Small Talk: Shareholders at Photo-Me get snappy with the board

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There is growing anger among shareholders of Photo-Me International. Small Talk has been contacted by a number of sizeable institutional investors who are furious about the latest goings-on at the photo booth maker and operator. They certainly have a point.

The problems at Photo-Me started in November when, after months of negotiations, the management finally gave up on trying to secure a takeover of the company. To pacify the City, they promised to return a substantial chunk of the company's surplus cash, possibly as much as £100m, to shareholders. But, four months on and there is little to suggest that the return is going to take place any time soon.

Making matters worse was the huge profit warning Photo-Me issued at the start of the month. Not only did it wipe a quarter off the group's market capitalisation, but it came just weeks after three directors sold more than £750,000 worth of shares.

Francois Giuntini, the company's general counsel, and Riccardo Costi, executive director, disposed of £530,000 worth of stock [* see below] on 20 February. Jean-Luc Peurois, finance director, sold £225,000 worth on 6 February. On 2 March, Photo-Me warned that because of a failure to sign large contracts for its "minilab" photo machines its full year results would be substantially weaker than expectations. In the wake of the warning, analysts cut their forecasts for pre-tax profits from £24m to £13m.

One institutional shareholder said: "The fact that the return of capital is taking longer than expected, combined with the recent profit warning and the sales of shares by directors just before it, has made a number of sizeable shareholders livid." He added: "If management do not start getting their act together you can expect growing pressure from investors for board changes".

Vernon Sankey, the chairman of Photo-Me, admits that the timing of the share sales was "embarrassing", but denies any suggestion of wrongdoing and stresses that all three directors had proper authorisations for their disposals. Regarding the company's planned return of cash to shareholders, he urges investors to be patient. Mr Sankey said: "Photo-Me and its advisors are working hard to make the planned share buyback a reality. However, it ... will take some time to complete."

According to the Photo-Me chairman, the problem lies in the fact that the holding company that will carry out the buyback does not have the necessary distributable reserves. It is Photo-Me's various subsidiaries that hold these reserves at present and dividend streams need to be set up to move the capital to the holding company. This will take time. How much, is not clear. But shareholders' patience is fast running out.

[ * The company has asked us to point out that:
- the directors' stock disposals were the result of the exercise of share options priced at 35.33p and 74.2p;
- the profits made by the individual directors as a result were therefore considerably less than the sale price of the shares which was 82.5p and 83.3492p respectively.]

Breast market enlarging

Big breasts are big business. The worldwide breast enhancement market is estimated to be worth up to $650m (£337m) a year and growing at 12 to 15 per cent annually. In the UK, the market grew by an amazing 51 per cent in 2005 alone.

Smart Implant Holdings is looking to cash in on this trend. It claims to have developed a new type of breast implant that is free of silicone, with a more natural feeling and safer than traditional implants.

The group is in the process of raising £1.7m of equity funding and plans to list on the Alternative Investment Market in the summer.

Paul Abrahams, Smart Implant's chief executive, says the business is already generating revenues, which is unique for an early-stage life sciences company, and should be able to produce profits of over £1m by 2008.

X-Phonics Happy! about new signing

The independent record label X-Phonics will today boast that it has signed Liz McClarnon's new single "(Don't It Make You) Happy!" which is in the competition to become Britain's entry to the Eurovision Song Contest this year.

The singer came to fame as a member of Atomic Kitten. The pop group sold more than 7 million albums and singles around the world and had 13 top-10 singles and three No 1 hits in the UK.

Performing "Happy!", she will compete against five hopefuls, live on the BBC, on 17 March after which X-Phonics will release the single nationwide. If Miss McClarnon is successful in her bid to become Britain's Eurovision entry in Helsinki on 12 May, the single could end up being a major money spinner for the AIM-listed group.

At the helm of X-Phonics since August is John McLaughlin. As a song-writer, he has amassed over 30 top-10 singles around the world, including No 1 hits with the boy bands Busted and Westlife.