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Danka Reports Q1 Loss of $10 Million

Press release from the issuing company

ST. PETERSBURG, Fla.--Aug. 3, 2005-- Danka Business Systems PLC today reported first-quarter revenue of $300.2 million, gross margins of 33.9% and an operating loss of $10.0 million, including a restructuring charge of $6.1 million. These results, as well as results for prior reporting periods, are from continuing operations and are adjusted to exclude Danka's former Canadian subsidiary, which was sold to Pitney Bowes at the end of the quarter. "We made good progress to start our new fiscal year," commented Danka Chief Executive Officer Todd Mavis. "We achieved balanced performance worldwide, a reflection of the work we have done to upgrade our sales teams, selectively expand sales coverage, and improve customer and salesforce retention. We saw meaningful sequential increases in both revenue and gross margins, reflecting improvements in our key retail equipment and retail service segments. In the quarter, we made progress on executing against our Managed Print Services business plan. In addition, we continued to realize cost savings from our Vision 21 cost restructuring program, with SG&A declining both year-over-year and sequentially." For the first quarter: Total revenue was $300.2 million, compared to $300.9 million in the year-ago quarter and $291.0 million in the fourth quarter. Retail equipment sales improved by $19.7 million year on year, which was driven in part by a 50% increase in revenue from the sales of color equipment. Service revenue decreased by $18.1 million from the year ago period. Consolidated gross margins were 33.9% of revenue, lower than the 38.6% reported in the year-ago quarter, but higher than last quarter's 27.6%. SG&A expenses were $105.7 million, a 1.6% decline from the year-ago quarter and 17.7% lower than the fourth quarter. The decrease from prior periods is attributable in part to the realization of cost savings from Danka's Vision 21 cost restructuring program, lower costs related to Sarbanes-Oxley compliance and reduced bad debt expense. Included in SG&A for the period are an adjustment to long-lived insurance assets, executive separation costs and negative foreign currency movements totaling $4.7 million. The operating loss from continuing operations was $10.0 million, including a $6.1 million restructuring charge. That compares to an operating profit of $8.7 million in the year-ago quarter and an operating loss of $128.0 million in the fourth quarter which included goodwill impairment and restructuring charges of $71.0 and $10.8 million, respectively. Free cash flow (net cash provided by operating activities less capital expenditures) including proceeds from the sale of Canada was $(6.4) million, compared to $8.8 million in the fourth quarter, and $(27.7) million from the same period a year ago. "Our first quarter performance supports our belief that our Managed Print Services strategy will not only assist us in stabilizing service revenue and margins, but it also will drive equipment sales," said Mavis. "We continue to balance our targeted growth initiatives against our commitment to permanently take costs out of the business. Additionally, we will continue to evaluate our geographic assets to determine the best strategic opportunities for return on our investments." "We were also pleased to announce the appointment of our new Chief Financial Officer, Ed Quibell, during the quarter," concluded Mavis. "Ed has extensive international operational and financial experience and will assume the CFO position next week."