British photo booth operator Photo-Me International has warned that its half-year profits will fall "substantially short" of market expectations indicating the company is far from resolving the problems that have recently plagued its business.
The company said the "shortfall" was mainly in its manufacturing businesses, including the KIS minilab and the Imaging Solutions wholesale lab operations, and blamed "difficult market conditions". Shares plummeted 30% on the announcement, 26.5% down by the close of the markets yesterday. Seymour Pierce analyst, Charles Peacock, said in a note: "Photo-Me has surprised ... with a brief but blunt warning. We have put our recommendation (previously buy) under review until more information is available."
The company has been rocked by a series of difficulties and the forecast of weak figures will only add to its woes.
Lacklustre first quarter revenues were partly blamed on a dispute with activist shareholders Principle Capital and Cycladic Capital, which resulted in the resignation of chairman Vernon Sankey and forced chief executive, Serge Crasnianski to set a date for his departure. Crasnianski will today be replaced by Thierry Barel who had been in charge of the company's mini-lab manufacturing processes since April.
Photo-Me also recently shelved plans to sell its vending business, stating it had not received firm offers at an "acceptable" level. The business is one of its most profitable operations, but has been losing money as more people print pictures at home and competition from online rivals increases.
"Photo-Me has suffered from uncertainty [in relation to management structure] and an extended strategic review that has impacted on customers' confidence, especially on the manufacturing side," said Peacock.
"In a weak market, uncertainty [does] not encourage customers to make major investment decisions. The sub-prime crisis will not make retailers more confident about reinvestment [either]."
"The hope is that with a period of stability and a new CEO, Photo-Me will be able to address operational issues internally and focus on external factors including building relationships with customers."
Photo-Me will announce its half-year results to 31 October 2007 in mid-December.