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Featured:     European Coverage     Production Inkjet Analysis

Danka Reports 2Q Results, Revenue Falls 15.8%

Friday, November 09, 2001

Press release from the issuing company

ST. PETERSBURG, Fla.--Nov. 7, 2001--Danka Business Systems PLC today announced its results for the second quarter ended September 30, 2001. The Company reported operating earnings from continuing operations before extraordinary items and discontinued operations of $4.2 million for the three months ended September 30, 2001 compared to an operating loss from continuing operations before extraordinary items and discontinued operations of $62.8 million for the three months ended September 30, 2000. The prior year second quarter included non-cash charges of $22.4 million for the write-down of analog inventory, $10.5 million for the write-down of rental equipment and $18.8 million for the write-off of goodwill associated with the Company's Australian subsidiary. Excluding these items, the operating loss from continuing operations before extraordinary items would have been $11.1 million in the prior year second quarter. Earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations was $25.5 million or 6.7% of revenue for the three months ended September 30, 2001 compared to EBITDA of $17.3 million or 3.8% of revenue for the three months ended September 30, 2000, after excluding the charges discussed above. EBITDA increased by $8.2 million, or 47.4%, as compared to the prior year pro-forma EBITDA, primarily due to lower operating expenses. Danka's Chief Executive Officer, Lang Lowrey, commented: "This marks the second straight quarter of EBITDA growth for the Company. Furthermore, we were able to exceed our EBITDA objectives in what is typically a slow, seasonal quarter during an obviously difficult economic environment.'' Total revenue for the second quarter of fiscal year 2002 declined by $71.6 million, or 15.8%, to $381.3 million, from $452.9 million in the prior year second quarter. This decline was due to a decrease in retail equipment sales in the U.S. and reduced service, supplies and rentals in both the U.S. and Europe. The decline in retail equipment sales was primarily due to negative market trends, a weakening of the global economic conditions and a decline in the number of the Company's U.S. sales representatives that was partially offset by a 29% increase in U.S. sales productivity. The reduction in sales representatives is part of the Company's strategic plan to improve sales productivity while reducing operating costs. The decline in the Company's service, supplies and rental revenue from the prior year is primarily due to the continuing transition from analog to digital equipment. The Company's combined gross profit margin for the second quarter of fiscal year 2002 was 34.0% compared to 34.8% sequentially and 33.5% for the prior year second quarter excluding the inventory and rental asset write-down described above. For the first six months of fiscal year 2002, the Company's combined gross margin was 34.4%, compared to 35.1% for the first six months of the prior year excluding the inventory and rental asset write-down described above. The retail equipment sales margin for the second quarter of fiscal year 2002 was 23.4% as compared to 23.6% sequentially and 11.0% in the prior year second quarter. The prior year second quarter was negatively impacted by the $22.4 million write-down of analog inventory discussed above. Excluding the charge, the prior year second quarter retail equipment margin would have been 24.7% The retail service, supplies and rental margin for the second quarter of fiscal year 2002 was 41.0% as compared to 42.3% sequentially and 36.2% in the prior year second quarter. The prior year second quarter was negatively impacted by the $10.5 million write-down of rental equipment. Excluding the charge, the prior year second quarter retail service, supplies and rental margin would have been 40.1%. SG&A expenses decreased by $27.7 million, to $127.4 million or 33.4% of revenue, for the second quarter of fiscal year 2002 from $155.1 million or 34.3% of revenue for the prior year second quarter. Sequentially, SG&A expenses decreased by $8.3 million. This decrease was primarily due to lower selling expenses as a result of the lower number of sales representatives, as discussed above. The second quarter of fiscal year 2002 includes a $2.0 million charge related to the exit of a non-strategic facility. For the first six months of fiscal year 2002, SG&A expenses decreased by $52.2 million, to $263.1 million, from $315.3 million for the comparable prior year period, primarily due to lower selling expenses. The Company recorded a pre-tax restructuring charge of $7.4 million in the second quarter of fiscal year 2002 which includes a $1.3 million charge for severance and a $6.1 million charge for the exit of facilities. Additionally, the Company reversed $9.4 million of prior year restructuring charges. Other expense for the second quarter and the first six months of fiscal year 2002 included foreign currency gains as compared to foreign currency losses for the prior year. For the first six months of fiscal year 2002, other expenses included a $1.1 million loss related to the sale of a business. Interest expense for the second quarter and first six months of fiscal year 2002 decreased by $8.6 million and $18.6 million, respectively, as compared to the corresponding periods of the prior year, due to significantly lower outstanding debt and reduced bank waiver fees. Danka's Chief Financial Officer, Mark Wolfinger, commented: "We are operating under a much improved debt structure. Our recent restructuring, lower market interest rates, and the Company's ability to effectively manage its senior debt during the slower summer months have all contributed to the significant decrease in debt service costs.'' The net loss for the three months ended September 30, 2001 was $3.4 million and included an after tax loss from discontinuedoperations of $1.3 million and an after tax extraordinary loss from the early retirement of debt of $0.2 million. The net loss for the three months ended September 30, 2000 was $60.2 million and included after tax earnings from discontinued operations of $4.4 million. The Company incurred a net loss from continuing operations of $0.10 and $1.15 per American Depositary Share ("ADS'') in the second quarter of fiscal year 2002 and the second quarter of fiscal year 2001, respectively. Net earnings/(loss) from discontinued operations were ($0.02) and $0.07 per ADS in the second quarter of fiscal year 2002 and 2001, respectively. Net income for the first six months ended September 30, 2001 was $123.3 million and included after tax earnings from discontinued operations of $4.1 million, a first quarter gain on the sale of Danka Services International (DSI) of $107.7 million, and an after tax extraordinary gain from the early retirement of debt of $26.5 million. Net loss for the first six months ended September 30, 2000 was $61.4 million and included after tax earnings from discontinued operations of $9.4 million. The Company incurred a net loss from continuing operations of $0.38 and $1.33 per ADS for the first six months of fiscal year 2002 and fiscal year 2001, respectively. Net earnings from discontinued operations were $1.81 and $0.16 per ADS for the first six months of fiscal year 2002 and 2001, respectively. Net earnings from extraordinary items were $0.43 per ADS for the first six months of fiscal year 2002. The Company generated free cash flow (cash flow from operations less capital expenditures) of $25.6 million in the first six months of fiscal year 2002 as compared to $13.4 million in the comparable prior year period. The Company is focused on increasing its free cash flow in order to pay down its existing indebtedness. Sequentially, the company's total debt remained constant at approximately $375 million. "We are encouraged by this trend, especially after considering that the second quarter is a low revenue generating quarter due to seasonality trends that exist within our industry,'' commented Wolfinger. Lowrey concluded: "Overall, we are encouraged by the second quarter results. We continued to make progress on our financial performance in many areas, including: EBITDA, free cash flow and operating expenses as well as in many operational areas. We will continue to focus on our debt reduction efforts and, of course, on providing excellent products and service for our customers.'' The Company has a credit agreement with a consortium of international bank lenders through March 31, 2004. The credit facility requires that the Company maintain minimum levels of adjusted consolidated net worth, cumulative consolidated EBITDA, a ratio of consolidated EBITDA to interest expense and, effective for the nine months ended March 31, 2002, a limitation on the maximum levels of capital expenditures, each as defined in the credit agreement. The Company was in compliance with all of the applicable covenants as of September 30, 2001.

 

 

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