Jessops has been thrown a £66.5 million lifeline to keep the struggling camera retailer afloat for the next 18 months as part of a rescue plan that includes closing 81 of its stores and discussing its funding with the Pensions Regulator.

The company, which has given warning on profits three times this year, also revealed a £25.2 million pre-tax loss for the six months to April 1, 2007, compared with a £5.1 million pre-tax profit in the same period last year.

Jessops said today that 550 jobs, or 18 per cent of its workforce, would be cut both from its head office and at its stores, leaving it with 2,500 employees.

Shares in Jessops rose 8.3 per cent to 19.5p in early trading.

HSBC has agreed to lend Jessops £66.5 million until December 2008, allowing the company to reposition its business, which has suffered from the falling price of both digital cameras and memory cards while customers are increasingly going to the internet to buy digital cameras more cheaply.

The company said that the average price of a digital camera has fallen by 15 per cent over the past year, while over the past six months memory cards, which store digital photo images, have halved in price.

The uncertainty over Jessops's financial position has impacted current trading ,which the company said had been "exacerbated by shortages of key product lines".

Sales over the 12 weeks to June 17 fell by 9.8 per cent, and like-for-like sales, which excludes revenue generated by new shops opened during the period, slumped by 12.9 per cent.

Jessops is selling off £15 million of out-of-date stock at some of the stores that are scheduled to close.

The company, operating under David Adams, House of Fraser's former finance director, will be left with 234 stores after closing 81 loss-making sites.

The company is hoping to reduce its overheads by £15 million, or 20 per cent, though the cost of restructuring will reach £25 million in this financial year.

As part of the process of securing new funding, Jessops management had to consult with its pension trustees about increasing the company's indebtedness.

The trustees, who oversee a pension fund that is £5.5 million in deficit, have agreed to the new funding arrangements, but management still has to gain approval from the Pension Regulator, which was established to protect pensioners’ employment benefits from companies in financial difficulties.

Jessops is hoping to attract more customers through a number of channels, most notably via the internet, where shoppers can order their pictures online and pick them up in store.

The company is also attempting to emphasise the services side of its business and increase profits from its high-margin printing business.

While the average price of digital cameras has fallen, Jessops said that the market for the specialist digital single lens reflex cameras, which cost £600 on average, was growing strongly.

Jessops has been trading for 72 years and was family owned until 1996, when it was the subject of a management buyout.

The company first attempted to float in 2000 with the aid of HSBC, but with the offering priced at between 160p and 210p, Jessops was unable to generate enough investor interest and pulled the deal.

In 2002 HSBC helped to finance a secondary buyout of the company by ABN Amro Private Equity from Bridgepoint and, two years later, Jessops once again attempted to float but was forced to cut its offer price by 16 per cent to tempt uninterested investors.

ABN Amro led the deal with NM Rothschild acting as sponsor. Hoare Govett was the broker.

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