DNK.L Regulatory News (DNK)

3 Nov 2005 13:30

Danka Business Systems PLC03 November 2005 Embargoed until 13.30 3rd November 2005 DANKA BUSINESS SYSTEMS PLC ("Danka", the "Company" or the "Group") Announcement of results for the half year and second quarter ended 30th September 2005 Danka Business Systems PLC, a leading independent global provider of officeimaging systems and services, today announced its results for the first halfyear and quarter ended 30th September 2005. Danka reported first half yearrevenue of £319.4 million, gross margins of 33.3% and a loss from continuingoperations before tax and finance costs of £11.5 million, including a costrestructuring charge of £4.2 million. That charge relates to the Company'songoing Vision 21 reengineering programme which has contributed to a decline inoperating costs (distribution costs and administrative expenses) as a percentageof revenue to 34.8% from 35.5% a year ago. The half year results, as well asresults for prior reporting periods, include Danka's former Central and SouthAmerican subsidiaries, which were sold to Toshiba America Business Solutions,Inc., near the end of the second quarter, and a Canadian subsidiary, which wassold to Pitney Bowes with effect from the end of the first quarter. "Our second quarter results reflect continued pressure on our revenue andmargins across the business, in part due to the normal seasonality we see duringthis period and the effects of a highly competitive market environment," saidDanka Chief Executive Officer Todd Mavis. "To meet these challenges, we havecontinued to take costs out of the business, and we expect recent organisationalstreamlining and outsourcing actions to yield further savings. In addition, wehave significantly narrowed our geographical focus with recent sales ofoperations in Canada and Central and South America. We were encouraged by thecontinued performance in our general line field sales groups, but weredisappointed in our U.S. national accounts, where a few larger transactions weredelayed. Market pricing pressures, equipment mix, and other factors impacted ourgross margins and we are taking steps to address this. And while volume fromnewer service contracts with printer manufacturers ramped up more slowly thananticipated in the second quarter, our core annuity services metrics continuedto improve with the digital portion of our installed base increasing to 72%,digital volume increasing to 85% of total volume, and sales of digital coloursystems growing by 16% over the year-ago quarter." Key financial metrics for the first half year: - Total revenue was £319.4 million, which was 6.5% lower than the year-ago period. Retail equipment and related sales improved by £5.3 million from the comparative prior year period, while retail maintenance revenue decreased by £21.8 million from the comparative prior year period. The decline in retail maintenance revenue was due in large part to a continuing decline and shift in our machines in field, the decline in our analogue business and lower service pricing. - Consolidated gross margins were 33.3% of revenue, lower than the 37.4% reported in the comparative prior year period. Retail equipment and related margins decline as a result of market pressures on pricing, a shift in product mix and product portfolio gaps. The decline in retail maintenance margins was due in large part to the effect of lower revenue on fixed service costs and continued investments to meet our obligations to printer manufacturer partners. - Operating costs were £111.0 million, an 8.4% decline from the year-ago period. Contributing to the decrease were lower corporate and overhead costs as a result of the Company's continued streamlining of operations and efficiencies from its Vision 21 initiative. Improved internal systems also enabled the Company to identify a £2.1 million sales tax credit in the U.S. - The loss from continuing operations before tax and finance costs was £11.5 million, including £4.2 million in restructuring costs and the £2.4 million net loss on the disposal of the Canadian, and Central and South American operations. That compares to a profit from continuing operations before tax and finance costs of £5.4 million for the comparative prior year period. - Free cash flow (net cash provided by operating and investing activities excluding cash flows from acquisitions and disposals) was £(6.1) million, compared to £4.3 million from the comparative prior year period. The results of the second quarter included revenue of £152.6 million, gross margins of 32.7% and a loss from continuing operations before tax and finance costs of £9.2 million, including a cost restructuring charge of £1.2 million and a loss on sale of operations of £5.5 million. Key financial metrics for the second quarter: - Total revenue was £152.6 million, which was 10.1% less than the year-ago period, with retail equipment and related sales declining by 6.4% and retail maintenance revenue declining by 12.7%. Primary reasons for the decline in retail equipment and related revenue are the delay of certain transactions in the Company's U.S. national accounts business, softness in certain European geographies and gaps in our U.S. product portfolio. The decline in retail maintenance revenue was due in large part to a continuing decline and shift in our machines in field, and the decline in our analogue business and lower service pricing. We further experienced a slower than anticipated ramp-up in volume from newer printer manufacturer contracts. - Consolidated gross margins were 32.7% of revenue, lower than the 36.3% in the year-ago quarter. In the retail equipment segment, the factors in the margin decline included worldwide market pressures on pricing, an unfavourable product mix, primarily in Europe, certain product gaps and lower manufacturer incentives due to lower sales. The decline in retail maintenance margins was due in large part to the effect of lower revenue on fixed service costs and continuing investments to meet our obligations to printer manufacturer partners. - Operating costs were £52.0 million, or 34.1% of sales, and were 12.4% lower than the year-ago period. Contributing to the decrease were lower overhead and corporate costs as a result of the Company's continued streamlining of operations and efficiencies from its Vision 21 initiative. Operating costs were favourably impacted by a £2.1 million sales tax recovery in the U.S. - The losses from continuing operations before tax and finance costs was £9.2 million for the current year period, compared to a profit of £1.9 million for the prior year comparable period. The current year period results include a £1.2 million restructuring charge and a loss on sale of operations of £5.5 million, while the comparative prior year period included a £0.1 million restructuring charge. "In addition to our continuing priority to streamline the business and reducecosts, we're also focused on the effective management of working capital," notedDanka Chief Financial Officer Ed Quibell, a veteran of the services and softwareindustries who joined the Company as CFO in August. "In the second quarter wesaw sequential improvements in key working capital areas, including a £7.4million reduction in net accounts receivable and a £4.9 million decrease ininventories, offset by a £14.3 million reduction in accounts payable. Furtherevidence of improvement is U.S. days sales outstanding, a major area of focusfor us, which were just over 46 days compared to almost 60 days just a couple ofquarters ago. On the expense side, we have cut our administrative expenses by19% over the past year as we become more efficient and increase employeeproductivity." Conference Call and Webcast A conference call and Webcast to discuss Danka's half year and second quarterresults has been scheduled for today, Thursday, 3rd November at 3:00 p.m. U.K.time. To access the Webcast, please go to www.danka.com. To participate in theconference call, callers in the United States and Canada may dial 800-309-1555;UK and other international callers should dial 001-706-643-7754. No conferencenumber is needed. A recording of the call will be available from approximatelytwo hours after the call ends until 10:00 p.m. UK time on 10th November. Toaccess this recording, callers in the United States and Canada may dial800-642-1687 and UK and other international callers may dial 001-706-645-9291(the conference ID number for replay is 1727004) or visit Danka's Web site. About Danka Danka delivers value to clients worldwide by using its expert technical andprofessional services to implement effective document information solutions. Asone of the largest independent providers of enterprise imaging systems andservices, the Group enables choice, convenience and continuity. Danka's visionis to empower customers to benefit fully from the convergence of image anddocument technologies in a connected environment. This approach will strengthenthe Group's client relationships and expand its strategic value. For moreinformation, visit Danka at www.danka.com. - ends - For further information please contact: Danka Business Systems PLCDonald Thurman, Danka Investor Relations 001 770 280 3990Paul Dumond, Company Secretary 020 7605 0154 Weber Shandwick Square MileJames Chandler/Helen Thomas 020 7067 0700 Certain statements contained herein, or otherwise made by the Group's officers,including statements related to Danka's future performance and the outlook forthe Group's businesses and respective markets, projections, statements of theGroup's plans or objectives, forecasts of market trends and other matters, areforward-looking statements, and contain information relating to Danka that isbased on management's beliefs as well as assumptions made by, and informationcurrently available to management. The words "goal", "anticipate", "expect","believe" and similar expressions as they relate to Danka are intended toidentify forward-looking statements, although not all forward-looking statementscontain such identifying words. No assurance can be given that the results inany forward-looking statement will be achieved. For the forward-lookingstatements, Danka claims the protection of the safe harbour for forward-lookingstatements provided for in the Private Securities Litigation Reform Act of 1995,Section 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934, as amended. Such statements reflect management's currentviews with respect to future events and are subject to certain risks,uncertainties and assumptions that could cause actual results to differmaterially from those reflected in the forward-looking statements. Factors thatmight cause such actual results to differ materially from those reflected in anyforward-looking statements include, but are not limited to, the following: (i)any inability to implement Danka's strategy successfully; (ii) any inability tocomply with the financial or other covenants in the Group's debt instruments;(iii) any material adverse change in financial markets, the economy or in theGroup's financial position; (iv) increased competition in the industry and thediscounting of products by the Group's competitors; (v) new competition as theresult of evolving technology; (vi) any inability by Danka to procure or anyinability by Danka to continue to gain access to and distribute successfully newproducts, including digital products, colour products, multi-function productsand high-volume copiers, or to continue to bring current products to themarketplace at competitive costs and prices; (vii) any inability to arrangefinancing for Danka's customers' purchases of equipment from Danka; (viii) anyinability to enhance and unify the Group's management information systemssuccessfully; (ix) any inability to record and process key data due toineffective implementation of business processes and policies; (x) any negativeimpact from the loss of a key vendor or customer; (xi) any negative impact fromthe loss of any of the Group's senior or key management personnel; (xii) anychange in economic conditions in domestic or international markets where Dankaoperates or has material investments which may affect demand for the Group'sproducts or services; (xiii) any negative impact from the international scope ofthe Group's operations; (xiv) fluctuations in foreign currencies; (xv) anyinability to achieve or maintain cost savings; (xvi) any incurrence of taxliabilities beyond management's current expectations, which could adverselyaffect the Group's liquidity; (xvii) any delayed or lost sales and other impactsrelated to the commercial and economic disruption caused by past or futureterrorist attacks, the related war on terrorism, and the fear of additionalterrorist attacks; and (xviii) other risks including those risks identified inany of the Group's filings with the Securities and Exchange Commission, or theSEC. Readers are cautioned not to place undue reliance on these forward-lookingstatements, which reflect management's analysis only as at the date they aremade. Except as required by applicable law, Danka undertakes no obligation anddoes not intend to update these forward-looking statements to reflect events orcircumstances that arise after the date they are made. Furthermore, as a matterof policy, Danka does not generally make any specific projections as to futureearnings, nor does Danka endorse any projections regarding future performance,which may be made by others outside the Company. The financial information for the half years and quarters ended 30th September,2005 and 2004 is unaudited and not reviewed and does not constitute fullaccounts within the meaning of Section 240 of the Companies Act 1985. Thefinancial information for such periods is prepared on the basis set out in note2 to the financial information below. The comparative figures for the financialyear ended 31st March 2005 are not the Company's statutory accounts for thatyear. Those accounts, which were prepared under UK Generally Accepted AccountingPractices, have been reported on by the Company's auditors but not yet deliveredto the Registrar of Companies. The report of the auditors was unqualified anddid not contain statements under section 237(2) or (3) of the Companies Act1985. This press release contains information regarding free cash flow that iscomputed as net cash provided by (used in) operating activities less capitalexpenditures plus proceeds from the sale of property and equipment and net debtthat is computed as current maturities of long-term debt and notes payable pluslong-term debt and notes payable less cash and cash equivalents. These measuresare non-IFRS financial measures, defined as numerical measures of our financialperformance that exclude or include amounts so as to be different than the mostdirectly comparable measure calculated and presented in accordance withInternational Financial Reporting Standards, or IFRS in our statement ofoperations, balance sheet or statement of cash flows. The notes to this pressrelease provide a reconciliation of these non-IFRS financial measures to themost directly comparable IFRS financial measures. Although free cash flow and net debt represent non-IFRS financial measures, weconsider these measures to be key operating metrics of the Group. We use thesemeasures in our planning and budgeting processes, to monitor and evaluate ourfinancial and operating results and to measure performance of our separatedivisions. We also believe that free cash flow and net debt are useful toinvestors because they provide an analysis of financial and operating resultsusing the same measures that we use in evaluating the Group. We expect that suchmeasures provide investors with the means to evaluate our financial andoperating results against other companies within our industry. We believe thatthese measures are meaningful to investors in evaluating our ability to meet ourfuture debt service requirements and to fund our capital expenditures andworking capital requirements. Our calculation of free cash flow and net debt maynot be consistent with the calculation of these measures by other companies inour industry. Free cash flow and net debt are not measurements of financialperformance under IFRS and should not be considered as an alternative to netearnings (loss) as an indicator of our operating performance or cash flows fromoperating activities as a measure of liquidity or any other measures ofperformance derived in accordance with IFRS. Danka is a registered trademark and TechSource is a trademark of Danka BusinessSystems PLC. All other trademarks are the property of their respective owners. Group Income Statement For the Three and Six Months Ended 30th September 2005 and 2004 Three Months Ended Six Months Ended September 30 30 September 2005 2004 2005 2004 Note £000 £000 £000 £000 ------ -------- -------- -------- -------- Continuing operationsRevenue 4 152,565 169,652 319,351 341,488Cost of sales (102,627) (108,137) (213,152) (213,908) -------- -------- -------- -------- Gross profit 4 49,938 61,515 106,199 127,580 Other operating income (326) 102 203 156Distribution costs (23,143) (23,724) (47,377) (48,689)Administrative expenses (28,819) (35,612) (63,598) (72,473)Other operating expense (144) (329) (281) (448)Restructuring costs (1,170) (92) (4,179) (735)Net loss on sale of operations 5 (5,531) - (2,426) - -------- -------- -------- --------(Loss)/profit from continuing operations before tax and finance costs (9,195) 1,860 (11,459) 5,391Investment income 90 180 171 284Finance costs (7,708) (7,840) (15,363) (15,235) -------- -------- -------- --------Loss from continuing operations before tax (16,813) (5,800) (26,651) (9,560)Tax - overseas (537) (100) (1,222) - -------- -------- -------- -------- Loss from continuing operations for the period and attributable to equity holders of the parent (17,350) (5,900) (27,873) (9,560) ======== ======== ======== ======== Loss per share: 7 Basic from continuing operations (6.8)p (2.3)p (11.0)p (3.8)p Basic from discontinued operations - - - - -------- -------- -------- -------- (6.8)p (2.3)p (11.0)p (3.8)p -------- -------- -------- -------- Diluted from continuing operations (6.8)p (2.3)p (11.0)p (3.8)p Diluted from discontinued operations - - - - -------- -------- -------- -------- (6.8)p (2.3)p (11.0)p (3.8)p -------- -------- -------- -------- Average exchange rate £1= $ 1.784 $ 1.819 $1 820 $ 1.813Average exchange rate £1= • 1.463 • 1.488 • 1.468 • 1.494 Danka Business Systems PLC Group Balance Sheets 30th September 30th September 31st March 2005 2004 2005 £000 £000 £000 -------- -------- --------Non-current assetsIntangible assets 871 536 1,084Goodwill 2,212 1,205 2,037Property and equipment 24,008 32,325 26,818Equipment on operating leases 8,535 13,270 12,412Other 6,099 8,069 10,029 -------- -------- -------- 41,725 55,405 52,380 -------- -------- --------Current assetsInventories 54,366 58,207 51,184Prepaid expenses 6,258 10,618 6,844Trade and other receivables 106,170 134,814 120,977Cash and cash equivalents 48,323 58,940 51,947 -------- -------- -------- 215,117 262,579 230,952 -------- -------- -------- -------- -------- --------Total assets 256,842 317,984 283,332 -------- -------- -------- Current liabilitiesTrade and other payables (96,708) (86,442) (91,706)Tax liabilities (25,601) (32,445) (25,424)Obligations under finance leases (970) (1,112) (1,036)Current portion of long-term borrowings (93) (965) (179)Deferred revenue (20,018) (23,647) (21,264)Short-term provisions (51,026) (53,955) (59,885) -------- -------- -------- (194,416) (198,566) (199,494) -------- -------- --------Non-current liabilitiesBank loans (129,643) (125,788) (120,952)Convertible loan notes (170,352) (154,841) (153,528)Retirement benefit obligations (13,303) (17,098) (13,341)Deferred tax liabilities (493) (1,458) (324)Long-term provisions (2,540) (6,127) (5,499)Obligations under finance leases (953) (2,027) (1,482)Other (5,253) (2,284) (5,459) -------- -------- -------- (322,537) (309,623) (300,585) -------- -------- -------- -------- -------- --------Total liabilities (516,953) (508,189) (500,079) -------- -------- -------- -------- -------- --------Net liabilities (260,111) (190,205) (216,747) ======== ======== ======== EquityShare capital 3,201 3,143 3,177Share premium account 198,744 198,221 198,565Share options 2,211 976 1,661Translation reserve (13,297) (2,496) 2,947Retained earnings (450,970) (390,049) (423,097) -------- -------- --------Total equity (260,111) (190,205) (216,747) ======== ======== ======== Closing exchange rate £1= $ 1.770 $ 1.809 $ 1.889 -------- -------- --------Closing exchange rate £1= • 1.468 • 1.457 • 1.456 -------- -------- -------- Danka Business Systems PLC Group Cash Flow Statement For the Six Months Ended 30th September 2005 and 2004 30th September ---------------- 2005 2004 Note £000 £000 ------ --------- --------- Net cash outflow from operating activities 10 (2,824) 8,037 Cash flows from investing activities Interest received 171 297 Capital expenditure (3,635) (5,715) Proceeds from sale of operations 9,534 - Proceeds from sale of fixed assets 226 1,708 --------- ---------Net cash from investing activities 6,296 (3,710) --------- --------- Cash flows from financing activities Payments under line of credit agreements (26) 310 Payments under finance leases (764) (403) Interest paid (8,366) (7,835) Proceeds from share options exercised 312 227 --------- ---------Net cash from financing activities (8,844) (7,701) --------- --------- Net decrease in cash and cash equivalents (5,372) (3,374)Cash and cash equivalents at 1st April 51,947 61,298Effect of exchange rate fluctuations on cash held 1,748 1,016 --------- ---------Cash and cash equivalents at 30th September 48,323 58,940 ========= ========= Danka Business Systems PLC Group Cash Flow Statement For the Three Months Ended 30th September 2005 and 2004 30th September ---------------- 2005 2004 Note £000 £000 ------ --------- --------- Net cash outflow from operating activities 10 (2,659) 13,831 Cash flows from investing activitiesInterest received 90 193Capital expenditure (1,665) (2,140)Proceeds from sale of operations 2,854 -Proceeds from sale of fixed assets 179 577 --------- ---------Net cash from investing activities 1,458 (1,370) --------- --------- Cash flows from financing activitiesPayments under line of credit agreements (438) (781)Payments under finance leases (314) (182)Interest paid (878) (397)Proceeds from share options exercised 304 65 --------- ---------Net cash from financing activities (1,326) (1,295) --------- --------- Net decrease in cash and cash equivalents (2,527) 11,166Cash and cash equivalents at 1st July 50,077 47,404Effect of exchange rate fluctuations on cash held 773 370 --------- ---------Cash and cash equivalents at 30th September 48,323 58,940 ========= ========= Danka Business Systems PLC Group Statement of Recognised Income & Expense For the Six Months Ended 30th September 2005 and 2004 and the Year Ended 31st March 2005 30th September 31st March ------------------------------------- 2005 2004 2005 £000 £000 £000 ------- --------- --------- Loss for the period (27,873) (9,560) (46,189)Share option expense in the period 550 376 1,061Exchange translation differences in the period (16,117) (2,496) 2,947Exchange translation differences related to disposals (127) - -Pension scheme actuarial variations - - 3,581 --------- --------- ---------Total recognised income and expense for the period (43,567) (11,680) (38,600) ========= ========= ========= Danka Business Systems PLC Group Statement of Recognised Income & Expense For the Three Months Ended 30th September 2005 and 2004 30th September ----------------------- 2005 2004 £000 £000 --------- ---------- Loss for the period (17,350) (5,900)Share option expense in the period 329 196Exchange translation differences in the period (3,315) 297Exchange translation differences related to disposals (40) -Pension scheme actuarial variations - - --------- ----------Total recognised income and expense for the period (20,376) (5,407) ========= ========== Notes to the Financial Information 1. The consolidated interim financial statements for the three and six months ended 30th September, 2005 and 2004 are unaudited and unreviewed and do not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. The financial information for such periods is prepared on the basis set out in note 2 below. The comparative figures for the financial year ended 31st March 2005 are not the Company's statutory accounts for that year. Those accounts, which were prepared under UK Generally Accepted Accounting Practices, have been reported on by the Company's auditors but not yet delivered to 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. The consolidated interim financial statements of the Company for the three and six months ended 30th September, 2005 and 2004 comprise the Company and its subsidiaries (together referred to as the "Group"). The consolidated interim financial statements were authorised for issuance on 3rd November, 2005. These are the Group's second International Financial Reporting Standards ("IFRS") consolidated interim financial statements for part of the period covered by the first IFRS annual financial statements and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the group is provided on the Company's website via the Investor Relations page at www.danka.com/IFRS.asp. The website also contains line-by-line reconciliations of equity and profit or loss for comparative periods reported under UK GAAP (previous GAAP) to those reported for those periods under IFRS; note 12 below contains abridged reconciliations. Basis of preparation The financial statements are presented in Sterling, rounded to the nearest thousand. They are prepared on the historical cost basis, as modified by requirements to revalue certain financial assets and liabilities, including derivatives. EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated financial statements of the Company, for the year ending 31st March 2006, be prepared in accordance with IFRS adopted for use in the EU ("adopted IFRS"). This interim financial information has been prepared on the basis of the recognition and measurement requirements of IFRS in issue that are either endorsed by the EU and effective (or available for early adoption at 31st March 2006) or are expected to be endorsed and effective (or available for early adoption) at 31st March 2006, the Group's first annual reporting date at which it is required to use adopted IFRS. Based on those adopted and unadopted IFRS, the directors have made assumptions about the accounting policies expected to be applied, which are set out on the Company's website as detailed above, when the first annual IFRS financial statements are prepared for the year ending 31st March 2006. In particular, the directors have assumed that the amended IAS 19 issued by the International Accounting Standards Board will be adopted by the EU in sufficient time that it will be available for use in the annual IFRS financial statements for the year ending 31st March 2006. In addition, the adopted IFRS that will be effective (or available for early adoption) in the annual financial statements for the year ending 31st March 2006 are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly, the accounting policies for that annual period will be determined finally only when the annual financial statements are prepared for the year ending 31st March 2006. Accounting policies The accounting policies have been applied consistently throughout the Group for purposes of these consolidated interim financial statements. These are set out in full on the Company's website at the address set out above. Restructuring costs and the net loss on sale of operations 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 material and infrequent nature. 3. Seasonality of operations The Group's operations have historically experienced lower revenue during the second quarter (ending 30th September) of the financial year. This is primarily due to increased holiday taken by European and Canadian residents during July and August and lower levels of retail maintenance revenue from United States governmental agencies. This has historically resulted in reduced sales activity and reduced usage of photocopiers, facsimiles and other office imaging equipment during the second quarter. Accordingly, the results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire financial year. 4. Analysis of turnover and gross profit The Group operates in one business segment, being the supply and servicing of office equipment and the provision of related services. The following table provides additional analysis of the components of turnover and of gross profit of the single business segment, where the sale or rental of equipment normally includes a service contract and the purchase of supplies once the contract expires. These components are not considered different classes of business because of their inter-relation. Three Months Ended Six Months Ended 30th September 30th September 2005 2004 2005 2004 £000 £000 £000 £000 --------- --------- ---------- ----------Turnover Retail equipment and related sales 58,944 62,978 123,513 118,216Retail maintenance 70,210 80,379 145,721 167,556Retail supplies and rental sales 12,448 14,888 26,242 31,074Wholesale sales 10,963 11,407 23,875 24,642 --------- --------- ---------- ---------- 152,565 169,652 319,351 341,488 ========= ========= ========== ========== Gross profitRetail equipment and related sales 17,225 21,187 37,807 41,040Retail maintenance 26,235 32,548 54,009 69,674Retail supplies and rental sales 4,440 5,723 9,994 12,241Wholesale sales 2,038 2,057 4,389 4,625 --------- --------- ---------- ---------- 49,938 61,515 106,199 127,580 ========= ========= ========== ========== 5. Disposal of Canadian, Central and South American operations On 30th June 2005, the Group sold its retail operations in Canada to Pitney Bowes of Canada Limited for $14 million (£7.8 million) cash and a pre-tax gain of 3.1 million was recorded after expenses of £0.4 million. The attributable tax was nil. During the six months ended 30th September 2005, the Canadian operations had cash inflows from operating activities of £0.7 million (six months ended 30th September 2004 - outflows of £1.1 million; year ended 31st March 2005 - outflows of £4.8 million) and cash outflows from investing activities of less than £0.1 million (six months ended 30th September 2004 - £0.1 million; year ended 31st March 2005 - £0.2 million). During the six months ended 30th September 2005, the Canadian operations repaid funding from other Group entities of £0.8 million (six months ended 30th September 2004 - received funding of £0.3 million; year ended 31st March 2005 - received funding of £3.8 million). The cash inflow on the disposal after deducting cash disposed of was £ 6.6 million in the six month period. At 30th June 2005 prior to disposal, the Canadian operations comprised assets of £7.9 million (31st March 2005 - £7.6 million) less liabilities of £3.9 million (31st March 2005 - £3.9 million). The Canadian operations reported revenue of £5.1 million in the quarter ended 30th June 2005 (year ended 31st March 2005 and quarter ended 30th June 2004 - £19.4 million and £5.2 million respectively) and pre- and post-tax losses of £0.4 million in the quarter ended 30th June 2005 (year ended 31st March 2005 and quarter ended 30th June 2004: £4.2 million and £0.5 million respectively). With effect from 31st August 2005, the Group sold its retail operations in Central and South America to Toshiba America Business Solutions, Inc., for $10 million (£5.7 million) cash and a pre-tax loss of £5.5 million was recorded after expenses of £0.6 million. The attributable tax was nil. During the six months ended 30th September 2005, the Central and South America operations had cash outflows from operating activities of £0.8 million (year ended 31st March 2005 - inflows of £1.4 million) and cash outflows from investing activities of £0.5 million (2004 - £1.0 million; 2005 - £1.3 million). The cash inflow on the disposal after deducting cash disposed of was £2.9 million; expenses and anypurchase price adjustment will be settled in the quarter ending 31st December 2005. At 31st August 2005 prior to disposal, the Central and South America operations comprised assets of £16.1 million (31st March 2005 - £15.2 million) less liabilities of £3.6 million (31st March 2005: £3.5 million). The Central and South America operations reported revenue of £7.1 million in the six months ended 30th September 2005 (year ended 31st March 2005 and six months ended 30th September 2004 - £16.1 million and £8.4 million respectively) and pre- and post-tax earnings of £0.4 million in the six months ended 30th September 2005 (year ended 31st March 2005 and six months ended 30th September 2004 - pre-tax £0.8 million and £0.9 million respectively, post-tax £0.1 million and £0.6 million respectively ). 6. Reconciliation of the weighted average number of basic and diluted ordinary shares in issue Three Months Ended Six Months Ended 30th September 30th September --------------------------- ----------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Shares in issue at 1st July / 1st April 254,222,800 251,257,559 254,188,656 250,812,019Effect of shares issued during the period 392,244 174,013 231,337 416,735 --------- --------- --------- ---------Average number of ordinary shares in issue - basic 254,615,044 251,431,572 254,419,993 251,228,754Average outstanding share options - - - - --------- --------- --------- ---------Average number of ordinary shares in issue - diluted 254,615,044 251,431,572 254,419,993 251,228,754 ========= ========= ========= ========= 7. The calculations of the loss per share from continuing operations are based on the loss from continuing operations on ordinary activities after taxation and the basic and diluted weighted average number of ordinary shares in issue during the period as per note 6 above. In order to provide a trend measure of underlying performance, Group loss from continuing operations on ordinary activities after taxation has been adjusted to exclude restructuring expenses and other items unusual because of their nature, size or incidence and basic loss per share recalculated. Outstanding share options have not been considered in dilutive per share computations since the Group is in a loss position for the periods below and to include them would be anti-dilutive. Three Months Ended 30th September 2005 2004 ------------------- ------------------- Pence Pence £000 Per Share £000 Per Share ------- -------- ------- -------- Basic loss from continuing operations (17,350) (6.8) (5,900) (2.3)Unusual items arising in respect of: Restructuring of worldwide operations 1,170 92 Tax effect - - ------ ----- Net of tax effect 1,170 0.4 92 - Disposal of operations 5,531 - Tax effect - - ------ ----- Net of tax effect 5,531 2.2 - - Sales tax credit (2,100) - Tax effect - - ------ ----- Net of tax effect (2,100) (0.8) - - ------- ------- ------- --------Adjusted basic loss from continuing operations (12,749) (5.0) (5,808) (2.3) ======= ======== ======= ======== ------- -------- ------- --------Basic and diluted loss from continuing operations (17,350) (6.8) (5,900) (2.3) ======= ======== ======= ======== ------- -------- ------- --------Adjusted basic and diluted from continuing operations (before unusual items) (12,749) (5.0) (5,808) (2.3) ======= ======== ======= ======== Six Months Ended 30th September 2005 2004 ------------------- ------------------- Pence Pence £000 Per Share £000 Per Share ------- -------- ------- -------- Basic loss from continuing operations (27,873) (11.0) (9,560) (3.8)Unusual items arising in respect of: Restructuring of worldwide operations 4,179 735 Tax effect - - ------ ----- Net of tax effect 4,179 1.6 735 0.3 Disposal of operations 2,426 - Tax effect - - Net of tax effect 2,426 1.0 - - Sales tax credit (2,100) - Tax effect - - ------ ----- Net of tax effect (2,100) (0.8) - - -------- -------- ------- -------Adjusted basic loss from continuing operations (23,368) (9.2) (8,825) (3.5) ======== ======== ======= ======== -------- -------- ------- --------Basic and diluted loss from continuing operations (27,873) (11.0) (9,560) (3.8) ======== ======== ======= ======== -------- -------- ------- --------Adjusted basic and diluted from continuing operations (before unusual items) (23,368) (9.2) (8,825) (3.5) ======== ======== ======= ======== 8. The following shows the computation of free cash flow: Three Months Ended Six Months Ended 30th September 30th September ------------------------ ------------------------ 2005 2004 2005 2004 £000 £000 £000 £000 -------- ------- ------- ------Cash outflow from operating activities (2,659) 13,831 (2,824) 8,037Cash inflow/(outflow) from investing activities 1,458 (1,370) 6,296 (3,710)Less: cash flow from acquisitions and disposals (2,854) - (9,534) - -------- ------- ------- ------Free cash flow (4,055) 12,461 (6,062) 4,327 ======== ======= ======= ====== 9. 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 As at 30th September 31st March ------------------------------------- 2005 2004 2005 £000 £000 £000 ------- --------- ---------Current portion of long-term borrowings 93 965 179Bank loans 129,643 125,788 120,952Convertible loan notes 170,352 154,841 153,528Finance leases 1,923 3,139 2,518Less: cash and cash equivalents (48,323) (58,940) (51,947) ---------- ---------- ----------Net debt 253,688 225,793 225,230 ========== ========== ========== 10. Net cash flow from operating activities Three Months Ended Six Months Ended 30th September 30th September ------------------------- -------------------------- 2005 2004 2005 2004 £000 £000 £000 £000 --------- --------- ---------- ----------Loss before tax (16,813) (5,800) (26,651) (9,560)Restructuring charges 1,170 92 4,179 735Cash paid in respect of restructuring charges (2,623) (4,069) (6,388) (8,689)Depreciation and amortisation 4,418 5,345 9,118 10,866Loss on sale of property and equipment 314 (502) 439 (361)Loss on sale of operations 5,531 - 2,426 -Share-based payments 329 196 550 376Net finance costs 7,618 7,660 15,192 14,951Decrease/(increase) in inventories 4,852 (3,246) (3,392) (6,621)Decrease/(increase) in receivables 7,360 (1,223) 17,637 2,100Increase/(decrease) in payables (14,341) 15,378 (15,336) 4,347Tax paid (474) - (598) (107) --------- --------- --------- ---------Net cash flow from operating activities (2,659) 13,831 (2,824) 8,037 ========= ========= ========= ========= 11. Group Statement of Changes in Equity for the Six Months Ended 30th September 2005 and 2004 and the Year Ended 31st March 2005 30th September 31st March ------------------------------------- 2005 2004 2005 £000 £000 £000 ------- --------- --------- Balance at 1st April (216,747) (178,774) (178,774)Loss for the period (27,873) (9,560) (46,189)Shares issued 203 249 627Share option expense in the period 550 376 1,061Exchange translation differences in the period (16,117) (2,496) 2,947Exchange translation differences related to disposals (127) - -Pension scheme actuarial variations - - 3,581 --------- ---------- ---------Balance at 30th September/30th September/31st March (260,111) (190,205) (216,747) ========= ========== ========= Group Statement of Changes in Equity for the Three Months Ended 30th September2005 and 2004 30th September ----------------------------- 2005 2004 £000 £000 --------- ---------- Balance at 1st July (239,930) (184,885)Loss for the period (17,350) (5,900)Shares issued 195 87Share option expense in the period 329 196Exchange translation differences in the period (3,315) 297Exchange translation differences related to disposals (40) -Pension scheme actuarial variations - - --------- ----------Balance at 30th September (260,111) (190,205) ========= ========== 12. The following are reconciliations of the balance sheets as at 30th September 2004 and 31st March 2005 and the income statement for the three and six months ended 30th September 2005 under UK GAAP as originally reported and under IFRS as restated earlier in this release. Full details of the reconciling items and the Group's IFRS accounting policies are on the Company's website via the Investor Relations page at www.danka.com. Balance sheet As at 30th September As at 31st March 2004 2005 £000 £000 ----------- -----------Net liabilities under UK GAAP as originally reported (29,880) (57,443)Classification of non-equity shares under UK GAAP as liabilities under IFRS (154,841) (153,528)Recognition of pension scheme deficits (5,406) (5,824)Other (78) 48 ----------- -----------Net liabilities under IFRS (190,205) (216,747) ============= ========== Income statement Three Months Ended Six Months Ended 30th September 2004 30th September 2004 £000 £000 ----------- -----------Loss for the period under UK GAAP as originally reported (5,011) (8,259)Additional finance costs due to: Accretion of the equity conversion feature of the participating shares (426) (854)Share option expense (196) (376)Other (267) (71) ----------- -----------Loss for the period under IFRS (5,900) (9,560) =========== =========== 13. Copies of this report will be available from the Company's registered office at Masters House, 107 Hammersmith Road, London W14 0QH. This information is provided by RNS The company news service from the London Stock Exchange