Picture turns ugly at Photo-Me

Photo-Me International shares were thumped yesterday after the photo booth operator issued its latest profits warning.

They plunged 34.75p to 83.5p - their lowest since the middle of 2003 - as the company told long-suffering shareholders pre-tax profits this year would be up to 30 per cent shy of City targets of about £40m.

Photo-Me blamed the expected shortfall on problems with a subcontractor that mean it is unlikely to supply 700 digital processing mini-labs to the American drugstore group CVS Pharmacy on time. That could wipe £7m from profits this year, and the resulting backlog of orders means profits will also miss targets the following year.

Charles Peacock, an analyst at Seymour Pierce, said: "We're looking at some big downgrades in profit forecasts for this year and next. I think it's going to take some time for the stock to get back up to where it was."

Profits from manufacturing image-processing labs slumped 72 per cent to £2.6m over the six months to the end of October as sales withered by 27 per cent. Underlying group profits were £16m, against £18m last year.

The company defended its decision not to tell shareholders of the problems earlier. Vernon Sankey, the chairman, said: "In September, we were very confident we could deliver it [the CVS contract] and even in early December we felt we had a fighting chance." He said the downturn would be temporary.

At the height of the dot.com boom, Photo-Me's chief executive Serge Crasnianski spoke of transforming the photo booths into internet terminals. Its shares took off but collapsed to 14.5p after a profits warnings.