Huge fine for company which failed to disclose key details of sales information to market

The Financial Services Authority (FSA) said the penalty was the biggest of its kind ever imposed and related to Photo-Me's breach of the rules surrounding so-called inside information in 2007.

The regulator said Photo-Me's failure to inform the market of key details of sales and contracts of minilab photo-processing equipment led to a false market in the group's shares for 44 days.

The FSA said Photo-Me made a series of failures to disclose information to investors in a timely manner, despite discovering that sales were expected to fall far short of previous expectations.

Photo-Me had told the stock market in 2006 that it was set to benefit from large minilab contracts and strong sales generally, largely based around a big deal with US retailer Albertsons.

The market was expecting profits of about 23m for the six months to April 2007, which would have required Photo-Me to sell around 1,100 minilabs.

But the group was warned by its auditors in December 2006 that the sales target was "challenging" and needed close monitoring, according to the FSA.

A month later, Photo-Me was told the Albertsons contract was being re-tendered and that it was one of at least five firms vying for the business.

And the FSA said the group was made aware in February 2007 that sales were 40 per cent behind budget, with revised forecasts predicting sales of only 750 minilabs.

However, the FSA revealed Photo-Me did not consider the effects of the inside information until its next quarterly board meeting, on March 1 2007, after which it warned over profits on March 2, sending shares plunging 24 per cent on that day.

Margaret Cole, director of enforcement and financial crime at the FSA, said: "Listed companies should assess, in a timely fashion, how any information they hold affects the accuracy of what they have previously disclosed to the market and whether this information is inside information.

"Inside information must be announced to the market as soon as possible to allow investors the opportunity to make informed investment decisions."

Photo-Me said it was "disappointed with the quantum of the penalty", but welcomed the fact the FSA had not found that any directors or previous directors were at fault.

"The company maintains that the FSA has underestimated the real-time difficulties faced by the company in updating the market on the possible outcome of the relevant complex contractual negotiations," added Photo-Me.

It had already withdrawn an appeal, saying today it was not in the best interest of shareholders to incur further legal costs and "expend considerable executive time".

The group said it had already provided for the FSA fine and legal costs in the year to April 30 2009.

The FSA has fined a number of firms in the past for similar breaches, including Woolworths and children's television firm Entertainment Rights.