15 Aug 2008 07:00
DANKA BUSINESS SYSTEMS PLC
("Danka", the "Company" or the "Group")
Announcement of unaudited financial results for the three month period ended 30th June, 2008
Danka Business Systems PLC has today released its unaudited financial results for the three month period ended 30th June, 2008, prepared in accordance with International Financial Reporting Standards ("IFRS") as required under the Disclosure and Transparency Rules.
Financial and Business Operating Review
On 27th June, 2008, the group sold its U.S. operations to Konica Minolta for $240 million. These operations represented the only trading operations of the group, the remainder being the group's administrative functions based primarily in the U.S. The results of the group's U.S. operations have been classified as discontinued operations since 31st March, 2008 in the financial statements. The following analysis of the group's results for the period ended 30th June, 2008 discusses the results of the residual group (as defined below in note 2), then, discontinued operations.
As noted above, the residual group represents administrative functions. Administrative expenses, decreased by $0.3 million to $0.3 million.
Investment revenue was nil compared to $1.8 million in the comparative prior year period. This resulted from interest income generated on the proceeds received from the sale of the group's European operations until these proceeds were used to fund partially the repayment of the 11% and 10% notes.
Revenue from discontinued operations decreased from $106.3 million to $81.5 million. This was due to new market entrants, as well as existing providers competing for product placement, lower productivity of newly hired sales personnel and lower sales coverage across the U.S. Lower installed base led to lower service revenue, which was also affected by lower revenues as digital devices continued to replace analogue machines.
Gross profit for discontinued operations declined by $14.0 million with margin decreasing to 30.0% from 36.2%. This reflected a shift toward lower margin deals and the impact of one-off items boosting gross profit in the prior year period net of lower fixed costs.
Distribution costs and administrative expenses ("operating costs", excluding the release of the provision of $6.1 million recognised for the estimated future losses of the U.S. operations up at 31st March, 2008) decreased by $3.3 million to $13.9 million This reflected lower professional fees following the outsourcing of administrative functions.
The Board of Directors of Danka is evaluating the alternatives available with respect to the net proceeds from the sale of the U.S. operations ("DOIC") to Konica Minolta - primarily how such proceeds may be distributed to Danka shareholders. There is no guarantee that any future alternative chosen by the Board of Directors will result in any return to holders of Danka's ordinary shares (including holders of ADSs). In addition, there is no guarantee that the holders of Danka's 6.50% senior convertible participating shares will not take action(s) available to them under applicable law, for example seeking a winding up of Danka, to recover amounts to which they are entitled pursuant to Danka's Articles of Association. Such amounts exceed the amount of the net proceeds from the sale of DOIC.
Enquiries
Danka: Jean Johnson, General Counsel, 00 1 727-456-4460
Weber Shandwick Financial (London)
James White/Laura Vaughn, 020 7067 0700
Evolution Securities Limited (London)
(Sponsor to Danka Business Systems PLC)
Stuart Andrews / Bobbie Hilliam, 020 7071 4300
Certain statements contained herein, or otherwise made by the Group's officers, including statements related to Danka's future performance and the outlook for Danka's businesses and respective markets, projections, statements of the Group's plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information relating to Danka that is based on Danka's beliefs as well as assumptions, made by, and information currently available to the Group. The words "goal", "anticipate", "expect", "believe", "could", "should", "intend" and similar expressions as they relate to Danka are intended to identify forward-looking statements, although not all forward looking statements contain such identifying words. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, Danka claims the protection of the safe harbour for forward-looking statements provided for in the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Such statements reflect Danka's current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to, the following: (i) the evaluation of various alternatives following the sale of the Group's U.S. operations, including, without limitation, a members' voluntary liquidation; (ii) any inability to implement successfully such alternative(s); (iii) any material adverse change in financial markets, the economy or in the Group's financial position; (iv) any inability to record and process key data due to ineffective implementation of business processes and policies; (v) any negative impact from the loss of any of Danka's senior or key management personnel; (vi) any incurrence of tax or other liabilities or tax or other payments beyond the Group's current expectations, which could adversely affect liquidity; (vii) any negative impact of the accreted value of the outstanding convertible participating shares or its continued accretion; (viii) any negative impact of the Company's continued organisation as an England and Wales registered company following the sale of the Group's U.S. operating business; (ix) actions of governmental entities, including regulatory requirements; (x) actions by shareholders in connection with the distribution of the net proceeds from sale of the Group's U.S. operating business; (xi) the outcome of legal proceedings to which the Group is or may become a party; and (xii) other risks including those risks identified in any of Danka's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect the Group's analysis only as at the date they are made. Except as required by applicable law, Danka undertakes no obligation, and does not intend, to update these forward-looking statements to reflect events or circumstances that arise after the date they are made. Furthermore, as a matter of policy, the Group does not generally make any specific projections as to future earnings, nor does the Group endorse any projections regarding future performance, which may be made by others outside Danka.
The financial information for the three month period ended 30th June, 2008 is unaudited and not reviewed. The financial information for all periods presented does not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. However, the financial information for such periods is prepared on the same basis as the financial information for the year ended 31st March, 2008. The financial information for the year ended 31st March, 2008 has been extracted from the audited accounts for the year ended 31st March, 2008 which have not been filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.
This financial information contains information regarding net debt that is computed as debt and bank loans less cash and cash equivalents. This measure is a non-IFRS financial measure, defined as a numerical measure of the Group's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with International Financial Reporting Standards, or IFRS, in the Group's income statement, balance sheet or cash flow statement. The notes hereto provide a reconciliation of this non-IFRS financial measure to the most directly comparable IFRS financial measure.
Although net debt represents a non-IFRS financial measure, Danka considers the measure to be a key operating metric of the Group. Danka also believes that net debt is useful to investors because it provides an analysis of financial and operating results using the same measures that Danka uses in evaluating the Group. The calculation of net debt may not be consistent with the calculation of this measure by other companies in the industry. Net debt is not a measurement of financial performance under IFRS and should not be considered as an alternative to net earnings (loss) as an indicator of the Group's operating performance or cash flows from operating activities as a measure of liquidity or any other measures of performance derived in accordance with IFRS.
Group Income Statement
For the Three Months Ended 30th June 2008 and 2007
| Three Months Ended 30th June | |||||||||||||||
| Income statement Residual Group 2008 | Discontinued Operations 2008 | Total 2008 | Income statement Residual Group 2007 | Discontinued Operations 2007 | Total 2007 | ||||||||||
| Note | $000 | $000 | $000 | $000 | $000 | $000 | |||||||||
| Revenue | - | 81,452 | 81,452 | - | 106,274 | 106,274 | |||||||||
| Cost of sales | - | (57,049) | (57,049) | - | (67,827) | (67,827) | |||||||||
| Gross profit | - | 24,403 | 24,403 | - | 38,447 | 38,447 | |||||||||
| Distribution costs | - | (16,260) | (16,260) | - | (18,641) | (18,641) | |||||||||
| Administrative expenses | |||||||||||||||
| Administrative expenses | (264) | (13,896) | (14,160) | (516) | (17,235) | (17,751) | |||||||||
| Release of provision for future losses | 264 | 6,131 | 6,395 | - | - | - | |||||||||
| Total administrative expenses | - | (7,765) | (7,765) | (516) | (17,235) | (17,751) | |||||||||
| Other operating income | - | - | - | 939 | 7 | 946 | |||||||||
| Restructuring cost expense | - | (69) | (69) | - | (497) | (497) | |||||||||
| (Loss)/profit from operations before tax and finance items | - | 309 | 309 | 423 | 2,081 | 2,504 | |||||||||
| Investment revenue | 3 | 10 | 13 | 1,845 | 4 | 1,849 | |||||||||
| Finance costs | |||||||||||||||
| Finance costs | (9,282) | (23) | (9,305) | (16,253) | (184) | (16,437) | |||||||||
| Release of provision for future finance costs | 9,279 | - | 9,279 | - | - | - | |||||||||
| Loss on early extinguishment of debt | - | - | - | (9,711) | - | (9,711) | |||||||||
| Total finance costs | (3) | (23) | (26) | (25,964) | (184) | (26,148) | |||||||||
| (Loss)/profit from operations before tax | - | 296 | 296 | (23,696) | 1,901 | (21,795) | |||||||||
| Tax | - | - | - | (4,964) | - | (4,964) | |||||||||
| (Loss)/profit from operations after tax | - | 296 | 296 | (28,660) | 1,901 | (26,759) | |||||||||
| Gain/(loss) on sale of discontinued operations | 5 | - | 176,977 | 176,977 | - | (719) | (719) | ||||||||
| Profit/(loss) from operations for the period | - | 177,273 | 177,273 | (28,660) | 1,182 | (27,478) | |||||||||
| Result from discontinued operations | 177,273 | 1,182 | |||||||||||||
| Profit/(loss) from operations for the period and attributable to equity holders of the parent | 177,273 | (27,478) | |||||||||||||
| Earnings/(loss) per share: | 7 | ||||||||||||||
| Basic from residual group | $0.00 | $(0.11) | |||||||||||||
| Basic from discontinued operations | $0.68 | $0.00 | |||||||||||||
| Basic from total operations | $0.68 | $(0.11) | |||||||||||||
| Diluted from residual group | $0.00 | $(0.11) | |||||||||||||
| Diluted from discontinued operations | $0.68 | $0.00 | |||||||||||||
| Diluted from total operations | $0.68 | $(0.11) | |||||||||||||
All results arise from discontinued operations.
Danka Business Systems PLC
Group Balance Sheet
| 30th June | 31st March | |||
| 2008 | 2008 | |||
| $000 | $000 | |||
| Assets classified as held for sale - residual group | ||||
| Property, plant and equipment | 8 | 10 | ||
| Other receivables | 35,184 | 707 | ||
| Prepaid expenses | 206 | 36 | ||
| Cash and cash equivalents including restricted cash of $5,250,000 (March 2008 - $5,250,000) | 49,307 | 14,869 | ||
| Total assets classified as held for sale - residual group | 84,705 | 15,622 | ||
| Assets classified as held for sale - U.S. operations | - | 105,817 | ||
| Total assets | 84,705 | 121,439 | ||
| Current liabilities | ||||
| Liabilities classified as held for sale - residual group | ||||
| Other payables | (1,870) | (444) | ||
| Tax liabilities | (6,965) | (9,841) | ||
| Borrowings | - | (125,330) | ||
| Accrued expenses | (17,275) | (20,592) | ||
| Convertible participating shares | (378,125) | (372,077) | ||
| Total liabilities classified as held for sale - residual group | (404,235) | (528,284) | ||
| Liabilities classified as held for sale - U.S. operations | - | (90,282) | ||
| Total liabilities | (404,235) | (618,566) | ||
| Net liabilities | (319,530) | (497,127) | ||
| Equity | ||||
| Capital | 319,340 | 319,340 | ||
| Share options | 7,639 | 7,315 | ||
| Retained earnings | (646,509) | (823,782) | ||
| Total equity | (319,530) | (497,127) | ||
Danka Business Systems PLC
Group Statement of Recognised Income and Expense
For the Three Months Ended 30th June 2008 and 2007
and Year Ended 31st March 2008
| 30th June 31st March | ||||
| 2008 | 2007 | 2008 | ||
| $000 | $000 | $000 | ||
| Income/(loss) for the period/year | 177,273 | (27,478) | (105,865) | |
| Total of income and expense taken directly to equity | - | - | - | |
| Total recognised income and expense for the period/year | 177,273 | (27,478) | (105,865) | |
Danka Business Systems PLC
Group Cash Flow Statement
For the Three Months Ended 30th June 2008 and 2007
| 30th June | |||||
| 2008 | 2007 | ||||
| Note | $000 | $000 | |||
| Net cash inflow/(outflow) from operating activities | 9 | 2,220 | (13,105) | ||
| Cash flows from investing activities | |||||
| Interest received | 13 | 1,849 | |||
| Capital expenditure | (1,576) | (1,724) | |||
| Net proceeds related to sale of operations | 162,880 | 11,781 | |||
| Proceeds from sale of property, plant and equipment and equipment on operating leases | 19 | 1,537 | |||
| Net cash from investing activities | 161,336 | 13,443 | |||
| Cash flows from financing activities | |||||
| Net (repayments)/borrowings under line of credit agreements | (20,819) | 4,544 | |||
| Repayment of long-term loans | (104,550) | - | |||
| Proceeds from issue of long-term loans | - | 105,000 | |||
| Payment of debt issue costs | - | (3,333) | |||
| Capital payments under finance leases | (157) | (146) | |||
| Interest paid | (3,592) | (13,278) | |||
| Net cash from financing activities | (129,118) | 92,787 | |||
| Net increase in cash and cash equivalents | 34,438 | 93,125 | |||
| Cash and cash equivalents at 1st April | 14,869 | 186,573 | |||
| Cash and cash equivalents at 30th June | 49,307 | 279,698 | |||
| Included above in respect of discontinued operations: | |||||
| Net cash outflow from operating activities | (13,278) | (8,146) | |||
| Net cash from investing activities | 161,333 | 10,092 | |||
| Net cash from financing activities | 20,354 | 14,745 | |||
Notes to the Financial Information
1. The financial information for the three month period ended 30th June, 2008 is unaudited and not reviewed. The financial information for all periods presented does not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. However, the financial information for such periods is prepared on the same basis as the financial information for the year ended 31st March, 2008. The financial information for the year ended 31st March, 2008 has been extracted from the audited accounts for the year ended 31st March, 2008 which have not been filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.
2. Significant accounting policies
Danka Business Systems PLC ("the Company") is a company domiciled in the United Kingdom. This financial information consists of the consolidated interim financial statements of the Company for the three months ended 30th June, 2008 and 2007, which comprise the Company and its subsidiaries (together referred to as the "Group"). The financial information was authorised for issuance on 14th August, 2008.
Basis of preparation
The financial statements have been prepared in conformity with current applicable IFRS accounting standards as more fully described below.
The financial statements are presented in U.S. dollars and all values in tables are rounded to the nearest thousand dollars ($000) except where otherwise indicated as the functional currency of substantially all of the Group's companies is the U.S. dollar.
On 27th June, 2008, the Group sold its U.S. operations through which the Group conducted its trading operations. At the Extraordinary General Meeting to approve the sale, a motion to put the company into members' voluntary liquidation was proposed, but it was not passed. The directors are evaluating the results of this vote. However, given the Group no longer has any trading operations and their belief that there is no other realistic alternative, the directors are evaluating how the remaining assets may be distributed to shareholders after the settlement of all liabilities. The directors have therefore decided that it is not appropriate to prepare the financial information on a going concern basis. Accordingly, the financial information has been prepared on a break-up basis. The assets and liabilities of the Group, after accounting for the sale of the U.S. operations as assets and liabilities held for sale as at 31st March, 2008, are disclosed in this financial information as the Residual Group.
The impact of adopting the break-up basis of accounting on the Residual Group is as follows:
- Current and non-current assets have been classified as held for sale and provisions have been made to reduce their carrying values to their estimated realisable amounts. Unrealised gains have not been recognised. Prepayments and other assets have been expensed, unless they can be realised through future cash refund.
- Current and non-current liabilities have been classified as held for sale. Provisions have been made for any further contractual liabilities that will arise, for future trading losses (including the cost of any unvested share options) and for financing costs on debt and the participating shares up to the date of the anticipated settlement. These provisions are included within "Accrued expenses". Unamortised issue costs on debt and the participating shares were written off as at 31st March, 2008.
Notwithstanding the cessation of trading operations, the group has sufficient liquid resources to meet all reasonably foreseeable future liabilities other than the participating shares.
Accounting policies
This financial information has been prepared on the basis of the recognition and measurement requirements of IFRS accounting standards in issue that are endorsed by the EU and effective (or available for early adoption) at 31st March, 2009. The accounting policies have been applied consistently throughout the Group for the purposes of this consolidated interim financial information.
The income statement comprises the result/loss for the period for the residual group plus the profit/loss for the period from discontinued operations attributable to the equity holders of the parent. Restructuring costs, the release of provisions for future losses and future finance costs and the finance costs attributable to the early extinguishment of debt have been separately disclosed on the face of the income statement in accordance with IAS 1 in order to assist the assessment of financial performance owing to their materiality and infrequent nature.
3. Seasonality of operations
The Group's discontinued operations historically experienced lower revenue during the second quarter (ending 30th September) of the financial year, primarily due to lower levels of retail maintenance revenue from United States governmental agencies. This resulted in reduced sales activity and reduced usage of photocopiers, facsimiles and other office imaging equipment during the second quarter. Accordingly, the results of discontinued operations for the interim periods were not necessarily indicative of the results which could have been expected for the entire financial year.
4. Segmental information
The Group operated in one business segment, being the supply and servicing of office equipment and the provision of related services. The Group's primary segment reporting format was determined to be geographical as the Group's risks and rates of return were affected predominantly by the fact that it operated in different geographical areas. In the year ended 31st March, 2008 and up to the date of its disposal (note 5), the United States was the only primary reportable segment, but was reclassified to discontinued operations upon the disposal being initiated. The Group is managed through its administrative centre in the U.S., identified as Residual Group in the income statement. Its costs comprise salaries and direct costs incurred in maintaining the administrative centre. As the administrative centre has not been sold with the U.S. operations, it was not appropriate to allocate these costs to the discontinued operations. The analysis of results between the reportable segment and the residual group is given on the face of the income statement.
5. Disposal of operations
Year ending 31st March, 2009
With effect from 26th June, 2008, the Group sold its U.S. operations operations to Konica Minolta for $240 million cash subject to an upward or downward adjustment of $10 million and a pre-tax gain of $176.4 million was recorded in the three months ended 30th June, 2008. The attributable tax was Nil. The U.S. operations are disclosed as discontinued operations.
During the quarter ended 30th June, 2008, the Group incurred a further $0.6 million of costs relating to the disposal of the Group's European operations.
Year ended 31st March, 2008
During the quarter ended 30th June, 2007, the Group incurred a further $0.7 million of costs relating to the disposal of prior year discontinued operations. The holdback and working capital adjustment totalling $12.5 million referred to above were received in the quarter ended 30th June, 2007.
6. Reconciliation of the weighted average number of basic and diluted ordinary shares in issue
| Three Months Ended | |||||||
| 30th June | |||||||
| 2008 |
| 2007 | |||||
| Shares in issue at 1st April | 259,148,748 | 258,899,852 | |||||
| Effect of shares issued during the period | - | - | |||||
| Average number of ordinary shares in issue - basic | 259,148,748 | 258,899,852 | |||||
| Average outstanding share options | - | - | |||||
| Convertible participating shares | - | - | |||||
| Average number of ordinary shares in issue - diluted | 259,148,748 | 258,899,852 | |||||
7. The calculations of the earnings/loss per share from the residual group and discontinued operations respectively are based on the profit/loss for the residual group and from discontinued operations respectively after taxation and the basic and diluted weighted average number of ordinary shares in issue during the period as per note 6 above. Outstanding share options and convertible participating shares have only been considered in dilutive per share computations when the residual group has reported a profit, in accordance with IAS 33.
| Three Months Ended 30th June | |||||||||
| 2008 | 2007 | ||||||||
| Dollars | Dollars | ||||||||
| $000 | Per Share | $000 | Per Share | ||||||
| Basic and diluted earnings/(loss) from residual group | - | - | (28,660) | $(0.11) | |||||
| Basic and diluted earnings from discontinued operations | 177,273 | $0.69 | 1,182 | $0.00 | |||||
| Basic and diluted earnings/(loss) from total operations | 177,273 | $0.69 | (27,478) | $(0.11) | |||||
8. The following is an analysis of net debt (current and non-current bank and other loans including finance leases less cash and cash equivalents):
| As at 30th June | As at 31st March | ||
| 2008 | 2008 | ||
| $000 | $000 | ||
| Borrowings | - | 125,330 | |
| Convertible participating shares | 378,125 | 372,077 | |
| Less: cash and cash equivalents | (49,307) | (14,869) | |
| Net debt | 328,818 | 482,538 | |
Restricted cash for the Group at 30th June, 2008 and 31st March, 2008 totalled $5,250,000 in respect of the European sale proceeds required to be kept in an escrow account by the Group's credit facility.
9. Net cash flow from operating activities
|
| Three Months Ended | |||||||
|
| 30th June | |||||||
|
| 2008 $000 | 2007 $000 | ||||||
| Result/(loss) before tax |
| 296 | (21,795) | |||||
| Restructuring cost expense |
| 69 | 497 | |||||
| Cash paid in respect of restructuring charges |
| (1,172) | (957) | |||||
| Depreciation and amortisation |
| 3051 | 3,464 | |||||
| Loss/(gain) on sale of property, plant and equipment and equipment on operating leases |
| 17 | (916) | |||||
| Share-based payments and shares issued for nil consideration as remuneration | 324 | 175 | ||||||
| Net finance costs | 11 | 24,299 | ||||||
| Increase in inventories |
| (7,905) | (1,170) | |||||
| Decrease in receivables |
| 8,805 | 5,832 | |||||
| Increase/(decrease) in payables |
| (1,276) | (20,830) | |||||
| Tax recovered/(paid) | - | (1,704) | ||||||
| Net cash flow from operating activities | 2,220 | (13,105) | ||||||
10. Group Statement of Changes in Equity for the Three Months Ended 30th June, 2008 and the Year Ended 31st March, 2008
| 30th June 31st March | ||||
| 2008 | 2007 | 2008 | ||
| $000 | $000 | $000 | ||
| Balance at 1st April | (497,127) | (391,915) | (391,915) | |
| Profit/(loss) for the period/year | 177,273 | (27,478) | (105,865) | |
| Shares issued | - | - | 102 | |
| Share option expense in the period/year | 324 | 175 | 551 | |
| Balance at 30th June/30th June/31st March | (319,530) | (419,218) | (497,127) | |
11. Copies of this report will be available from the Company's registered office at Masters House, 107 Hammersmith Road, London W14 0QH.