ST. PETERSBURG, Fla.--May 22, 2003-- Danka Business Systems PLC today announced results for the fourth quarter and fiscal year ended March 31, 2003. Fourth Quarter Results Danka reported operating earnings from continuing operations of $7.8 million in the fourth quarter of fiscal year 2003, a $10.7 million improvement over the $2.9 million loss posted in the comparable period a year ago. Losses from continuing operations before discontinued operations and extraordinary items were $1.1 million, compared to earnings from continuing operations before discontinued operations and extraordinary items of $4.6 million in the year-ago quarter. After allowing for the dilutive effect of dividends and accretion on participating shares, the company posted a $.09 loss from continuing operations before discontinued operations and extraordinary items in the fourth quarter for basic and diluted earnings per American Depositary Share (ADS). That compares to a $.00 earnings per basic and diluted ADS in the year-ago quarter. Assuming the impact of not amortizing goodwill in accordance with SFAS No. 142, earnings would have been $.02 per basic and diluted ADS in the year-ago quarter. Total revenues from continuing operations were $356.0 million in the fourth quarter, a decline of $15.6 million or 4.2% from the $371.6 million posted in the year-ago quarter. The decline in total revenues in the quarter was partially offset by a $23.9 million foreign currency benefit. Retail equipment and related revenues were $126.8 million in the fourth quarter, a 2.4% decrease from the year-ago quarter. This decrease was primarily due to reduced sales in our International business while U.S. and European retail equipment and related sales were basically flat from the year-ago quarter. European and International retail equipment and related revenues were favorably impacted by foreign currency gains of $7.7 million in the fourth quarter. Retail service, supply and rental revenues were down 6.8% from the year-ago quarter to $206.1 million, offset in part by a $12.1 million foreign currency gain. The Company's revenues continue to be negatively impacted by competitive economic and market conditions, technology convergence, the global slowdown in capital spending and the Company's focus on certain higher margin sales. Overall gross margins increased to 37.7% in the fourth quarter from 37.6% in the comparable period a year ago. The retail equipment and related sales margin increased to 37.1% from 35.5% due to higher margins in our U.S. business over the prior year fourth quarter. Gross margins for service, supplies and rentals decreased slightly to 40.1% from 40.6% primarily due to declining margins in the Company's International business while the European wholesale gross margins increased to 19.1% from 17.8%. U.S. gross margins improved to 43.6%, from 42.8% in the prior year fourth quarter. The fourth quarter gross margins were positively impacted by $2.0 million of lease and residual payments from an external lease funding program. Overall SG&A expenses in the fourth quarter decreased by $10.0 million or 7.3% to $127.2 million from $137.2 million in the year-ago quarter. The current quarter SG&A decrease was due to declining payroll as a result of reduced staffing and lower depreciation costs that were offset, in part, by increased bad debt expense and professional fees associated, in part, with the Company's Vision 21 process and systems reengineering initiative. "We saw some encouraging signs in our business in the fourth quarter," commented Lang Lowrey, Danka's Chairman and Chief Executive Officer. "We continued to generate strong gross margins, particularly in the U.S., where our hardware gross margins exceeded 40% for the first time in the last five years. It is evident that our operational and strategic initiatives that center around bringing value to our customers have taken root and are providing tangible benefits to the Company and its customers," said Lowrey. "We also continued to generate strong, positive cash flow and closed the quarter with $87.0 million in total cash which is up from $71.0 million in our third quarter." Twelve-Month Results For the fiscal year ended March 31, 2003, Danka's operating earnings from continuing operations were $44.9 million, compared to $9.3 million in the same period a year ago. Earnings from continuing operations before discontinued operations and extraordinary items were $9.7 million, compared to a loss of $9.9 million in the year-ago period. After allowing for the dilutive effect of dividends and accretion on participating shares, the company recorded a $.13 loss in the current twelve-month period for basic and diluted earnings per ADS from continuing operations before discontinued operations and extraordinary items. That compares to a loss of $.43 per basic and diluted ADS in the prior period. Assuming the impact of not amortizing goodwill in accordance with SFAS No. 142, the loss would have been $.35 per basic and diluted ADS in the prior period. Total revenues from continuing operations were $1.4 billion during the fiscal year ended March 31, 2003, a decline of $155.2 million or 10.0% from the $1.6 billion posted in the prior year. The decline in total revenues for the fiscal year was partially offset by a $54.1 million foreign currency benefit. Retail equipment and related revenues were $476.7 million during the current fiscal year, an 11.5% decrease from the prior year, offset in part by a $17.4 million foreign currency benefit. Retail service, supply, and rental revenues were $838.7 million, a 10.6% decrease from the prior year, offset in part by a $27.5 million foreign currency benefit. Primary reasons for the revenue declines were competitive economic and market conditions, the industry-wide conversion from analog-to-digital equipment, technology convergence, the global slowdown in capital spending and the Company's focus on certain higher margin sales. Overall gross margins increased to 37.4% in the current fiscal year compared to 35.4% in the year ago period. The retail equipment and related sales margin increased to 34.8% from 26.8% primarily due to an improvement in the U.S. and European business and approximately $10.0 million of incremental lease and residual payments from a diminishing external lease funding program. Gross margins for service, supplies and rentals decreased to 40.7% from 41.7% primarily due to margin weakness in the International business, while the European wholesale gross margin increased to 19.1% from 18.5%. Overall SG&A expenses in the current fiscal year were down $46.4 million or 8.7% to $484.9 million as compared to $531.3 million in the prior year. The decline in SG&A was due to a reduction in labor costs, reduced facility costs and lower depreciation expenses. These SG&A expense reductions were offset, in part, by increased consulting and professional expenses associated with the Vision 21 project. Net cash provided by operating activities during the year was $155.0 million compared to $155.6 million in the prior year. Free cash flow (defined as net cash provided by operating activities less capital expenditures plus proceeds from the sale of property and equipment) was $107.1 million during the year compared to $105.9 million in the prior year. (See reconciliation to GAAP in the tables accompanying the financial statements). Total capital expenditures in the current fiscal year were $48.6 million compared to $50.6 million in the prior year. Total capital expenditures during the year related to the Vision 21 project were $12.9 million. The company reduced its total debt as of March 31, 2003 by $71.6 million or 23.5% to $232.9 million from $304.5 million as of March 31, 2002. The company's total leverage ratio (total debt divided by the trailing 12-month EBITDA (earnings from continuing operations before income taxes, interest expense, depreciation and amortization)) improved to 2.2 to 1 as of March 31, 2003 from 2.8 to 1 as of March 31, 2002. (See reconciliation to GAAP in the tables accompanying the financial statements). "Overall we are pleased with the progress we have made this year," stated Lowrey. "Notable among our achievements were: the continued realignment of Company strategies to improve gross margins, generate cash and reduce debt; the success achieved by our Danka @ the Desktop and Professional Services growth initiatives and the positive contribution these businesses have made to our margin success; the incubation of our multi-vendor services business in the U.S.; the shift in the Company's installed base to approximately 44% digital worldwide which, as that percentage continues to increase, will ultimately place us in a position to grow our services and supplies revenue, and other initiatives, especially Vision 21, which give us the opportunity to provide our customers with world class service and strengthen our business systems. In the coming fiscal year, we will continue to drive these important initiatives through the organization as well as address the other major challenges which we are confronting, including the continued significant expenditures on our Vision 21 initiatives over the first two quarters of this fiscal year," said Lowrey. "We are continuing on our revised schedule for implementing our new Oracle ERP systems in the U.S., the cornerstone of our Vision 21 reengineering plan," said Gene Hatcher, Danka's Chief Information Officer. "We devoted substantial time this quarter to ensuring full functionality in the system before commencing the rollout to the rest of the U.S. business this summer and we are pleased with the progress we have made. We expect this investment will ultimately enable Danka to substantially reduce general and administrative costs, better serve our customers, and improve process and efficiency in the Company. We will continue our geographic deployment in the early summer, and currently expect to convert the remaining 65% of our U.S. business to Oracle by the late summer or fall. We now project the total cost of the implementation to be up to $50 million," concluded Hatcher.