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Delphax Technologies Reports Q2 Profit: Sales Up 9%

Press release from the issuing company

MINNEAPOLIS, May 7 -- Delphax Technologies Inc. today reported sales of $14.2 million for its second fiscal quarter ended March 31, 2003, a 9 percent increase from $13.1 million for the same period a year ago. Revenues from maintenance, spares and supplies increased 24 percent over the year-earlier period, more than offsetting the 35 percent decline in equipment sales. The company reported second quarter operating income of $360,000 in contrast to an operating loss of $709,000 in the second quarter of last year, an improvement reflecting a combination of revenue growth and higher gross margin. The gross margin improvement was primarily due to the sale of parts at an amount in excess of the value assigned under the purchase accounting used in the company's December 2001 acquisition. A net foreign exchange loss of $150,000 contributed to a net loss for the second fiscal quarter of $9,000, or $0.00 per share, compared with a net loss of $579,000, or $0.09 per share, last year. "We continued to make encouraging progress in implementing our expanded business model, though we're disappointed with the absence of any real recovery in the worldwide printing equipment market," said Jay Herman, chairman and chief executive officer. "As we have stated before, a primary long-term objective of Delphax Technologies is to build a solid, stabilizing base of service-related revenue. We've been able to pursue that objective successfully during the prolonged softness in capital spending in our industry. The result of this strategy in the second quarter was a near break- even performance, despite a fall-off in equipment sales and the adverse effect of foreign currency exchange rate changes." While overall equipment sales were disappointing, Herman said, there were some bright spots in the second quarter. The company's second-quarter sales to check-printing customers included one of its flagship Imaggia sheet-fed digital presses and a Foliotronic finishing system. Equipment revenues also included the sale of one of Delphax Technologies' new high-speed CR1300 digital presses to group Tagg Informatique, a French direct mail printer. As previously announced, Tagg is providing the first major reference site in France for the CR1300, the world's fastest commercial roll-fed digital press. "This is the CR Series' third strong beachhead in European markets, following sales earlier in the fiscal year to printers in Great Britain and Germany," Herman said. "We established our first U.S. reference site for the CR Series last June with the sale of two presses to LexisNexis Matthew Bender, one of the world's leading publishers of legal and business information." The CR1300 was the centerpiece of a fully automated book publishing system demonstrated at the On Demand 2003 Conference & Exposition in New York shortly after the close of the quarter. Producing sample books at the rate of a 400- page book every 10 seconds, the press produced 6,000 copies of selected classics, which were donated to the New York City Public Schools. The company also announced that it completed a new three-year maintenance and supply agreement with the John H. Harland Company during the second quarter. Under the agreement, Delphax will continue to provide full maintenance service, spare parts, consumable supplies and other support- related needs for the Imaggia digital presses previously purchased by Harland. For the six months ended March 31, 2003, sales increased 20 percent to $29.7 million from $24.8 million last year. The company reported a net loss of $1.1 million, or $0.19 per share, for the six months, compared with net income of $60,000, or $0.01 per share, in the first half of fiscal 2002. Results for the first six months of the current fiscal year include a $1.2 million restructuring charge in the first quarter related to the consolidation of the company's North American manufacturing and engineering operations in Mississauga, Ontario. The restructuring charge reduced earnings by approximately $0.19 per share. The company said the North American restructuring program is on track and will be completed by the end of calendar 2003. The consolidation is expected to eliminate annual operating expenses of more than $1.6 million, beginning as early as the third fiscal quarter ending June 30, 2003.