Photo-Me investors call for EGM

According to the announcement, shareholders requesting the EGM, including funds managed by Cycladic and Principle Capital, hold a total of 65,518,393 shares, representing 18.2% of the total voting rights of the company. However, holders of a further 28.2% of the Photo-Me’s shares (either directly or through a CFD position) have already expressed support for these resolutions, resulting in a total of 46.3% of the total voting rights. Cycladic and Principle Capital will seek incremental shareholder support and believe that over 50% of the Company’s shareholders will vote in favour of these resolutions.

Cycladic and Principle Capital believe that a change of the senior leadership of Photo-Me is necessary for the company to create value for shareholders in the future. Under the current leadership, the Company had suffered from unsatisfactory operational performance, a badly managed strategic review process and a lack of credibility with investors, the investment companies said.

In the opinion the investment companies, specific examples for mismanagement include:

– failure to manage the supply chain such that completion of CVS’s initial minilab order was delayed. This led to the profit warning in January 2006 despite the Company assuring investors in December 2005 that delivery was on schedule;

– failure to manage the supply chain during the production ramp-up of Kis/Photo-Me’s new DKS3 machines leading to vastly reduced sales and the profit warning in March 2007;

– failure to exploit opportunities from significant consolidation in the mini-lab industry;

-failure to anticipate the need to upgrade the photo-booth estate to ensure the product complied with ICAO requirements; and

– the ill-considered acquisition of Deith in January 2006, where a 60% stake was acquired for £1.5m and sold in April 2007 after losses of £2.2m.

Cycladic and Principle Capital also believe that the Company has made insufficient progress in its strategic review that was announced in June 2006 and is only just at the stage of having received interest for the vending division; the "significant" return of capital has yet to materialize and shareholders are still waiting for a confirmed timetable for the corporate restructuring.

The investment firm said that Photo-Me’s stakeholders have been aware for some time that the Chief Executive has been considering his retirement. This has created an atmosphere of uncertainty within the Company beyond the destabilizing effects of the lengthy strategic review process. Given the uncertainty over the timing of his departure and the size of his shareholding in the Company, Cycladic and Principle Capital believe that it is impossible to find credible successors. In light of the operational mismanagement outlined above, Cycladic and Principle Capital believe it is imperative that the Chief Executive leaves the Company as soon as possible so that the Company’s turnaround can begin under new leadership.

Cycladic and Principle Capital pointed out that they have confidence in the abilities of the independent non-executive directors to stabilize the Company, in the absence of a Chairman and Chief Executive, and to begin the turnaround required for future growth. If the requisitions are successful, Cycladic and Principle Capital would support the appointment of Martin Reavley, the current Senior Independent Director of the Company, as Interim Chairman of the Board. Further, Cycladic and Principle Capital said they are aware of a number of high quality and available candidates who might be willing to become the new Chief Executive of the Company but who have been reluctant to pursue their interest given the current Chief Executive’s continued involvement. Once that obstacle is removed, Cycladic and Principle Capital believe the Board will be able to appoint a competent successor in a very short time-frame.

Following the announcement of the investment firms, Photo-Me‘s Board announced that will shortly be meeting to consider its response.