ST. PETERSBURG, Fla.--May 5, 2004-- Danka Business Systems PLC today announced an agreement to outsource its U.S.-based IT infrastructure to IBM Global Services. IBM will host business applications for Danka's Americas Group and corporate operations, providing protection against service interruptions and hardware obsolescence and charging Danka on a pay-as-you-go basis only for the system and storage capacity actually used. The seven-year outsourcing agreement is expected to be fully implemented before the end of the calendar year.
"This outsourcing solution represents an important step forward in beginning to realize the cost savings and customer benefits of our Vision 21 initiative," said Danka Chief Information Officer Michael Wedge. "Outsourcing the infrastructure requirements to IBM will generate annual savings of up to 20% compared to our current costs for completing these same tasks in-house. It will eliminate the need to make upgrades to the IT infrastructure, enhance our disaster recovery efforts, and help shield us from the risk of hardware obsolescence. Equally important, it will enable us to redeploy existing IT resources to the significant task of optimizing and leveraging our new Oracle business systems to reduce costs, increase employee productivity, and further improve customer satisfaction."
Danka's U.S. IT data center is the last remaining operation at the company's old corporate campus in St. Petersburg, Florida, and the company was faced with moving the facility to its new U.S. headquarters location. The outsourcing agreement will enable Danka to avoid those relocation costs and distractions, sidestep the need to make future infrastructure investments, and free-up existing resources to maximize the performance of applications associated with the company's upgraded business systems.
"Since the conversion of our U.S. and corporate business systems to the Oracle 11i e-Business Suite, we have been exploring opportunities to maximize the savings associated with that investment," noted Danka Chief Financial Officer Mark Wolfinger. "The benefits of outsourcing our IT infrastructure are compelling. Although this process will result in a slight delay in implementing certain IT-related expense reductions that are part of the company's cost restructuring plan, we remain optimistic that we can achieve our previously announced goal of more than $50 million in annualized cost savings by the middle of our 2005 fiscal year." Danka plans to take a $900,000 restructuring charge related to the outsourcing agreement in the fourth quarter of fiscal 2004 for the write-down of hardware in its U.S. data center.
Danka selected IBM as its outsourcing partner because of IBM's expertise and flexible on-demand outsourcing solution, as well as Danka's pre-existing relationship in providing TechSource(TM) multi-vendor services to IBM Global Services customers. Going forward, Danka's U.S. IT priorities will focus on further improving order and billing processes, expanding Internet-based customer initiatives, and delivering enhanced productivity tools to the sales force and other employee groups.
"Our expanded IBM relationship represents a significant opportunity to advance our Vision 21 reengineering initiative, and we're exploring ways to further increase IBM's involvement in our business both domestically and internationally," concluded Danka Chief Executive Officer Todd Mavis. "It's taken a lot of hard work to get to this point, but we've made good progress that will yield important customer benefits and efficiencies. We also continue to work diligently on implementing our previously announced cost reduction plan as well as identifying additional reductions to help us achieve our SG&A goal of 30% of revenues."
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