Photo-Me flouts shareholders' demands as directors resist boardroom shake-up

Photo-Me International, the photo-booth operator, appeared to flout the demands of its major institutional shareholders yesterday when it announced only cosmetic changes to the board following a shock profits warning a fortnight ago.

Photo-Me International, the photo-booth operator, appeared to flout the demands of its major institutional shareholders yesterday when it announced only cosmetic changes to the board following a shock profits warning a fortnight ago.

Senior City fund managers had called for the departure of 71-year-old chairman Dan David alongside a complete clear-out of all the group's non-executive directors after an accounting irregularity led to an overstatement of profits.

But Photo-Me announced only the resignation of one non-executive director, David Miller, and said it would be seeking a new non-executive deputy chairman.

Photo-Me said it recognised the need to "change the structure of the board, strengthen it and reduce its size". Robert Lowe, company secretary, said that he felt the changes would be sufficient: "We think the major shareholders will be agreeable."

Photo-Me said that other non-executives would be appointed but declined to say which existing board members they would replace.

The comments came as Photo-Me announced its delayed results for the year to April. The results showed the full effect of the failure to properly account for the buyout of Nippon Auto Photo, a Japanese photo-booth company in which Photo-Me already held a 50.2 per cent stake.

The £25.2m deal last summer was due to be satisfied with £2.5m in cash and the rest in 4,625 old photo booths. Yesterday the company explained that when the deal was announced the sale value of the old booths was expected to be similar to their net book value. But when the final agreement was made on the number and type of booths, their net asset value was lower than expected, the company says. This gave rise to a surplus of £10.4m which was mistakenly taken into the profit and loss account rather than as a reduction in goodwill. The result was a fall in pre-tax profits from £23.5m to £22.7m, against analysts' previous expectations of £32.7m. If exceptional gains of £1.8m are excluded, underlying profits were £20m.

The shares fell 4p to a new 12 month low of 91.5. The company's chief executive, Serge Crasnianski, sold £28m worth of shares at 400p in January this year.