Strong Cash Flow Used to Continue Debt Reduction ST. PETERSBURG, Fla.--Aug. 2, 2002--Danka Business Systems PLC today announced results for its first quarter ended June 30, 2002 that show increased operating earnings from continuing operations, continued strong cash flow, and significant debt reduction. The company also announced that it has scheduled a conference call for Tuesday, August 13, 2002 to discuss these results. Danka reported operating earnings from continuing operations of $15.0 million in the first quarter of fiscal year 2003, compared to a loss of $1.2 million in the comparable period a year ago. Earnings from continuing operations before extraordinary items were $5.8 million, compared to a loss of $13.2 million in the year-ago quarter. Basic and diluted earnings per American Depositary Share (ADS) from continuing operations before extraordinary items after allowing for the dilutive effect of dividends and accretion on Danka's participating shares were $.02 in the current quarter. This compares to a $.24 loss in the year-ago first quarter assuming the impact of not amortizing goodwill in accordance with SFAS 142. Total revenues from continuing operations decreased by 13.6% to $347.1 million in the first quarter from $401.7 in the year-ago first quarter. This decline was the result of multiple factors world-wide, including the impact of the continuing industry-wide analog to digital transition on service revenues, technology convergence, reduced equipment sales, the company's focus on higher-margin sales, a reduction of the sales force and a global slowdown in capital spending. This decrease was partially offset by increased equipment leasing income of approximately $2.8 million resulting from payments on account of residual values of equipment subject to expired leases. "I'm pleased with the senior management team's execution of our strategies in the first quarter. We continued to de-leverage the company, resulting in a reduction of total debt from $375.1 million to $258.1 million over the last 12 months", commented Lang Lowrey, Danka's Chairman and Chief Executive Officer. "Over the past year, we have exited or de-emphasized unprofitable areas of our business. As a result of that and other positive factors, our equipment gross profit margins improved by almost 12 percentage points in the first quarter compared to the prior year comparable quarter. That gave us an overall improvement in gross margins to 38.6% in the first quarter compared to 34.8% in the year-ago quarter. We achieved these profit improvements despite our revenues being negatively impacted by market and economic conditions", continued Lowrey. "Fortunately, we have set the foundation for pursuing targeted opportunities to expand our business. In addition to seeing initial sales of our Danka @ the Desktop TMsolution in the first quarter, we have formed a dedicated professional services business in the United States, begun rebuilding our sales force in key areas of focus, and started expanding our technical services into complimentary areas." Free cash flow (cash flow from operations less capital expenditures) was $25.6 million in the first quarter, compared to $19.3 million in the prior-year period. "Our strong cash generation enabled us to continue our debt reduction program," said Mark Wolfinger, Danka's chief financial officer. "We retired the remaining $16.0 million of 6.75% convertible subordinated notes in the first quarter and we also paid approximately $29.5 million of our long-term bank debt, resulting in significantly improved debt ratios." Total debt was reduced by 15.2% in the first quarter to $258.1 million. With first quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) of $29.8 million, the total leverage ratio (total debt divided by the trailing 12-month EBITDA) improved during the current quarter to 2.2 to 1 from 2.8 to 1 as of March 31, 2002, and the ratio of total debt to total capitalization (including participating shares) decreased during the quarter from 51.3% at March 31, 2002 to 44.9% at June 30, 2002. SG&A expenses were $119.5 million, or 34.4% of revenues, in the first quarter. That compares to $135.7 million (including a $6.0 million charge related to the exit of certain facilities), or 33.8% of revenues, in the year-ago quarter. Capital expenditures were $8.6 million in the current quarter, much of them related to the acquisition of rental equipment as well as the company's ongoing Vision 21 reengineering program designed to enhance customer service and provide long-term productivity benefits. "We remain focused on expanding the value we provide to our clients, including the further enhancement of our industry-leading technical services," noted CEO Lowrey. "We began the rollout of new, integrated business systems in the first quarter, which will further improve our customer service. And we were honored to receive the Service Partnership Award from one of our largest clients, Staples, for managing the highly successful upgrade of their copy centers and delivering the greatest uptime performance in their history. We are pleased with the progress we made this quarter which should help us as we move into our second quarter, which is traditionally our weakest quarter on a seasonal basis."