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Danka Reports Q4 Loss, President and COO Leaving

Thursday, June 08, 2006

Press release from the issuing company

ST. PETERSBURG, Fla.--June 7, 2006--Danka Business Systems PLC today reported fiscal year 2006 and fourth quarter results. For the full year ended March 31, 2006: * Total revenue was $1.096 billion, down 6.1% over the prior year. 280 basis points of the decline was due to a negative movement in foreign exchange rates. * Margins were 31.9%, down 270 basis points from the prior year. * The Company's SG&A was $361.0 million, down 17.7% from the prior year. For the year, the Company reported an operating loss of $24.7 million, versus a $116.1 million loss in fiscal year 2005. * On a non-operating basis, the Company incurred a $31.9 million loss in its first and second quarters from the sale of its Canada and Latin America operations, largely due to the non-cash write off of currency translation adjustments. Interest expense was $31.7 million for the year and restructuring charges were $12.5 million for the year. Based on the above, the Company's net loss was $79.2 million for the year compared to a net loss of $133.1 million in fiscal year 2005. * Adjusted operating loss from continuing operations (excluding restructuring and impairment charges) was $12.2 million for the year, versus a $35.6 million loss in fiscal year 2005. "Notwithstanding this loss, we experienced a number of improvements during the fiscal year in several areas of our business," commented Danka Chief Financial Officer Ed Quibell. "For the year, retail equipment and related sales were up over the prior year. This is the first time we have seen an increase in this area in seven years. Additionally, our SG&A expense has declined by $77.8 million, or 17.7% over the last year, reflecting the success we have had in our cost reduction initiatives. Finally, we significantly improved our Sarbanes-Oxley compliance status. The improvement in our internal controls and discipline has resulted in the number of material weaknesses being reduced from eleven to one and we were able to reduce the cost of our compliance program by over 50% year on year." For the fourth quarter: * Total revenue was $271.2 million, 4.5% lower than the prior year quarter, but up 2.2% sequentially. Retail equipment and related sales was $105.3 million for the quarter, down 4.6% from the prior year quarter, but up 5.1% sequentially. Retail service revenue was $122.3 million for the quarter, down 2.9% from the prior year quarter, but up 1.2% sequentially. * Consolidated gross margin for the fourth quarter was 29.3%, which was up from 27.4% in the prior year quarter, and down from 31.8% sequentially. * SG&A expenses were $88.3 million or 32.6% of revenue for the fourth quarter. These expenses were down 28.8%, or $35.7 million from the prior year quarter. The Company's fourth quarter operating loss was $14.6 million versus a $127.3 million loss in the prior year fourth quarter. * Adjusted operating loss from continuing operations (excluding restructuring and impairment charges) was $9.7 million for the quarter, versus a $45.0 million loss for the prior year fourth quarter. "We will be focusing much more attention on sales, marketing and customer service in the coming year," said A.D. Frazier, Danka's Chairman and Chief Executive Officer. "We have made major progress in the area of cost reduction during the year and while we have more to do, we will now focus on improving our margins and profitability. Danka's economics are fundamentally different at the start of 2007 than they were a year ago. Because of this, we intend to rebuild, with emphasis on our core business in this fiscal year." As required by Section 404 of the Sarbanes Oxley Act, the Company will be disclosing that it has a material weakness in internal controls relating to its revenue and billing processes. The Company will report that due to its successful remediation efforts during the year, it no longer has material weaknesses in internal controls related to its information technology general controls, inventory and rental assets custody and tracking processes, its financial statement close processes and its income tax process. Finally, the Company reported that its U.S. President and Chief Operating Officer, Michael Wedge, will be leaving the Company effective the end of June. "Michael played a prominent role in the Company's Vision 21 success and in providing the back office foundation necessary to significantly improve the Company's internal controls processes and we wish him all good fortune in the years ahead," said Frazier. The sales and service functions previously reporting to Mr. Wedge will now report directly to the Company's Chief Executive Officer.




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