

The Group continue to seek accretive smaller bolt-on acquisitions that will further enhance its Laundry market presence.

 

The Group anticipates approaching 6,000 owned, sold and acquired laundry units by the end of calendar year 2020, subject to macro-economic factors outside of its control.

 

 

Kiosks

High-quality digital printing services

 

	31 October 2019	31 October 2018	Change %
Number of units in operation	5,508	5,533	(0.5%)
Percentage of total Group vending estate (number of units)	12.0%	12.0%	-
Revenue	£7.0m	£6.6m	6.1%
Capex	£1.1m	£1.8	(38.9%)

 

The Kiosk business has performed as expected in the period. Revenue was up 6.1% due to the good performance of the kiosks relocated in the prior year from Photo-Me Retail shops in the UK to France.

 

Kiosks continued to represent 12.0% of the total number of units in the Group's total vending estate, the majority of which are located in France.

 

Capex reduced by 38.9%, in line with the Group's strategy to restrict investment in kiosks to premium sites with high footfall, and channel investment into Laundry expansion.

 

 

KIS Food

 

Following the acquisition of Sempa in April 2019, which marked the Group's entry to the fresh fruit and vegetable juice market, the Group has formed a new segment, called "KIS Food".

 

In the first half, Sempa contributed £3.5 million of revenue to the Group and £1.8 million of profit before tax. 

 

Going forward, the Group anticipates that this business will be a significant part of the Group's future growth strategy, alongside Laundry and Identification. This business area is in early stage development and in the financial year to date has performed in line with expectation.  

 

Photo-Me's intention is to become one of the global leaders in the distribution of self-service fresh fruit juice machines, and its strategy to achieve this is two-fold, aimed at the B2B and B2C markets.

 

The Group's initial growth strategy for KIS Food is to roll out juice vending machines in selected countries in Europe. Competition within the self-service juice market is relatively limited and, by leveraging the Group's existing network of field engineers, the Board believes this market presents a significant growth opportunity for the Group in the medium to long term.

 

B2B market

 

The Group sells self-service juice machines to organisations such as restaurant, hotels, supermarkets, offices and small businesses.

 

Most machines are sold under lease finance contracts, with approximately 70% of these lease agreements renewing every 12-months on average. Almost all of the current juice vending machine estate is B2B.

 

The Group has already made good progress in establishing a juice offer with its existing commercial partners. The Group has installed 234 new machines over the last six months in Belgium and Switzerland. 

 

B2C market

 

The Group sells freshly-squeezed orange juice drinks direct to consumers via self-service juice vending machines, in locations such as railway stations. In September, Photo-Me acquired 150 juice vending machines from L'Orangerie de Paris, enabling the Group to run a larger scale trial to test the market prior to deploying vending machines across other geographies.

 

 

 Investment in innovation

 

Extending Food offer

 

In the KIS Food business, the Group's R&D team is working on extending its B2B and B2C product range over time to include juice options alongside its orange juice offer. Photo-Me is developing a professional apple juice machine, a world first. A prototype has been developed and is currently undergoing testing. 

 

Furthermore, a new pineapple juice machine for restaurants and hotels (commercial only) has been developed and a trial of the machine will commence in the second half of the current financial year. This market is smaller than apple juice but could be very profitable.

 

'ME' concept

The Group is developing a concept of grouping its vending offer in one place, in prime locations such as a supermarket and train stations. This would create a one-stop-shop for Photo-Me services, including launderette, photobooth, copier, kiosks, juice vending machines (service centre). The first trial is underway with a French supermarket retailer, Monoprix. We will provide a further update on the trial in due course.

 

REVIEW OF PERFORMANCE BY GEOGRAPHY

 

Commentaries on the Group's financial performance are 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 process. Although the Group is not managed around product lines, some commentary below relates to the performance of specific products in the relevant geographies.

 

Key financials

 

The Group reports its financial performance based on three geographic areas of operation: (i) Continental Europe; (ii) UK & Ireland; and (iii) Asia. 

 

	Revenue				Operating profit7
	Six months ended 31 October				Six months ended 31 October
	2019 £m	2018 £m	Change6	20185 £m	2019 £m	2018 £m	Change6	20185 £m
Continental Europe	77.0	70.4	9.4%	70.1	25.3	20.7	22.2%	20.9
UK & ROI	24.1	27.5	(19.6%)	28.5	1.8	4.6	(60.9%)	4.6
Asia	22.8	21.9	4.1%	23.4	3.4	1.5	126.7%	1.7
Corporate costs					(1.5)	(1.1)	36.4%	(1.1)
Total	123.9	119.8	3.3%	122.0	29.0	25.7	12.8%	26.1

 

⁵ 2018 trading results of overseas subsidiaries converted at 2019 exchange rates. For constant currency comparatives, average rates of exchange used were £/€ 1,129 (H1 2019: 1,12), £/Yen: 145.17 (H1 2019: 135.00)

⁶ Refers to change compared to reported results.

⁷ Operating profit exclude results of associate

 

 

Total Group revenue grew by 3.3%, driven by a continued strong performance in Continental Europe, particularly in the Group's largest market France, as well as the resilience of the Photobooth business in France and Japan. Operating profit grew by 12.8%, primarily due to a significant improvement in profitability of the Group's operations in Japan following the restructuring of this subsidiary in the prior financial year (H1 2019: included a £1.2 million one-off restructuring cost). 

 

Vending units in operation 

 

	As at 31 October 2019		As at 31 October 2018		Change year on year
	No of units	% of total	No of units	% of total
Continental Europe	25,436	54.0%	24,787	53.0%	2.6%
UK & Republic of Ireland	11,357	24.0%	11,909	26.0%	(4.6%)
Asia	10,061	21.0%	10,037	21.0%	0.2%
	46,854	100.0%	46,733	100%	0.3%

 

 

As at 31 October 2019, the Group's estate comprised 46,854 units. The number of units in Continental Europe continued to grow strongly, reflecting continued Laundry expansion, however this was offset by a significant decline in machines in operation in the UK, as unprofitable machines were removed from the estate. Overall, the size of the estate remained stable in the period.

 

Continental Europe

 

At 31 October 2019, 54.0% of the Group's total units in operation were situated in Continental Europe (H1 2019: 53.0%) and was once again the best performing region for the Group. expansion.

 

Revenue increased by 9.4% and operating profit by 22.2% reflecting a better than expected photobooth performance in France as well as the continued rollout of Laundry in the region.

 

This region contributed more than 62.2% of Group revenues in the period (H1 2019: 58.8%) and 87.2% of Group operating profit before Corporate costs (H1 2019: 80.5%).

 

UK & Republic of Ireland (including Corporate)

 

As discussed above, the uncertain macroeconomic environment, and the challenging photobooth market conditions in the UK, resulted in lower consumer activity which significantly impacted the performance of the region as a whole. Revenue declined by 19.6% and operating profit before corporate costs reduced by 60.9%. 

 

The Laundry business in the region has continued to perform well.

 

In Ireland, the Group added a further 19 Revolution units to its estate in the first half, an increase of 5.7% year-on-year. The Group strategy to expand its Laundry in the country has radically changed the portfolio mix with Laundry revenue now accounting for 80.0% of revenue in the country compared with 1.0% in 2014.

 

In the first half, UK Laundry expansion was at an average rate of seven new machines per month, however we expect this to accelerate to 15 to 20 Revolutions per month in the second half of the current financial year.

 

At 31 October 2019, 2.0% of the Group's total units in operation were situated in the UK & Republic of Ireland (H1 2019: 26.0%).

 

 

Asia

 

Revenue in Asia increased by 4.1% and operating profit before corporate costs increase by 126.7%. Excluding the one-off restructuring cost of £1.2 million in H1 2019, operating profit increased by 26.0% year-on-year.

 

The turnaround plan to address challenges in the Japanese market implemented in H2 2018 has proven highly effective and the country has returned to profitable growth. Trading in the other countries in Asia remained strong.

 

The Japanese photobooth market remains very competitive and the Group is well-positioned to participate in market consolidation which will build market share.

 

The Group plans to continue expansion of its Laundry operation in Japan, with two new launderettes due to open in early 2020.

 

At 31 October 2019, 21.5% of the Group's total units in operation were situated in Asia (H1 2019: 21.5%).

 

 

Statement of Financial Position

 

Shareholders' equity as at 31 October 2019 totalled £134.4 million, equivalent to 35.6 pence per share.

 

Net cash balance of £25.2 million as at the 31 October 2019 (31 October 2018: £32.4 million, 30 April 2019: £16.3 million). 

 

 

PRINCIPAL RISKS

 

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 and so regularly reviews the risks faced by the Group as well as the systems and processes to mitigate them.

 

The table below sets out what the Board believes to be the principal risks and uncertainties, their impact, and actions taken to mitigate them.

 

 

Nature of the risk	Description and impact		Mitigation
Economic
Global economic conditions	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 Group focuses on maintaining the characteristics and affordability of its needs-driven products
Volatility of foreign exchange rates	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 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.
Regulations
Centralisation of 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 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 high quality.
Brexit	The UK's referendum decision to leave the EU ("Brexit") will most probably lead to changes in regulations in the UK as well as 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 European Union.   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.
Strategic
Identification of new business opportunities	Failure to identify new business areas may impact the ability of the Group to grow in the long term.	Management teams constantly review demand in existing markets and potential new opportunities. The Group continues to invest in research in new products and technologies.
Inability to deliver anticipated benefits from the launch of new products	The realisation of long-term anticipated benefits depends mainly upon the continued growth of the laundry business and the successful development of integrated secure ID solutions.	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.
Market
Commercial relationships	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.		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.
	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.		The Group continues to monitor the situation in both the French and UK markets.
Operational
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.
Reliance on one single supplier of consumables	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 to 10 months' worth of paper consumption, to allow enough time to put in place alternative solutions.
Reputation	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 the 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.
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.		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.
Technological
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 our secure ID data transfer feeds	The Group operates an increasing number of photobooths capturing ID data and transferring this data directly to governmental databases	The Group performs an ongoing assessment of the risks and ensures that the infrastructure meets the security requirements.