Photo-Me International Plc

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Photo-Me International Plc

Church Road
Bookham, Surrey KT23 3EU
United Kingdom
Telephone: ( + 44) (0) 1372 453399
Fax: ( + 44) (0) 1372 459064
Web site: http://www.photo-me.co.uk

Public Company
Incorporated: 1954 as Photo-Me Ltd.
Employees: 1,800
Sales: £230.03 million (2006)
Stock Exchanges: London
Ticker Symbol: PHTM
NAIC: 333315: Photographic and Photocopying Equipment Manufacturing; 333319 Other Commercial and Service Industry Machinery Manufacturing; 812990 All Other Personal Services; 713990 All Other Amusement and Recreation Industries

Photo-Me International Plc is the largest manufacturer and operator of photo booths in the world, and also makes freestanding kiosks for printing from digital cameras. Other company units produce digital photo "minilabs" for quick-turnaround film processors; high-output equipment for professional photo-finishing firms; and children's amusement rides. The firm has operations in more than a dozen countries, with its largest markets being the United Kingdom, France, and Japan.

BEGINNINGS

Photo-Me International dates its origins to 1946, when Californians Gupp Allen and I.D. Baker invented a new, more compact system for developing film for coin-operated photo booths. An automated photo-taking machine had originally been patented in 1889, and then in the mid-1920s Anatol Josepho's improved Photomaton device had spurred their widespread installation in the United States and elsewhere.

Allen and Baker initially tried to interest New York amusement arcade operators in their new "dip and dunk" system, in which film was developed via a series of seven chemical baths, but when little interest was shown they decided to go into business for themselves. In 1952 Baker visited England, where a chance encounter on a train resulted in the creation of a new U.K.-based offshoot called Photo-Me Ltd. It was launched in 1954 by a group of businessmen including Edward F. Weston, and four years later a subsidiary called Photo-Me Studios Ltd. was formed. In 1962 the company began trading on the London Stock Exchange as Photo-Me International Plc (PMI).

Taken in a bright flash of light with a curtain or other nondescript background behind the subject, black-and-white photo booth pictures could look serious, slightly glamorous (as the flash softened facial wrinkles), or silly, with the four pictures per sitting giving people the opportunity to make a face in at least one pose. Key to their popularity was the relatively quick result, at a time when photographs generally took several days to be processed. While many were taken on the spur of the moment for fun or as gifts for loved ones, some of the photographs were used for identity cards or similar purposes. Photo booths did not use negatives, but printed the pictures directly onto positive film, making them a one-of-a-kind document.

APPROVAL OF PASSPORT PHOTO
USE: 1966

During the 1960s PMI began expanding its operations to Europe and other new markets, and in 1966 sales increased when Britain approved the firm's black-and-white photo booth pictures for passports. In the 1970s student photo-identification railroad cards brought more business, as did the 1976 conversion of passport pictures to color, which provided incentive for the firm to upgrade many of its older black-and-white booths.

By 1981 PMI had annual sales of £27.4 million. That year cofounder Edward Weston stepped down as chair, with his job taken by CEO and Managing Director John Currie.

In 1983 the firm created a subsidiary called PMI Data to make plastic identity cards and the equipment to produce them, but in 1985 control of the unit was sold to Bradbury Wilkinson. PMI also bought out the original American operation founded by Allen and Baker during the decade, and moved its headquarters from Walton-on-Thames to Bookham, in Surrey.

By 1989 the rapidly growing company's sales had increased to £94.5 million. PMI had 15,000 photo booths in more than 100 countries, including 1,700 in Japan, where sales were particularly strong. Most were owned by the company or firms that it controlled, though some were sold to outside vendors for £13,000 each. Much of the company's profit was derived from the sale of special photo booth film, which was produced in Switzerland.

In 1991 the firm bought out the minority shareholders of its French and Belgian subsidiaries, while more than 900 photo identity card machines were installed in Europe and Southeast Asia and new franchise-based PMI Express Systems placed 1,500 business card printing machines worldwide. Also during 1991, the Societe de Participation KIS - SPK S.A.R.L. and Societe KIS Investissements - SKI S.A. (collectively known as KIS) of Grenoble, France, purchased a 20 percent ownership stake in PMI.

MERGER WITH KIS IN 1994

In January 1994 PMI bought KIS for £38 million. With annual sales of approximately £33.8 million, the French company was a leading maker of mini photo labs, such as those used in "One-Hour Photo" outlets, and had also developed a photo booth that used digital photography. Aware that such technology was soon likely to render its film-based systems outmoded, PMI's management decided to acquire the design.

After the merger KIS founder Serge Crasnianski would take a 25 percent stake in PMI, making him the company's single largest shareholder. He had been a member of its board since 1990, and was subsequently named managing director of manufacturing research and design sales. The two firms' operations were soon consolidated, with manufacturing shifted from Bookham to Grenoble, though warehousing and administrative functions remained in the former location. PMI would also begin marketing the 35mm film minilabs of KIS.

After the merger was complete PMI introduced a new digital photo booth called PhotoVision, in which users could select from a variety of digital backgrounds and review or retake a picture before printing. Initially installed in such locations as the Paris subway system, the new design soon began replacing many older booths. The firm had also examined its foreign operating units and sold several that were performing poorly, while creating a new leisure division to operate small amusement rides for children in shopping centers and supermarkets. For the fiscal year ended in April, PMI recorded sales of £172 million.

COMPANY PERSPECTIVES

PMI is a specialist digital imaging company focused on professional laboratories and end-consumer vending solutions.

PMI has 35,200 vending locations worldwide and is the world's leading operator of photobooths, with 20,600 sited. PMI is increasing its vending product offering in other areas such as digital media kiosks (enabling customers to obtain prints from digital cameras) and children's rides.

PMI manufactures a unique and complete range of photo-processing equipment covering all market segments, from wholesale labs, to minilabs, to end-consumer vending kiosks.

In October 1995 the company acquired Macrodata Ltd. of England, a maker of ID card systems, and in 1997 U.S. subsidiary Auto Photo Systems, Inc. merged with primary competitor Irata, Inc. to form Image Dynamics LLC (later known as Photo-Me USA) and a joint photo-processing venture was formed with the Godrej Group of India.

The company's profits were leveling off and starting to fall as the photo booth industry became more competitive, and PMI was increasing the number of children's rides its leisure unit operated and trying new offerings such as photo sticker booths. In 1998 a contract was signed with Kodak to make several thousand of the latter, which would be operated under the Kodak Image Magic brand name.

ACQUISITION OF
PRONTOPHOT AND SOFT: 1998

In March 1998 PMI agreed to buy primary European rivals Prontophot and Soft from the Swiss firm Fotolabo for £10.5 million. During the year an updated Photo-Vision booth was also unveiled that allowed users to print from their own photos or digital cameras, and a new digital minilab was introduced. Of some 24,000 booths installed worldwide (20,000 of which were at least partly owned by PMI), more than 4,000 were in the United Kingdom, about the same number were in France, and 3,000 were in Japan. The United Kingdom had begun to require photographs on driver's licenses and passports for children, and the firm was looking forward to a boost in sales, being the source of more than two-thirds of passport photos there.

In the fall of 1998 Serge Crasnianski was appointed CEO of PMI. The 55-year-old French national of Russian descent had been trained as a nuclear physicist and had more than 100 patents to his name. He soon began a thorough restructuring of the company, consolidating manufacturing in Grenoble and reducing staffing levels by 30 percent.

PMI's share of the U.K. and European market was close to 90 percent thanks to the acquisitions of Photopront and Soft (the latter of which had subsequently been sold), but in other countries competition was increasing, and the firm doubled its research and development budget to keep up with technological changes.

In the spring of 1999 a new venture with British Telecommunications was announced. Taking advantage of the computers they already incorporated, the firm's digital photo booths would be enhanced to offer Internet access and email services. In the summer the company also began talking with Musicmaker.com of the United States about offering custom-burned music CDs. With the dot.com boom in full swing, these developments caused PMI's share price to surge upward.

The year 1999 also saw the company acquire the half of its Japanese subsidiary that it did not already own in exchange for a number of older photo booths, and the installation of 800 new postcard-making booths. A write-off of £29.5 million was recorded during the fiscal year for obsolete equipment and the merging of operations with Photopront, which put the firm £9.4 million in the red.

DIVING STOCK PRICE: 2000

In April 2000 the first ten PhotoPlanet Internet-connected booths were unveiled after several delays, but a disappointing public response, the abrupt sale by CEO Crasnianski of 10 percent of his stock, and revelations that an accounting error had overstated sales all helped cause the firm's share price to lose more than four-fifths of its value by late summer. The stock slump and reports about secretive business deals with companies that several directors had ties to, soon led investors to put pressure on PMI to make changes to its board. Several directors subsequently left and a new deputy chairman, Vernon Sankey, was appointed, though both Crasnianski and Chairman Dan David would remain. Each owned about 20 percent of PMI's stock.

KEY DATES

1954:: Photo-Me Ltd. is founded in England to make and service photo booths.
1962:: Photo-Me International Plc begins trading on the London Stock Exchange.
1966:: Approval of photo booth pictures for passports in U.K. boosts sales.
1976:: Color passport photos are approved. Photo-Me buys out American operation as overseas growth increases.
1994:: Company completes merger with KIS of France, makers of photo minilabs; begins converting analog photo booths to new digital systems.
1998:: Prontophot and Soft acquisition makes firm largest photo booth company worldwide.
2003:: Gretag high-volume photo lab manufacturing unit is acquired.
2004:: Digital photo kiosks, new DKS dry minilabs are introduced.
2006:: Controlling interest in three vending/amusement machine firms is purchased.

Meanwhile, in August a joint venture had been announced with digital camera memory card maker San-Disk to create a network of digital photo-printing kiosks in North America, and in September a deal was signed with Kodak to supply new Digital KIS System photo minilabs to Asia. Later in the fall, however, the firm lost its contract to supply photo booths to the Post Office in the United Kingdom, while the much-hyped Photo-Planet Internet-connected booths were re-launched without web access and in early 2001 the firm sold controlling interest in its Brazilian subsidiary.

For fiscal 2001 revenues hit £209 million, but as photo booth and minilab sales declined sharply they slid to £187 million a year later. Competition was fierce, and some booth site owners such as Safeway were demanding a larger cut of sales, after which PMI pulled out its equipment rather than pay higher fees. The joint SanDisk photo kiosk venture had also proved a bust, with £1.5 million written off on the deal.

During this period the conversion of photo booths to digital technology was continuing, with some 70 percent updated by late 2002, and the firm also introduced an updated version of its DKS minilab that was priced at £70,000. Kodak subsequently ordered a number for sale under its own brand name, but manufacturing problems slowed delivery of the units.

In April 2003 PMI bought the Central Lab Equipment division of the bankrupt Gretag Imaging AG for £1.4 million. Relaunched as Gretag Imaging Solutions, the unit would produce machines for high volume photo labs, with its CYRA system capable of 13,000 prints per hour. The price was £400,000.

RETURN TO PROFITABILITY
IN 2003

In 2003 PMI turned a profit for the first time in several years, and the situation continued to improve in 2004. The company had moved most minilab manufacturing to subcontractor Flextronics in Poland, with photo booth production outsourced to China.

In early 2004 a new digital photo kiosk was launched, and the DKS 900 minilab was introduced. Using a dry process, it could print from both digital and analog sources and was priced at just over £10,000. In December the firm's Bookham warehouse and workshop were destroyed by fire, and PMI later received an insurance settlement of £17.7 million for the damage.

In early 2005 Chairman Dan David retired and his place was taken by Deputy Chair Vernon Sankey. When David and several other departing board members cashed out their holdings, the amount of stock held by management fell from 52 to 20 percent. For the fiscal year ended in April the firm reported record sales of £236 million and a pretax profit of £34 million.

As sales of digital cameras eclipsed those of film models, the company's latest self-service photo kiosks began to attract more interest. Printing at home cost several times as much and yielded less impressive results, and by mid-2005 the firm had sold 1,600 of the units. Meanwhile interest in all things "retro" resulted in a brief surge in demand for booths with the old "dip and dunk" technology, with such celebrities as Quentin Tarantino and Tim Burton purchasing them for their homes.

In the fall of 2005 PMI sought to buy bankrupt German filmmaker AgfaPhoto, formerly a unit of Agfa Gevaert. After the firm's offer was rejected, AgfaPhoto was liquidated by its creditors and the stock of spare parts for its wholesale lab equipment was purchased for £6.1 million. In November the company was chosen to be the exclusive supplier of digital minilabs to U.S. pharmacy giant CVS, but its Polish manufacturer was initially unable to source enough parts to manufacture the needed units, causing delays.

In 2005 PMI's leisure unit expanded with the acquisition of two makers and/or operators of children's rides, Jolly Roger Ltd. and R.G. Mitchell Ltd., and in January 2006 the company also bought controlling interest in Deith Group Ltd., a leading U.K. coin-operated vending and amusement machine distributor. In February a new five-year contract was signed with the British Post Office, and in the summer PMI began preparing for the rollout of its 3rd generation DKS minilab, manufactured by new contractor Solectron of Singapore. In June, with several parties reportedly expressing interest in buying the firm, JPMorgan Cazenove was hired to undertake a strategic review of its operations.

PMI had a total of 35,000 vending sites worldwide, including 20,600 photo booths, 6,000 children's rides, 3,500 photo kiosks, and smaller numbers of photocopiers, card machines, and other equipment. It operated 80 percent of the photo booths in the United Kingdom, 90 percent of the ones in France, and 50 percent of those in Japan, its three principal markets. Manufacturing of various sizes of photo processing laboratories continued as well.

More than a half-century after its founding in England, Photo-Me International Plc had become the world's leading operator of photo booths and also had a variety of other photographic and leisure offerings. Though the firm had sometimes found the new digital era challenging, its leadership role in the industry and its creative management team positioned it strongly for survival.

Frank Uhle

PRINCIPAL SUBSIDIARIES

Photomaton S.A. (France); Photo-Me France/KIS; Nippon Auto-Photo Kabushiki Kaisha (Japan); Photo-Me USA LLC; Animate Fotofixe e Maquinas Automaticas Lda (Portugal); Prontophot (Schweiz) AG (Switzerland); Prontophot Austria; Photo-Me Australia Pty Ltd.; Prontophot SA (Belgium); Photo-Me CR spol.sro (Czech Republic); Fotofix Schnellphotoautomaten Gmbh (Germany); Fototronic Imager Division (Germany); Prontophot Holland BV; Photo-Me Hungary kft; Photo-Me Ireland Ltd.; Photo-Me Northern Ireland Ltd.; Jolly Roger Ltd.; R.G. Mitchell Ltd.; Deith Group Ltd. (60%).