DNK.L Regulatory News (DNK)

6 Nov 2007 13:30

Danka Business Systems PLC06 November 2007 DANKA BUSINESS SYSTEMS PLC ("Danka", the "Company" or the "Group") Announcement of results for the three month and six month periods ended 30th September, 2007 Danka Business Systems PLC, a leading independent provider of office imagingsystems and services, today announced its results for the three months and sixmonths periods ended 30th September, 2007. Following the disposal of the Group'snon U.S. trading operations over the last two financial years, the Group'sresults are now presented in U.S. dollars, as described in note 2. Dankareported operating earnings from continuing operations of $0.3 million in thequarter ended 30th September, 2007, compared to $1.8 million in the prior year.For the six months ended 30th September, 2007, the Group reported operatingearnings from continuing operations of $2.8 million, compared to losses of $3.9million in the prior year. As previously reported, on 22nd June, 2007, the Group completed its newfinancing arrangement for $145 million in term and revolver debt. On 23rd July,2007, these funds were combined with the proceeds from the sale of Europe torepay the existing debt. For the second quarter: • Total revenue from continuing operations was $105.2 million, 3.5% lower than the prior year quarter and down 1.0% sequentially. Retail equipment, supplies and related sales were $47.5 million for the quarter, down 1.1% from the prior year but up 3.0% sequentially. Service revenue was $54.6 million, down 5.8% from the prior year and down only 4.6% sequentially. • Consolidated gross margin for the quarter was 34.9%, up 50 basis points from the prior year for continuing operations but down 120 basis points from the prior quarter. • Operating expenses (distribution costs plus administrative expenses) for continuing operations were $37.3 million, down 0.3% from the prior year and up 2.6% sequentially. There was a credit in respect of restructuring of $0.6 million and other income was $0.3 million. • For the quarter, the Group generated operating earnings from continuing operations of $0.3 million. • Net interest expense was $11.6 million, there was a tax credit of $0.1 million and a loss from discontinued operations of $0.7 million. The above resulted in a net loss of $12.0 million for the quarter as compared to net losses of $12.6 million for continuing operations in the prior year quarter and a $27.5 million loss in the preceding quarter. • The adjusted net loss for the quarter from continuing operations excluding items relating to restructuring, the debt refinancing and the disposal of operations was $12.3 million, compared to an adjusted net loss of $14.4 million last year. "Despite a disappointing quarter, notably in our services business, the Companymaintained positive operating earnings. We also began to derive the expectedbenefits from the recently completed financial restructuring and relatedcost-reduction measures," said A.D. Frazier, Danka's Chairman and ChiefExecutive Officer. "Now we can focus squarely on growing our lines of business efficiently andprofitably. We expect to complete in the weeks ahead, two significant strategicrelationship agreements that could begin to favorably impact the financialperformance of both our hardware and service lines of business as soon as thefourth quarter of the financial year ending 31st March, 2008fiscal year 2008.Internally, over the weeks ahead we will begin the process of realigning ourexisting business units into one unified organization under the leadership ofour President of Operations Bill Troxil, who has led our East Regional BusinessUnit since April 2006. And we will continue to refine our go-to-marketstrategies - in conjunction with strong support from our vendors - as weincrease our already strong presence in the highly desirable small- andmedium-sized enterprise market," concluded Frazier. For the first six months: • Total revenue from continuing operations was $211.5 million, down 8.5% from the prior year. Retail equipment, supplies and related sales were $93.7 million, down 8.2% from the prior year, while service revenue was $111.8 million, down 7.5% from the prior year. • Consolidated gross margin was 35.6%, down 20 basis points from the prior year for continuing operations. • Operating expenses for continuing operations were $73.7 million, down $4.4 million or 5.6% from the prior year. • For the first six months, the Group generated operating earnings from continuing operations of $2.8 million. • Net interest expense was $35.9 million, including costs related to the early extinguishment of debt of $9.7 million, tax expense was $4.9 million and the loss from discontinued operations was $1.4 million. These resulted in a net loss of $39.4 million as compared to a net loss from continuing operations of $32.6 million in the prior year. Conference Call and Webcast A conference call and Webcast to discuss Danka's results has been scheduled fortoday, 6th November, at 3:00 p.m. UK time. To access the Webcast, please go towww.danka.com. To participate in the conference call, callers in the UnitedStates and Canada (and some United Kingdom callers) can dial (+1)-800-309-1555.Other international callers should dial (+1)-706-643-7754. Reference conferenceID #21210684 when prompted. A recording of the call will be availableapproximately two hours after it is completed until 5:00am on 11th November,2007. To access this recording, please call either (+1)-800-642-1687 or (+1)-706-645-9291 (conference ID #10126364) or visit Danka's website. - ends - For further information please contact:Danka Business Systems PLCCheley Howes, Danka Investor Relations 001 727 622 2760 Weber Shandwick FinancialJames Chandler/Georgia Dempsey 020 7067 0700 About Danka Danka delivers value to clients by using its expert technical and professionalservices to implement effective document information solutions. As one of thelargest independent providers of enterprise imaging systems and services, theGroup enables choice, convenience and continuity. Danka's vision is to empowercustomers to benefit fully from the convergence of image and documenttechnologies in a connected environment. This approach will strengthen theGroup's client relationships and expand its strategic value. For moreinformation, visit Danka at www.danka.com. Certain statements contained herein, or otherwise made by the Group's officers,including statements related to the Group's future performance and the outlookfor the Group's businesses and respective markets, projections, statements ofthe Group's plans or objectives, forecasts of market trends and other matters,are forward-looking statements, and contain information relating to the Groupthat is based on the Group's beliefs as well as assumptions, made by, andinformation currently available to the Group. The words "goal", "anticipate","expect", "believe", "could", "should", "intend" and similar expressions as theyrelate to the Group are intended to identify forward-looking statements,although not all forward looking statements contain such identifying words. Noassurance can be given that the results in any forward-looking statement will beachieved. For the forward-looking statements, the Group claims the protection ofthe safe harbour for forward-looking statements provided for in the PrivateSecurities Litigation Reform Act of 1995, Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, or theExchange Act. Such statements reflect the Group's current views with respect tofuture events and are subject to certain risks, uncertainties and assumptionsthat could cause actual results to differ materially from those reflected in theforward-looking statements. Factors that might cause such actual results todiffer materially from those reflected in any forward-looking statementsinclude, but are not limited to, the following: (i) any inability to implementthe Group's strategy successfully; (ii) any inability to implement the Group'scost restructuring plans successfully to achieve and maintain cost savings;(iii) any inability to comply with the Sarbanes-Oxley Act of 2002; (iv) anymaterial adverse change in financial markets, the economy or in the Group'sfinancial position; (v) increased competition in the Group's industry and thediscounting of products by competitors; (vi) new competition fromnon-traditional competitors as the result of evolving and converging technology;(vii) any inability by the Group to procure, or any inability by the Group tocontinue to gain access to and distribute successfully current and new products,including digital products, colour products, multi-function products andhigh-volume copiers, or to continue to bring current products to the marketplaceat competitive costs and prices; (viii) any inability to arrange financing forthe Group's customers' purchases of equipment from the Group; (ix) any inabilityto enhance successfully, unify and utilise effectively the Group's managementinformation systems; (x) any inability to access vendor or bank lines of credit,which could adversely affect the Group's liquidity; (xi) any inability to recordand process key data due to ineffective implementation of business processes andpolicies; (xii) any negative impact from the loss of a key vendor or customer;(xiii) any negative impact from the loss of any of the Group's senior or keymanagement personnel; (xiv) any change in economic conditions in markets wherethe Group operates or has material investments which may affect demand for theGroup's products or services; (xv) any incurrence of tax liabilities or taxpayments beyond the Group's current expectations, which could adversely affectthe Group's liquidity and profitability; (xvi) any inability to comply with theGroup's new GE covenants, financial or other representations, warranties, ormaturities in the Group's debt instruments; (xvii) any delayed or lost sales orother impacts related to the commercial and economic disruption caused bynatural disasters, including hurricanes; (xviii) any delayed or lost sales andother impacts related to the commercial and economic disruption caused byterrorist attacks, the related war on terrorism, and the fear of additionalterrorist attacks; (xix) other risks including those risks identified in any ofthe Group's filings with the Securities and Exchange Commission. Readers arecautioned not to place undue reliance on these forward-looking statements, whichreflect the Group's analysis only as of the date they are made. Except asrequired by applicable law, the Group undertakes no obligation, and does notintend, to update these forward-looking statements to reflect events orcircumstances that arise after the date they are made. Furthermore, as a matterof policy, the Group does not generally make any specific projections as tofuture earnings, nor does it endorse any projections regarding futureperformance, which may be made by others outside the Group. The financial information for the three month and six month periods ended 30thSeptember, 2007 is unaudited and not reviewed. The financial information for allperiods presented does not constitute full accounts within the meaning ofSection 240 of the Companies Act 1985. However, the financial information forsuch periods is prepared on the same basis as the financial information for theyear ended 31st March, 2007. The financial information for the year ended 31stMarch, 2007 has been extracted from the audited accounts for the year ended 31stMarch, 2007, as translated into U.S. dollars as described in note 2, which havebeen filed with the Registrar of Companies. The report of the auditors wasunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. 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 bank loans(included embedded derivatives) plus long-term debt and bank loans less cash andcash equivalents. These measures are non-IFRS financial measures, defined asnumerical measures of the Group's financial performance that exclude or includeamounts so as to be different than the most directly comparable measurecalculated and presented in accordance with International Financial ReportingStandards, or IFRS, in the Group's income statement, balance sheet or cash flowstatement. The notes to this press release provide a reconciliation of thesenon-IFRS financial measures to the most directly comparable IFRS financialmeasures. Although free cash flow and net debt represent non-IFRS financial measures,Danka considers these measures to be key operating metrics of the Group. Dankauses these measures in its planning and budgeting processes, to monitor andevaluate the Group's financial and operating results and to measure performanceof its separate divisions. Danka also believes that free cash flow and net debtare useful to investors because they provide an analysis of financial andoperating results using the same measures that Danka uses in evaluating theGroup. Danka expects that such measures provide investors with the means toevaluate the Group's financial and operating results against other companieswithin the industry. Danka believes that these measures are meaningful toinvestors in evaluating the Group's ability to meet its future debt servicerequirements and to fund its capital expenditures and working capitalrequirements. The calculation of free cash flow and net debt may not beconsistent with the calculation of these measures by other companies in theindustry. 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 the Group's operating performance or cashflows from operating activities as a measure of liquidity or any other measuresof performance 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 Months Ended 30th September 2007 and 2006 Three Months Ended 30th September Income Income statement statement 2007 Continuing Discontinued Total Operations Operations 2006 2006 2006 Note $000 $000 $000 $000 __________________________________________________Revenue 4 105,245 109,022 124,701 233,723Cost of sales (68,480) (71,551) (85,699) (157,250) ____________________________________________Gross profit 4 36,765 37,471 39,002 76,473 Distribution costs (18,682) (14,677) (15,861) (30,538)Administrative expenses (18,645) (22,767) (18,599) (41,366)Other operating income 256 - - -Other operating expense - (14) - (14)Restructuring cost release/(expense) 556 1,712 (1,992) (280)Net gain on sale of operations 5 - 82 - 82 ____________________________________________Profit from operations before tax and finance items 4 250 1,807 2,550 4,357 Investment revenue 1,199 13 152 165 ____________________________________________Recurring finance costs (13,214) (14,289) (706) (14,995)Adjustment to finance costs relating to theearly extinguishment ofdebt 9 447 - - - ____________________________________________Total finance costs (12,767) (14,289) (706) (14,995) ____________________________________________(Loss)/profit from operations before tax (11,318) (12,469) 1,996 (10,473) Tax - overseas 57 (99) 109 10 ____________________________________________(Loss)/profit from operations after tax 4 (11,261) (12,568) 2,105 (10,463) Gain on disposal of discontinued operations 5 - - 8,652 8,652 ____________________________________________(Loss)/profit from operations for the period (11,261) (12,568) 10,757 (1,811) ====================Result from discontinued operations 5 (710) 10,757 _____________________Loss from operations for the period andattributable to equityholders of the parent (11,971) (1,811) ===================== (Loss)/earnings per share: 7 ____________________________________________Basic from continuing operations (4.4) (4.9)Basic from discontinued operations (0.2) 4.2 ____________________________________________Basic from total operations (4.6) (0.7) ____________________________________________Diluted from continuing operations (4.4) (4.9)Diluted from discontinued operations (0.2) 4.2 ____________________________________________Diluted from total operations (4.6) (0.7) ____________________________________________Average exchange rate $1= £0.534 =========Average exchange rate $1= €0.785 ========= Group Income Statement For the Six Months Ended 30th September 2007 and 2006 Six Months Ended 30th September Income Income statement statement 2007 Continuing Discontinued Total Operations Operations 2006 2006 2006 Note $000 $000 $000 $000 __________________________________________________Revenue 4 211,519 231,071 263,382 494,453Cost of sales (136,307) (148,367) (181,197) (329,564) ____________________________________________Gross profit 4 75,212 82,704 82,185 164,889 Distribution costs (37,323) (30,102) (33,481) (63,583)Administrative expenses (36,396) (47,972) (39,274) (87,246)Other operating income 1,202 - - -Other operating expense - (96) - (96)Restructuring cost release/(expense) 59 (5,832) (3,490) (9,322)Net loss on sale of operations 5 - (2,622) - (2,622) ____________________________________________Profit/(loss) from operations before tax and finance items 4 2,754 (3,920) 5,940 2,020 Investment revenue 3,048 37 340 377 ____________________________________________Recurring finance costs (29,225) (28,492) (1,168) (29,660)Finance costs relating to the early extinguishment of debt 9 (9,690) - - - ____________________________________________Total finance costs (38,915) (28,492) (1,168) (29,660) ____________________________________________(Loss)/profit from operations before tax (33,113) (32,375) 5,112 (27,263) Tax - overseas (4,907) (198) 1,784 1,586 ____________________________________________(Loss)/profit from operations after tax 4 (38,020) (32,573) 6,896 (25,677) Gain on disposal of discontinued operations 5 - - 8,652 8,652 ____________________________________________(Loss)/profit from operations for the period (38,020) (32,573) 15,548 (17,025) ====================Result from discontinued operations 5 (1,429) 15,548 _____________________Loss from operations for the period andattributable to equityholders of the parent (39,449) (17,025) =====================(Loss)/earnings per share: 7 ____________________________________________Basic from continuing operations (14.7) (12.7)Basic from discontinued operations (0.5) 6.1 ____________________________________________Basic from total operations (15.2) (6.6) ____________________________________________Diluted from continuing operations (14.7) (12.7)Diluted from discontinued operations (0.5) 6.1 ____________________________________________Diluted from total operations (15.2) (6.6) ____________________________________________ Average exchange rate $1= £0.540 =========Average exchange rate $1= €0.790 ========= Danka Business Systems PLC Group Balance Sheet 30th September 31st March 2007 2007 $000 $000 __________ __________Non-current assetsIntangible assets and goodwill 484 484Property, plant and equipment and equipment on operating leases 28,106 31,880Other 9,337 8,014 __________ __________ 37,927 40,378 __________ __________Current assetsInventories 31,051 31,681Prepaid expenses 2,660 1,474Trade and other receivables 43,441 60,842Cash and cash equivalents including restricted cash of $17,841,000 (March 2007 - $168,979,000) - note 9 25,021 186,573 __________ __________ 102,173 280,570 __________ __________ Total assets 140,100 320,948 __________ __________ Current liabilitiesTrade and other payables (55,886) (68,384)Tax liabilities (9,599) (6,317)Obligations under finance leases (622) (602)Current portion of long-term borrowings - note 9 (20,524) (183,009)Derivative financial instruments (2,242) (2,242)Deferred revenue (5,540) (5,875)Accrued expenses (25,946) (42,179)Short-term provisions (3,424) (3,691) __________ __________ (123,783) (312,299) __________ __________ Non-current liabilitiesBank and other loans (99,566) (63,941)Convertible participating shares (344,811) (331,104)Deferred tax liabilities - -Long-term provisions - (1,768)Obligations under finance leases (107) (423)Other (2,747) (3,328) __________ __________ (447,231) (400,564) __________ __________ Total liabilities (571,014) (712,863) __________ __________ Net liabilities (430,914) (391,915) ========== ==========EquityCapital 319,337 319,238Share options 7,115 6,764Translation reserve - -Retained earnings (757,366) (717,917) __________ __________Total equity (430,914) (391,915) ========== ========== Danka Business Systems PLC Group Cash Flow Statement For the Three Months Ended 30th September 2007 and 2006 30th September ________________________ 2007 2006 Note $000 $000 _____________ __________ Net cash outflow from operating activities 10 (2,193) (9,415) Cash flows from investing activitiesInterest received 1,199 165Capital expenditure (2,184) (4,626)Net (payments related to)/proceeds from sale of operations (710) 11,594Held for sale cash and cash equivalents - (38,350)Proceeds from sale of property, plant and equipment and equipment on operating leases 169 495 __________ __________Net cash from investing activities (1,526) (30,722) __________ __________ Cash flows from financing activitiesNet borrowings/(repayments) under line of credit agreements 4,858 (8)Proceeds from issue of long-term loans - -Repayment of senior and subordinated notes (249,058) -Payment of debt issue costs (256) -Capital payments under finance leases (150) (428)Interest paid (6,352) (1,411)Proceeds from new shares issued - - __________ __________Net cash from financing activities (250,958) (1,847) __________ __________ Net decrease in cash and cash equivalents (254,677) (41,984)Cash and cash equivalents at 1st July 279,698 61,751Effect of exchange rate fluctuations on cash held - (1,021) __________ __________Cash and cash equivalents at 30th September 25,021 18,746 ========== ========== Included above in respect of discontinuedoperations:Net cash outflow from operating activities - (8,675)Net cash from investing activities (710) (27,720)Net cash from financing activities - (794) ========== ========== Group Cash Flow Statement For the Six Months Ended 30th September 2007 and 2006 30th September ________________________ 2007 2006 Note $000 $000 _____________ __________ Net cash outflow from operating activities 10 (15,298) (9,293) Cash flows from investing activitiesInterest received 3,048 377Capital expenditure (3,908) (7,812)Net proceeds from sale of operations 11,071 11,594Held for sale cash and cash equivalents - (38,350)Proceeds from sale of property, plant and equipment and equipment on operating leases 1,706 711 __________ __________Net cash from investing activities 11,917 (33,480) __________ __________ Cash flows from financing activitiesNet borrowings under line of credit agreements 9,402 986Proceeds from issue of long-term loans 105,000 -Repayment of senior and subordinated notes (249,058) -Payment of debt issue costs (3,589) -Capital payments under finance leases (296) (857)Interest paid (19,630) (15,323)Proceeds from new shares issued - - __________ __________Net cash from financing activities (158,171) (15,194) __________ __________Net decrease in cash and cash equivalents (161,552) (57,967)Cash and cash equivalents at 1st April 186,573 74,997Effect of exchange rate fluctuations on cash held - 1,716 __________ __________Cash and cash equivalents at 30th September 25,021 18,746 ========== ========== Included above in respect of discontinuedoperations:Net cash outflow from operating activities - (4,008)Net cash from investing activities 11,071 (29,044)Net cash from financing activities - (1,342) ========== ========== Danka Business Systems PLC Group Statement of Recognised Income and Expense For the Three Months Ended 30th September 2007 and 2006 30th September __________________________ 2007 2006 $000 $000 __________________________ Loss for the period (11,971) (1,811) __________________________Income and expense taken directly toequity:Exchange translation differences in the period - 79Exchange translation differences related to disposals recycled to the incomestatement - -Actuarial gains on defined benefit pension plans - -Tax on items taken directly to or transferred from equity - - __________________________Total of income and expense taken directly to equity - 79 __________________________Total recognised income and expense for the period (11,971) (1,732) ========================== Danka Business Systems PLC Group Statement of Recognised Income and Expense For the Six Months Ended 30th September 2007 and 2006 and Year Ended 31st March 2007 30th September 31st March __________________________________ 2007 2006 2007 $000 $000 $000 (Loss)/income for the period/year (39,449) (17,025) 95,249 __________________________________Income and expense taken directly toequity:Exchange translation differences in the period/year - 1,315 9,081Exchange translation differences related to disposals recycled to the incomestatement - - (3,861)Actuarial gains on defined benefit pension plans - - 4,270Tax on items taken directly to or transferred from equity - - - __________________________________Total of income and expense taken directly to equity - 1,315 9,490 __________________________________Total recognised income and expense for the period/year (39,449) (15,710) 104,739 ================================== Notes to the Financial Information 1. The financial information for the three month and six month periodsended 30th September, 2007 is unaudited and not reviewed. The financialinformation for all periods presented does not constitute full accounts withinthe meaning of Section 240 of the Companies Act 1985. However, the financialinformation for such periods is prepared on the same basis as the financialinformation for the year ended 31st March, 2007. The financial information forthe year ended 31st March, 2007 has been extracted from the audited accounts forthe year ended 31st March, 2007, as translated into U.S. dollars as described innote 2, which have been filed with the Registrar of Companies. The report of theauditors 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 UnitedKingdom. This preliminary announcement consists of the consolidated interimfinancial statements of the Company for the three months and six months ended30th September, 2007 and 2006, which comprise the Company and its subsidiaries(together referred to as the "Group"). The preliminary announcement wasauthorised for issuance on 6th November, 2007. Basis of preparation The financial statements have been prepared in conformity with currentapplicable IFRS accounting standards as more fully described below. The financial statements are presented in U.S. dollars and all values in tablesare rounded to the nearest thousand dollars ($000) except where otherwiseindicated as the functional currency of substantially all of the Group'scompanies is the U.S. dollar. This represents a change, the impact of which hasbeen to recalculate the translation reserve and related accounting entries, aswell as to convert amounts previously presented at the appropriate year-end oraverage exchange rates. Accounting policies This financial information has been prepared on the basis of the recognition andmeasurement requirements of IFRS accounting standards in issue that are endorsedby the EU and effective (or available for early adoption) at 31st March, 2008.The accounting policies have been applied consistently throughout the Group forthe purposes of these consolidated interim financial statements. The income statement comprises the loss for the period/year from continuingoperations plus the loss/profit for the period/year from discontinued operationsattributable to the equity holders of the parent. Restructuring costs, the netloss/gain on sale of operations and the finance costs attributable to the earlyextinguishment of debt have been separately disclosed on the face of the incomestatement in accordance with IAS 1 in order to assist the assessment offinancial performance owing to their materiality and infrequent nature. Risks and uncertainties and related party transactions The directors draw the attention of the reader to the disclosures on pages 3-5and 82-83 of the financial statements for the year ended 31st March, 2007 inrespect of risks and uncertainties and related party transactions which remainmaterially unchanged since the approval of those financial statements, exceptfor the risks in respect of indebtedness following the refinancing. Indebtedness-At 30th September, 2007, the Group had consolidated indebtedness of$467.9 million, including current maturities of long-term debt and notes payableof $23.4 million. The Group's indebtedness includes $119.5 million ofindebtedness under its credit facilities with General Electric CapitalCorporation ("GECC"). The amount of the Group's indebtedness could have important consequences toDanka, including the following: • use of a portion of the Group's cash flow to pay interest on its indebtedness will reduce the availability of its cash flow and liquidity to fund working capital, capital expenditures, strategic initiatives, restructuring and other business activities, including its ability to keep pace with the technological, competitive and other changes currently affecting the industry; • increase the Group's vulnerability to general adverse economic and industry conditions; • limit the Group's flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; • limit the Group's ability in making strategic acquisitions or exploiting business opportunities; and • limit the Group's operational flexibility, including the ability to borrow additional funds, access supplier credit lines, or dispose of assets. The credit agreements governing the Group's financing agreements containcustomary financial covenants with which the Group must comply on a quarterlybasis relating to its leverage ratios, fixed charge coverage ratio, cumulativeearnings before interest, tax, depreciation and amortisation as measured underU.S. generally accepted accounting principles ("EBITDA") and an annual capitalexpenditure threshold. The borrowing base related to the new financing arrangements with GECC issubject to certain multiples of adjusted EBITDA as more fully described in thecredit agreements and, therefore, the cash availability that the Group has underthe financing arrangements is reliant on the Group meeting these adjusted EBITDAmultiples. Compliance statement This half-yearly financial information has been prepared in accordance with IAS34 as adopted by the EU. 3. Seasonality of operations The Group's operations historically experienced lower revenue during the secondquarter (ending 30th September) of the financial year. This was primarily due toincreased holiday taken by European residents during July and August (affectingdiscontinued operations in the prior year) and lower levels of retailmaintenance revenue from United States governmental agencies (affectioncontinuing operations). This historically resulted in reduced sales activity andreduced usage of photocopiers, facsimiles and other office imaging equipmentduring the second quarter. Accordingly, the results of operations for theinterim periods were not necessarily indicative of the results which could havebeen expected for the entire financial year. 4. Analysis of revenue and gross profit and segmental information -continuing operations only The Group operates in one business segment, being the supply and servicing ofoffice equipment and the provision of related services. The following tableprovides for continuing operations only additional analysis of the components ofrevenue and of gross profit of the single business segment, where the sale orrental of equipment normally includes a service contract and the purchase ofsupplies once the contract expires. These components are not considereddifferent classes of business because of their inter-relation. Three Months Ended 30th Six Months Ended 30th September September __________________________________________________ 2007 2006 2007 2006 $000 $000 $000 $000 __________________________________________________RevenueRetail equipment, supplies and related sales 47,527 48,030 93,689 102,109Retail maintenance 54,585 57,963 111,814 120,903Retail rental sales 3,133 3,029 6,016 8,059 __________________________________________________ 105,245 109,022 211,519 231,071 ==================================================Gross profitRetail equipment, supplies and related sales 14,112 13,477 28,067 29,167Retail maintenance 21,053 21,614 43,981 47,311Retail rental sales 1,600 2,380 3,164 6,226 __________________________________________________ 36,765 37,471 75,212 82,704 ================================================== The Group's primary segment reporting format is determined to be geographical asthe Group's risks and rates of return are affected predominantly by the factthat it has operated in different geographical areas. Following thereclassification of Europe/Australia to discontinued operations (note 5), theUnited States is the only primary reportable segment. The Group is managedthrough its administrative centres in the U.S. and, until recently, the U.K.,identified as Corporate below. The Corporate costs comprise salaries and directcosts incurred in maintaining the administrative centres. In the prior year, itwas not appropriate to allocate these costs between the primary segment and thediscontinued operations. For the three months and six months ended 30th September, 2007: Three Months Ended Six Months Ended 30th September 30th September _______________________ _______________________ 2007 2006 2007 2006 $000 $000 $000 $000 _________ _________ _________ _________RevenueUnited States 105,245 109,022 211,519 231,071 ========= ========= ========= ========= Three Months Ended Six Months Ended 30th September 30th September _______________________ _______________________ 2007 2006 2007 2006 $000 $000 $000 $000 _________ _________ _________ _________Segment resultUnited States 3,046 5,784 6,945 4,741Corporate (2,796) (3,977) (4,191) (8,661) _________ _________ _________ _________Profit/(loss) before tax and finance costs 250 1,807 2,754 (3,920)Investment revenue 1,199 13 3,048 37Finance costs (12,767) (14,289) (38,915) (28,492)Tax 57 (99) (4,907) (198) _________ _________ _________ _________Total loss from continuing operations (11,261) (12,568) (38,020) (32,573) ========= ========= ========= ========= 5. Disposal of operations Year ended 31st March, 2007 With effect from 30th June, 2006, the Group sold its Image One subsidiary fornil and a pre-tax loss of $2.4 million was recorded. The attributable tax wasnil. The trading results and cashflows of Image One had been integrated withinthe financial information for the United States segment as a whole and cannot beseparately identified; however, the results and cashflows were not material tothe financial information for the United States segment. At 30th June, 2006prior to disposal, Image One comprised assets of $4.4 million less liabilitiesof $2.0 million. During the quarter ended 30th June, 2006, additional expenses were recorded inrespect of the Group's prior year disposals in the amount of $0.3 million. Thenet loss in respect of those disposals was reduced in the quarter ended 30thSeptember, 2006 by $0.1 million, but increased in the quarter ended 31stDecember, 2006 by $0.2 million. In the quarter ended 31st March, 2007,additional expenses and various write-offs were recorded in respect of thesedisposals in the amount of $1.4 million. With effect from 31st August, 2006, the Group sold its Australian operations toOnesource Group Limited for $12.8 million cash and a pre-tax gain of $8.7million was recorded in the three months ended 30th September, 2006 afterexpenses of $0.3 million. The attributable tax was nil. The Australianoperations are disclosed as discontinued operations. During the year ended 31stMarch, 2007, the Australian operations had cash inflows from operatingactivities of $1.5 million and cash inflows from investing activities of $11.0million (including $11.6 million net cash proceeds on the sale). During the yearended 31st March, 2007, the Australian operations had cash outflows fromfinancing activities of $12.7 million, relating to funding from other Groupentities. The cash inflow on the disposal after deducting cash disposed of andthe costs of the disposal was $11.6 million, which was recorded in the quarterended 30th September, 2006. At 31st August, 2006 prior to disposal, the Australian operations comprisedassets of $15.1 million less liabilities of $11.0 million. The Australianoperations reported revenue of $22.5 million and pre- and post-tax profits of$0.6 million (excluding the gain on sale) in the year ended 31st March, 2007. With effect from 31st January, 2007, the Group sold its European operations toRicoh for $215.0 million of which $210 million had been received in cash(subject to a $7.5 million holdback) and a further $5 million, being a workingcapital adjustment, was due for receipt after 31st March, 2007. A pre-tax gainof $143.7 million was recorded in the three months ended 31st March, 2007 afterexpenses of $13.8 million and the recycling of foreign exchange gains of $3.6million. The attributable tax was nil. The European operations are disclosed asdiscontinued operations. During the year ended 31st March, 2007, the Europeanoperations had cash inflows from operating activities and investing activitiesof $7.5 million and $148.5 million (including $157.0 million net cash proceedson the sale) respectively. During the year ended 31st March, 2007, the Europeanoperations had cash outflows from financing activities of $203.5 million,principally relating to funding to other Group entities (external financing cashoutflows were $2.9 million in the year ended 31st March, 2007). The cash inflowon the disposal after deducting the $5.0 million due in respect of the workingcapital adjustment, the holdback, cash disposed of and the costs of the disposalwas $157.0 million, which was recorded in the quarter ended 31st March, 2007. At 31st January, 2007 prior to disposal, the European operations comprisedassets of $236.5 million less liabilities of $179.9 million. The Europeanoperations reported revenue of $410.7 million and pre- and post-tax profits of$6.7 million and $14.5 million respectively in the year ended 31st March, 2007(excluding the gain on sale). Year ending 31st March, 2008 During the quarter ended 30th June, 2007, the Group incurred a further $0.7million of costs relating to the disposal of prior year discontinued operationsand a further $0.7 million in the quarter ended 30th September, 2007. Theholdback and working capital adjustment totalling $12.5 million referred toabove 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 Six Months Ended 30th September 30th September _________________________ _________________________ 2007 2006 2007 2006 ___________ ___________ ___________ ___________ Shares in issue at 1st July/ April 258,899,852 256,529,024 258,899,852 256,529,024Effect of shares issued during the period 229,641 - 198,420 - ___________ ___________ ___________ ___________Average number of ordinary shares in issue - basic 259,129,493 256,529,024 259,098,272 256,529,024Average outstanding share options - - - -Convertible participating shares - - - - ___________ ___________ ___________ ___________Average number of ordinary shares in issue - diluted 259,129,493 256,529,024 259,098,272 256,529,024 =========== =========== =========== =========== 7. The calculations of the loss/earnings per share from continuing anddiscontinued operations respectively are based on the loss/profit from continuing/discontinued operations respectively after taxation and the basicand 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 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 and convertible participating shares have only been considered in dilutive per share computations when the Group has reported a profit from continuing operations, in accordance with IAS 33. The Group has reported losses from continuing operations for all periods presented in this announcement. Three Months Ended 30th September 2007 2006 _________________ _________________ Cents Cents Per Per $000 Share $000 Share _______ _______ _______ _______Basic loss from continuing operations (11,261) (4.4) (12,568) (4.9)Unusual items arising inrespect of:Restructuring of worldwide operations (556) (1,712)Tax effect - - ______ ______Net of tax effect (556) (0.2) (1,712) (0.7)Disposal of operations - (82)Tax effect - - ______ ______Net of tax effect - - (82) -Early extinguishment of debt (447) -Tax effect - - ______ ______Net of tax effect (447) (0.2) - - ______ ______ ______ ______Adjusted basic loss from continuing operations (12,264) (4.8) (14,362) (5.6) ====== ====== ====== ====== Diluted loss from continuing operations (11,261) (4.4) (12,568) (4.9) ====== ====== ====== ====== Adjusted diluted loss from continuing operations (before unusual items) (12,264) (4.8) (14,362) (5.6) ====== ====== ====== ======Basic and diluted (loss)/ earnings from discontinued operations (710) (0.2) 10,757 4.2 ====== ====== ====== ======Basic and diluted loss from total operations (11,971) (4.6) (1,811) (0.7) ====== ====== ====== ====== Six Months Ended 30th September 2007 2006 _________________ _________________ Cents Cents Per Per $000 Share $000 Share _______ _______ _______ _______ Basic loss from continuing (38,020) (14.7) (32,573) (12.7)operationsUnusual items arising inrespect of:Restructuring of worldwide operations (59) 5,832Tax effect - - _______ _______Net of tax effect (59) - 5,832 2.3Gain on sale of property (923) -Tax effect - - _______ _______Net of tax effect (923) (0.3) - -Disposal of operations - 2,622Tax effect - - _______ _______Net of tax effect - - 2,622 1.0Early extinguishment of debt 9,690 -Tax effect - - _______ _______ Net of tax effect 9,690 3.7 - - ______ ______ ______ ______Adjusted basic loss from continuing operations (29,312) (11.3) (24,119) (9.4) ====== ====== ====== ====== Diluted loss from continuing operations (38,020) (14.7) (32,573) (12.7) ====== ====== ====== ====== Adjusted diluted loss from continuing operations (before unusual items) (29,312) (11.3) (24,119) (9.4) ====== ====== ====== ======Basic and diluted (loss)/ earnings from discontinued operations (1,429) (0.5) 15,548 6.1 ====== ====== ====== ======Basic and diluted loss from total operations (39,449) (15.2) (17,025) (6.6) ====== ====== ====== ====== 8. The following shows the computation of free cash flow: Three Months Ended Six Months Ended 30th September 30th September _______________________ _______________________ 2007 2006 2007 2006 $000 $000 $000 $000 _________ _________ _________ _________ Cash outflow from operating (2,193) (9,415) (15,298) (9,293)activitiesCash (outflow)/inflow from investing activities (1,526) (30,722) 11,917 (33,480)Less: cash flow from acquisitions and disposals 710 26,756 (11,071) 26,756Less: cash outflow from operating activities of discontinued operations - 8,675 - 4,008Less: cash outflow/(inflow) from investing activities of discontinued operations 710 27,720 (11,071) 29,044Add back: cash flow from acquisitions and disposals of discontinued operations (710) (26,756) 11,071 (26,756) _________ _________ _________ _________ Free cash flow - continuingoperations (3,009) (3,742) (14,452) (9,721) ========= ========= ========= ========= 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 2007 2007 $000 $000 ______________________Current portion of long-term borrowings 20,524 183,009Non-current bank loans 99,566 63,941Convertible participating shares including derivative financial instruments 347,053 333,346Finance leases 729 1,025Less: cash and cash equivalents (25,021) (186,573) ______________________Net debt 442,851 394,748 ====================== Restricted cash for the Group at 30th September, 2007 totalled $17,841,000 (31stMarch, 2007 - $168,979,000) and comprises the following: $nil (31st March, 2007- $151.8 million) of the net proceeds of the sale of the European businessesused in repaying the 11% senior notes as described below; $15.8 million cash(31st March, 2007 - $15.8 million) of the European sale proceeds required to bekept in an escrow account by the Group's credit facility; and collateralisationof the Group's letters of credit held by other financial institutions totalling$2.0 million and $1.4 million as at 30th September, 2007 and 31st March, 2007respectively. On 25th June, 2007, the Group completed a new financing arrangement with GECapital Corporation for $145 million. The Credit Facility includes a $40 millionsenior secured revolving credit facility. Proceeds from this financing were usedin conjunction with the proceeds of the Group's previously completed sale of itsEuropean businesses to reduce and refinance the Group's existing debt andenhance working capital. On 27th July, 2007, the Group's 11% senior notes and 10% subordinated notes("the Notes") were redeemed and paid. During the period in the financial yearprior to redemption, the Group accrued the $9.4 million call premium on theredemption of the senior notes. The charge relating to the accrual of the callpremium and sundry costs relating to the refinanced debt are disclosedseparately on the face of the income statement. 10. Net cash flow from operating activities Three Months Ended Six Months Ended 30th September 30th September _______________________ _______________________ 2007 2006 2007 2006 $000 $000 $000 $000 _________ _________ _________ _________ Loss before tax (11,318) (10,473) (33,113) (27,263)Restructuring cost (release)/expense (556) 280 (59) 9,322Cash paid in respect of restructuring charges (1,050) (3,837) (2,007) (7,461)Depreciation and amortisation 3,231 5,296 6,695 11,293Loss/(gain) on sale of property, plant and equipment and equipmenton operating leases 196 (231) (720) (331)(Gain)/loss on sale of operations - (82) - 2,622Share-based payments and shares issued for nil consideration asremuneration 275 - 450 -Net finance costs 11,568 14,830 35,867 29,283Decrease/(increase) in inventories 1,800 (3,171) 630 (10,173)(Increase)/decrease in receivables (8,596) 9,230 (2,764) 4,515Increase/(decrease) in payables and retirement benefit obligations 2,253 (20,475) (18,577) (19,984)Tax recovered/(paid) 4 (782) (1,700) (1,116) _________ _________ _________ _________Net cash flow from operating activities (2,193) (9,415) (15,298) (9,293) ========= ========= ========= ========= 11. Group Statement of Changes in Equity for the Three Months and Six MonthsEnded 30th September, 2007 and the Year Ended 31st March, 2007 30th September _____________________ 2007 2006 $000 $000 _____________________Balance at 1st July (419,218) (511,541)Loss for the period (11,971) (1,811)Shares issued 99 -Share option expense in the period 176 -Exchange translation differences in the period - 79Exchange translation differences related to disposals - -Actuarial gains on defined benefit pension plans - - _____________________Balance at 30th September (430,914) (513,273) ===================== 30th September 31st March __________________________________ 2007 2006 2007 $000 $000 $000 __________________________________Balance at 1st April (391,915) (497,563) (497,563)(Loss)/profit for the period/year (39,449) (17,025) 95,249Shares issued 99 - 612Share option expense in the period/year 351 - 297Exchange translation differences in the period/year - 1,315 9,081Exchange translation differences related to disposals - - (3,861)Actuarial gains on defined benefit pension plans - - 4,270 __________________________________Balance at 30th Sept/30th Sept/31st March (430,914) (513,273) (391,915) =================================== 12. Copies of this report will be available from the Company's registered office at Masters House, 107 Hammersmith Road, London W14 0QH. Statement of Directors' Responsibility We confirm that to the best of our knowledge: • the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; • the interim management report includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. A.D. FrazierChairman and Chief Executive Officer6th November, 2007 This information is provided by RNS The company news service from the London Stock Exchange