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Danka Comments on Expected Fourth Quarter Loss

Press release from the issuing company

ST. PETERSBURG, Fla.--May 27, 2005-- Danka Business Systems PLC today provided preliminary comments on its expected fiscal year 2005 fourth quarter results for the quarter ended March 31, 2005. These comments are based on the Company's current estimate, but could vary as the Company concludes its year end audit. The Company expects to release its full fiscal year 2005 and fourth quarter results by June 14, 2005. The Company expects to report an operating loss for the quarter, excluding restructuring and goodwill impairment charges in the region of $46 million. Contributing to this loss is an increase to its U.S. trade receivables allowance for doubtful accounts in the region of $15 million. This adjustment is based on the Company's review, as of March 31, 2005, of its receivables portfolio and its determination that it should increase estimates of the allowance for doubtful accounts. The charge is not expected to impact future results, operations or liquidity. Contributing to the loss are external expenses related to the Company's Sarbanes-Oxley Act (the "Act") compliance program of approximately $9 million in the fourth quarter as it concludes its first fiscal year assessment of internal controls as required by Section 404 of the Act and approximately $5 million of adjustments related to rental equipment, parts and inventory, property tax and information technology related amortization. The Company's hardware margins in the quarter were negatively impacted, in part, by its decision to sell through existing inventory and not receive certain vendor incentives it has received for purchases in prior periods. The Company has substantially completed its review under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which requires an annual review of the Company's goodwill for impairment. The Company has determined, using the factors required under SFAS No. 142, that the fair value of its Europe/Australia unit goodwill is less than its carrying amount and it expects to recognize an impairment loss in the region of $70 million, though its auditors have not yet finalized their review of this impairment. The Company also reaffirmed, as previously announced, that it will incur a restructuring charge of approximately $13 million in the fourth quarter as a result of its ongoing Vision 21 reengineering activities which the Company expects will reduce operating expenses and cost of goods sold by $60 million to $73 million annually when fully implemented. The Company expects to report revenues for the fourth quarter in the region of $300 million. The Company concluded its fourth quarter with $98 million in cash, an increase of approximately $9 million over its third quarter ended December 31, 2004. Revenues for the year are expected to be in the region of $1.233 billion with operating losses, before restructuring and impairment charges, in the region of $39 million. "The size of our expected operating loss is disappointing, though it is exacerbated by a number of significant one-time, non-cash adjustments and a continuation of high expenditures related to the conclusion of this year's compliance activities," said Todd Mavis, Danka's Chief Executive Officer. "As we concluded our Fiscal Year 2005, while I was disappointed with our operational performance in a few areas, and the costs and distractions associated with our Section 404 compliance obligations, I was encouraged by the progress we made with several strategic initiatives," continued Mavis. "We are executing on our strategy to build closer, more dynamic relationships with customers that are designed to capture more of what they spend on print. We are advancing our managed print services offering and gaining traction with the business development partnerships we formed this year. In addition, we are on schedule in implementing Vision 21, our initiative to aggressively reduce costs in all aspects of our business toward our goal of building a lower cost model. This progress in key areas will provide us with the foundation for a much improved Fiscal Year 2006."