DNK.L Regulatory News (DNK)

7 Nov 2006 13:30

Danka Business Systems PLC07 November 2006 Embargoed until 13:30 7th November, 2006 DANKA BUSINESS SYSTEMS PLC ("Danka", the "Company" or the "Group") Announcement of results for the quarter and six months ended 30th September, 2006 Danka Business Systems PLC, a leading independent global provider of officeimaging systems and services, today announced its results for the quarter andsix months ended 30th September, 2006. On 12th October, 2006, the Group announced that it had entered into a SharePurchase Agreement with Ricoh Europe B.V. to sell its European businesses toRicoh. This sale is anticipated to complete on or around 31st December, 2006.(For a transaction description, please see the 12th October, 2006 press releaseannouncing the sale.) As a result of the impending sale, the financial resultsof the European businesses for all periods presented in this press release (andof the Australian operations sold in the second quarter) have been classified asdiscontinued operations and the assets and liabilities of the Europeanbusinesses at 30th September, 2006 have been classified as held for sale. For the second quarter: • The Group's operating earnings from continuing operations were £1.0 million versus a £9.3 million loss in the prior year second quarter (which included a £5.5 million loss on the sale of operations, principally in Central and South America) and a £3.1 million loss last quarter. Adjusted operating losses from continuing operations were £25,000, versus a £5.0 million loss for the prior year second quarter and earnings of £2.5 million last quarter. The adjusted operating earnings/losses exclude restructuring charges, gains/losses on the sale of operations and, in the prior year, one-off sales tax credits. • Consolidated gross margin from continuing operations was 34.3%, which was down from 34.8% in the prior year second quarter (34.5% excluding the Central and Latin American operations sold in the prior year) but down from 37.1% sequentially. • Operating expenses (distribution costs plus administrative expenses) for continuing operations were £20.0 million or 34.4% of revenue. These expenses were down 30.6%, or £8.8 million, from the prior year second quarter and down £2.3 million, or 10.3%, sequentially. • Total revenue from continuing operations was £58.1 million which was 23.6% lower than the prior year second quarter (20.6% excluding the Central and Latin American operations sold in the prior year) and down 13.1% sequentially. Retail equipment and related sales were £24.4 million, down 23.2% from the prior year second quarter (21.0% excluding the Central and Latin American operations sold in the prior year) and down 10.4% sequentially. Retail service revenue was £30.6 million, down 20.1% from the prior year second quarter (17.9% excluding the Central and Latin American operations sold in the prior year) and down 11.9% sequentially. "I am pleased with our continued progress on our initiatives. Our focus on improving financial performance and shareholder value is driving these changes and will allow for further investment in the business. With the anticipated conclusion of the divestiture of our European operations to Ricoh, we will be able to channel all of our focus and resources on growing the US business", said A.D. Frazier, Danka's Chairman and Chief Executive Officer. For the six months: • The Group's operating loss from continuing operations was £2.1 million (including a net £1.4 million loss on the sale of operations) versus a £10.4 million loss in first six months of the prior year (which included a net £2.4 million loss on the sale of operations, principally in Canada and Central and South America). Adjusted operating earnings from continuing operations were £2.5 million, versus a £9.0 million loss in the first six months of the prior year. The adjusted operating earnings/losses exclude restructuring charges, gains/losses on the sale of operations and, in the prior year, one-off sales tax credits. • Consolidated gross margin from continuing operations was 35.8%, which was the same as the first six months of the prior year (and also 35.8% excluding the Central and Latin American operations sold in the prior year). • Operating expenses for continuing operations were £42.2 million or 33.8% of revenue down from £64.0 million or 40.1% of revenue in the first six months of the prior year, representing a 34.1% decrease. • Total revenue was £124.9 million which was 21.8% lower than the same period prior year (15.4% excluding the Canadian and Central and Latin American operations sold in the prior year). Retail equipment and related sales were £51.7 million, down 23.4% from the prior year period (2.8% excluding the Canadian and Central and Latin American operations sold in the prior year). Retail service revenue was £65.3 million, down 17.9% from the prior year period (12.0% excluding the Canadian and Central and Latin American operations sold in the prior year). The Group also released a press release in the United States today which, underU.S. generally accepted accounting principles ("US GAAP"), shows the Company'sEuropean Operations as continuing operations. Conference Call and Webcast A conference call and Webcast to discuss Danka's second quarter results has beenscheduled for today, 7th November, at 3:00 p.m. UK time. To access the Webcast,please go to www.danka.com. To participate in the conference call, callers inthe United States and Canada (and some UK callers) may dial (+1)-800-309-1555;other international callers should dial (+1)-706-643-7754. Reference conferenceID #3784525 when prompted. A recording of the call will be available fromapproximately two hours after the call ends until 5:00 a.m. UK time on 14thNovember. To access this recording, please call either (+1)-800-642-1687 or (+1)-706-645-9291 (conference ID #3784525) or visit Danka's website. - ends - For further information please contact: Danka Business Systems PLCCheley Howes, Danka Investor Relations 001 727 622 2760Paul Dumond, Danka London 020 7605 0154 Weber Shandwick Square MileJames Chandler/Helen Thomas 020 7067 0700 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. 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 quarter and six months ended 30th September,2006 is unaudited and not reviewed. The financial information for all periodspresented does not constitute full accounts within the meaning of Section 240 ofthe Companies Act 1985. However, the financial information for such periods isprepared on the same basis as the financial information for the year ended 31stMarch, 2006. The financial information for the year ended 31st March, 2006 hasbeen extracted from the audited accounts for the year ended 31st March, 2006which 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. 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 2006 and 2005 Three Months Ended 30th September Continuing Discontinued Total Continuing Discontinued Total Operations Operations Operations Operations 2006 2006 2006 2005 2005 2005 Note £000 £000 £000 £000 £000 £000 ____________________________________________________________________ Revenue 4 58,062 66,419 124,481 76,006 76,559 152,565Cost of sales (38,129) (45,644) (83,773) (49,575) (53,052) (102,627) ____________________________________________________________________ Gross profit 4 19,933 20,775 40,708 26,431 23,507 49,938 Distribution costs (7,824) (8,448) (16,272) (12,327) (10,816) (23,143)Administrative expenses (12,127) (9,782) (21,909) (16,402) (12,743) (29,145)Other operating expense (7) - (7) (618) 474 (144)Restructuring costs 978 (1,066) (88) (884) (286) (1,170)Net gain/(loss) on sale of operations 5 63 - 63 (5,531) - (5,531) ____________________________________________________________________ Profit/(loss) from operations before tax and finance costs 4 1,016 1,479 2,495 (9,331) 136 (9,195) Investment revenue 7 81 88 20 70 90Finance costs (7,623) (378) (8,001) (7,253) (455) (7,708) ____________________________________________________________________ (Loss)/profit from operations before tax (6,600) 1,182 (5,418) (16,564) (249) (16,813) Tax - overseas (53) 47 (6) 55 (592) (537) ____________________________________________________________________ (Loss)/profit from operations after tax (6,653) 1,229 (5,424) (16,509) (841) (17,350) Gain on sale of discontinued operations 5 - 4,551 4,551 - - - ____________________________________________________________________ Loss from operations for the period and attributable to equity holders of the parent (6,653) 5,780 (873) (16,509) (841) (17,350) ==================================================================== (Loss)/earnings per share: 7 _______________________________________________________________________Basic from | | continuing | | operations | (2.6)p (6.5)p | | |Basic from | | discontinued | | operations | 2.3p (0.3)p | |_______________________________________________________________________| | |Basic from total | | operations | (0.3)p (6.8)p| |_______________________________________________________________________| _______________________________________________________________________Diluted from | | continuing | | operations | (2.6)p (6.5)p | | | Diluted from | | discontinued | | operations | 2.2p (0.3)p | |_______________________________________________________________________| | |Diluted from total | | operations | (0.3)p (6.8)p| |_______________________________________________________________________| Average exchange rate £1= $ 1.874 $ 1.784 _________ ________Average exchange rate £1= • 1.471 • 1.463 _________ ________ Group Income Statement For the Six Months Ended 30th September 2006 and 2005 Six Months Ended 30th September Continuing Discontinued Total Continuing Discontinued Total Operations Operations Operations Operations 2006 2006 2006 2005 2005 2005 Note £000 £000 £000 £000 £000 £000 ________________________________________________________________________ Revenue 4 124,876 142,338 267,214 159,710 159,641 319,351Cost of sales (80,181) (97,923) (178,104) (102,492) (110,660) (213,152) _______________________________________________________________________ Gross profit 4 44,695 44,415 89,110 57,218 48,981 106,199 Distribution costs (16,268) (18,094) (34,362) (25,833) (21,544) (47,377)Administrative expenses (25,925) (21,100) (47,025) (38,188) (25,207) (63,395)Other operating expense (52) - (52) (122) (159) (281)Restructuring costs (3,152) (1,886) (5,038) (1,038) (3,141) (4,179)Net loss on sale of operations 5 (1,417) - (1,417) (2,426) - (2,426) _______________________________________________________________________ (Loss)/profit from operations before tax and finance costs 4 (2,119) 3,335 1,216 (10,389) (1,070) (11,459) Investment revenue 20 184 204 40 131 171Finance costs (15,398) (631) (16,029) (14,637) (726) (15,363) _______________________________________________________________________ (Loss)/profit from operations before tax (17,497) 2,888 (14,609) (24,986) (1,665) (26,651) Tax - overseas (107) 964 857 (464) (758) (1,222) _______________________________________________________________________ (Loss)/profit from operations after tax (17,604) 3,852 (13,752) (25,450) (2,423) (27,873) Gain on sale of discontinued operations 5 - 4,551 4,551 - - - _______________________________________________________________________ Loss from operations for the period and attributable to equity holders of the parent (17,604) 8,403 (9,201) (25,450) (2,423) (27,873) _______________________________________________________________________ (Loss)/earnings per share: 7 _________________________________________________________________________ | |Basic from | | continuing | | operations | (6.9)p (10.0)p | | |Basic from | | discontinued | | operations | 3.3p (1.0)p | |_________________________________________________________________________| | |Basic from total | | operations | (3.6)p (11.0)p| |_________________________________________________________________________| _________________________________________________________________________Diluted from | | continuing | | operations | (6.9)p (10.0)p | | |Diluted from | | discontinued | | operations | 3.3p (1.0)p | |_________________________________________________________________________| | |Diluted from total | | operations | (3.6)p (11.0)p| |_________________________________________________________________________| Average exchange rate £1= $ 1.850 $ 1.820 _______ _______Average exchange rate £1= • 1.463 • 1.468 _______ _______ Danka Business Systems PLC Group Balance Sheet 30th September 30th September 31st March 2006 2005 2006 £000 £000 £000 _____________________________________________Non-current assetsIntangible assets and goodwill 266 3,083 2,961Property, plant and equipment 17,873 32,543 28,308Other 4,547 6,099 6,129 ______________________________________________ 22,686 41,725 37,398 ______________________________________________ Current assetsInventories 17,722 54,366 45,977Prepaid expenses 799 6,258 3,445Trade and other receivables 32,486 106,170 108,868Cash and cash equivalents including restricted cash of £3,883,000 (September 2005 - £8,194,000; March 2006 - £11,803,000) 10,016 48,323 43,119Assets classified as held for sale (note 12) 121,105 - - ______________________________________________ 182,128 215,117 201,409 ______________________________________________ Total assets 204,814 256,842 238,807 ______________________________________________ Current liabilitiesTrade and other payables (38,869) (104,854) (94,917)Tax liabilities (772) (17,455) (12,218)Obligations under finance leases (400) (970) (796)Current portion of long-term borrowings (6,729) (93) (6,157)Derivative financial instruments (4,493) (5,651) (4,835)Deferred revenue (8,165) (20,018) (18,989)Accrued expenses (19,182) (45,573) (48,082)Short-term provisions (1,903) (5,227) (3,665)Liabilities classified as held for sale (note 12) (98,220) - - ______________________________________________ (178,733) (199,841) (189,659) ______________________________________________ Non-current liabilitiesBank and other loans (123,702) (129,643) (132,488)Convertible participating shares (169,792) (164,701) (175,264)Retirement benefit obligations - (15,417) (16,928)Deferred tax liabilities - (493) (419)Long-term provisions (4,179) (2,766) (4,744)Obligations under finance leases (389) (953) (635)Other (2,262) (5,253) (4,741) ______________________________________________ (300,324) (319,226) (335,219) ______________________________________________ ______________________________________________ Total liabilities (479,057) (519,067) (524,878) ______________________________________________ ______________________________________________ Net liabilities (274,243) (262,225) (286,071) ============================================== EquityCapital 202,094 201,945 202,094Share options 3,577 2,211 3,577Translation reserve (note 12) 3,783 (11,410) (17,246)Retained earnings (483,697) (454,971) (474,496) ______________________________________________ Total equity (274,243) (262,225) (286,071) ============================================== Closing exchange rate £1= $ 1.872 $ 1.770 $ 1.739 ______________________________________________ Closing exchange rate £1= • 1.475 • 1.468 • 1.433 ______________________________________________ Danka Business Systems PLC Group Cash Flow Statement For the Three Months Ended 30th September 2006 and 2005 30th September _____________________ 2006 2005 Note £000 £000 _____________________________ Net cash outflow from operating activities 10 (5,073) (2,659) Cash flows from investing activities Interest received 88 90 Capital expenditure (2,478) (1,665) Proceeds from sale of operations 6,249 2,854 Held for sale cash and cash equivalents 12 (20,725) - Proceeds from sale of property, plant and equipment and equipment on operating leases 266 179 _____________________________ Net cash from investing activities (16,600) 1,458 _____________________________ Cash flows from financing activities Net borrowings under line of credit agreements (11) (438) Capital payments under finance leases (228) (314) Interest paid (665) (878) Proceeds from new shares issued - 304 _____________________________ Net cash from financing activities (904) (1,326) _____________________________ Net decrease in cash and cash equivalents (22,577) (2,527)Cash and cash equivalents at 1st July 33,395 50,077Effect of exchange rate fluctuations on cash held (802) 773 _____________________________Cash and cash equivalents at 30th September 10,016 48,323 =============================Included above in respect of discontinued operations:Net cash outflow from operating activities (4,721) (4,628)Net cash from investing activities (14,971) (726)Net cash from financing activities (8,101) 5,854Net cash from financing activities includes intragroup financing of (7,676) 6,862 ============================== Danka Business Systems PLC Group Cash Flow Statement For the Six Months Ended 30th September 2006 and 2005 30th September _____________________ 2006 2005 Note £000 £000 _____________________________ Net cash outflow from operating activities 10 (5,006) (2,824) Cash flows from investing activities Interest received 204 171 Capital expenditure (4,222) (3,635) Proceeds from sale of operations 6,249 9,534 Held for sale cash and cash equivalents 12 (20,725) - Proceeds from sale of property, plant and equipment and equipment on operating leases 384 226 _____________________________ Net cash from investing activities (18,110) 6,296 _____________________________ Cash flows from financing activities Net borrowings under line of credit agreements 533 (26) Capital payments under finance leases (463) (764) Interest paid (8,281) (8,366) Proceeds from new shares issued - 312 _____________________________ Net cash from financing activities (8,211) (8,844) _____________________________ Net decrease in cash and cash equivalents (31,327) (5,372)Cash and cash equivalents at 1st April 43,119 51,947Effect of exchange rate fluctuations on cash held (1,776) 1,748 _____________________________Cash and cash equivalents at 30th September 10,016 48,323 ============================= Included above in respect of discontinuedoperations:Net cash outflow from operating activities (2,166) (8,236)Net cash from investing activities (15,696) (1,727)Net cash from financing activities (6,992) 9,477Net cash from financing activities includes intragroup financing of (6,267) 10,599 ============================= Danka Business Systems PLC Group Statement of Recognised Income and Expense For the Three Months Ended 30th September 2006 and 2005 30th September 2006 2005 £000 £000 _____________________ Loss for the period (873) (17,350)Income and expense taken directly to equity: Exchange translation differences in the period 3,308 (3,342) Exchange translation differences related to disposals (35) (40) Actuarial losses on defined benefit pension plans - - Tax on items taken directly to or transferred from equity - - _____________________Total of income and expense taken directly to equity 3,273 (3,382) _____________________ _____________________Total recognised income and expense for the period 2,400 (20,732) ===================== Danka Business Systems PLC Group Statement of Recognised Income and Expense For the Six Months Ended 30th September 2006 and 2005 and the Year Ended 31st March 2006 30th September 31st March 2006 2005 2006 £000 £000 £000 __________________________________ Loss for the period/year (9,201) (27,873) (46,881)Income and expense taken directly to equity: Exchange translation differences in the period/year 21,064 (16,105) (21,941) Exchange translation differences related to disposals (35) (127) (127) Actuarial losses on defined benefit pension plans - - (517) Tax on items taken directly to or transferred from equity - - - __________________________________Total of income and expense taken directly to equity 21,029 (16,232) (22,585) __________________________________ __________________________________Total recognised income and expense for the period/year 11,828 (44,105) (69,466) ================================== Notes to the Financial Information 1. The financial information for the quarter and six months ended 30th September, 2006 is unaudited and not reviewed. The financial information for all periods presented does not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. However, the financial information for such periods is prepared on the same basis as the financial information for the year ended 31st March, 2006. The financial information for the year ended 31st March, 2006 has been extracted from the audited accounts for the year ended 31st March, 2006 which have been filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2. Significant accounting policies Danka Business Systems PLC ("the Company") is a company domiciled in the UnitedKingdom. The consolidated interim financial statements of the Company for thethree months and six months ended 30th September, 2006 and 2005 comprise theCompany and its subsidiaries (together referred to as the "Group"). Theconsolidated interim financial statements were authorised for issuance on 7thNovember, 2006. 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 sterling and all values in tables arerounded to the nearest thousand pounds (£000) except where otherwise indicated. Accounting policies This financial information has been prepared on the basis of the recognition andmeasurement requirements of IFRS in issue that are endorsed by the EU andeffective (or available for early adoption) at 31st March, 2007. The accountingpolicies have been applied consistently throughout the Group for the purposes ofthese consolidated interim financial statements. Restructuring costs and the net loss/gain on sale of operations have beenseparately disclosed on the face of the income statement in accordance with IAS1 in order to assist the assessment of financial performance owing to theirmateriality and infrequent nature. 3. Seasonality of operations The Group's operations have historically experienced lower revenue during thesecond quarter (ending 30th September) of the financial year. This is primarilydue to increased holiday taken by European residents during July and August(affecting discontinued operations) and lower levels of retail maintenancerevenue from United States governmental agencies (affecting continuingoperations). This has 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 are not necessarily indicative of the results which may beexpected 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 _______________________________________________ 2006 2005 2006 2005 £000 £000 £000 £000 _______________________________________________ RevenueRetail equipment and related sales 24,426 31,791 51,702 67,521Retail maintenance 30,594 38,297 65,339 79,576Retail supplies and rental sales 3,042 5,918 7,835 12,613 _______________________________________________ 58,062 76,006 124,876 159,710 =============================================== Gross profitRetail equipment and related sales 7,640 9,296 15,565 20,884Retail maintenance 11,211 15,196 25,568 31,316Retail supplies and rental sales 1,082 1,939 3,562 5,018 _______________________________________________ 19,933 26,431 44,695 57,218 =============================================== 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 (notes 5 and12), the Americas is the only primary reportable segment. The Americas segmentincludes the United States and, in the comparative period up to their respectivedisposals as disclosed in note 5, Canada, Central America and South America. TheGroup is managed through its administrative centres in the U.S. and the U.K.,identified as Corporate below. The Corporate costs comprise salaries and directcosts incurred in maintaining the administrative centres plus the financingcosts relating to the principal lines of credit used by the Group to finance itsactivities. It is not appropriate to allocate these costs between the primarysegment and the discontinued operations. For the three months and six months ended 30th September, 2006: Three Months Ended Six Months Ended 30th September 30th September _________________________________________________ 2006 2005 2006 2005 £000 £000 £000 £000 _________________________________________________ Revenue Americas 58,062 76,006 124,876 159,710 ================================================= Three Months Ended Six Months Ended 30th September 30th September _________________________________________________ 2006 2005 2006 2005 £000 £000 £000 £000 _________________________________________________Segment resultAmericas 3,237 (5,926) 2,562 (2,218)Corporate (2,221) (3,405) (4,681) (8,171) _________________________________________________ Profit/(loss) before tax and finance costs 1,016 (9,331) (2,119) (10,389)Investment revenue 7 20 20 40Finance costs (7,623) (7,253) (15,398) (14,637)Tax (53) 55 (107) (464) _________________________________________________ Total loss from operations (6,653) (16,509) (17,604) (25,450) ================================================= 5. Disposal of operations Year ended 31st March, 2006 On 30th June, 2005, the Group sold its retail operations in Canada to PitneyBowes of Canada Limited for $14 million (£7.8 million) cash and a pre-tax gainof £3.6 million in the quarter ended 30th June, 2005 (later adjusted to £3.0million) was recorded after expenses of £0.2 million (later adjusted to £0.5million). The attributable tax was nil. During the six months ended 30thSeptember, 2005 and year ended 31st March, 2006, the Canadian operations hadcash inflows from operating activities of £0.3 million and cash outflows frominvesting activities of £0.1 million. During the six months ended 30thSeptember, 2005 and year ended 31st March, 2006, the Canadian operations repaidfunding from other Group entities of £0.5 million. The cash inflow on thedisposal after deducting cash disposed of and a working capital adjustment of$2.6 million (£1.3 million) was £6.7 million. At 30th June, 2005 prior to disposal, the Canadian operations comprised assetsof £7.9 million less liabilities of £5.0 million following a working capitaladjustment. The Canadian operations reported revenue of £5.1 million in the sixmonths ended 30th September, 2005 and year ended 31st March, 2006 and pre- andpost-tax losses of £0.3 million in the six months ended 30th September, 2005 andyear ended 31st March, 2006. With effect from 31st August, 2005, the Group sold its retail operations inCentral and South America to Toshiba America Business Solutions, Inc. for $10million (£5.7 million) cash and a pre-tax loss of £5.5 million was recorded inthe three months ended 30th September, 2005 (later adjusted to £5.1 million)after expenses of £0.6 million. The attributable tax was nil. During the sixmonths ended 30th September, 2005 and the year ended 31st March, 2006, theCentral and South American operations had cash outflows from operatingactivities of £0.3 million and cash outflows from investing activities of £0.2million. During the six months ended 30th September, 2005 and the year ended31st March, 2006, the Central and South American operations had cash outflowsfrom financing activities of £3.5 million, principally relating to funding fromother Group entities. The cash inflow on the disposal after deducting cashdisposed of was £2.7 million, which was recorded in the quarter ended 30thSeptember, 2005. At 31st August, 2005 prior to disposal, the Central and South Americanoperations comprised assets of £14.3 million less liabilities of £3.9 million.The Central and South American operations reported revenue of £6.9 million inthe six months ended 30th September, 2005 and year ended 31st March, 2006 andpre- and post-tax losses of £0.4 million in the six months ended 30th September,2005 and the year ended 31st March, 2006. In December 2005, the Group sold an entity in Italy for £0.3 million in cash.The entity did not trade. The gain on disposal and the cash inflow on thedisposal after deducting expenses were £0.3 million, which were recorded in thequarter ended 31st December, 2005. Year ending 31st March, 2007 With effect from 30th June, 2006, the Group sold its Image One subsidiary fornil and a pre-tax loss of £1.3 million was recorded. The attributable tax wasnil. The trading results and cashflows of Image One had been integrated withinthe financial information for the Americas segment as a whole and cannot beseparately identified; however, the results and cashflows were not material tothe financial information for the Americas segment. At 30th June, 2006 prior todisposal, Image One comprised assets of £2.4 million less liabilities of £1.1million. During the quarter ended 30th June, 2006, additional expenses were recorded inrespect of the Group's prior year disposals in the amount of £0.2 million. Thenet loss in respect of those disposals was reduced in the quarter ended 30thSeptember, 2006 by £0.1 million. With effect from 31st August, 2006, the Group sold its Australian operations toOnesource Group Limited for $12.8 million (£6.7 million) cash and a pre-tax gainof £4.6 million was recorded in the three months ended 30th September, 2006after expenses of £0.2 million. The attributable tax was nil. During the sixmonths ended 30th September, 2006 and the year ended 31st March, 2006, theAustralian operations had cash inflows from operating activities of £0.2 millionand £0.6 million respectively and cash outflows from investing activities of£0.1 million and £0.1 million respectively. During the six months ended 30thSeptember, 2006 and the year ended 31st March, 2006, the Australian operationshad cash outflows from financing activities of £0.5 million and £0.9 millionrespectively, relating to funding from other Group entities. The cash inflow onthe disposal after deducting cash disposed of was £6.2 million, which wasrecorded in the quarter ended 30th September, 2006. At 31st August, 2006 prior to disposal, the Australian operations comprisedassets of £8.0 million less liabilities of £5.9 million. The Australianoperations reported revenue of £11.9 million and £27.9 million in the six monthsended 30th September, 2006 and year ended 31st March, 2006 respectively and pre-and post-tax profits of £0.3 million and £0.4 million in the six months ended30th September, 2006 and the year ended 31st March, 2006 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 ______________________________________________________ 2006 2005 2006 2005 ______________________________________________________ Shares in issue at 1st July/ April 256,529,024 254,222,800 256,529,024 254,188,656Effect of shares issued during the period - 392,244 - 231,337 ______________________________________________________ Average number of ordinary shares in issue - basic 256,529,024 254,615,044 256,529,024 254,419,993Average outstanding share options 404,592 - 346,512 - ______________________________________________________ Average number of ordinary shares in issue - diluted 256,933,616 254,615,044 256,875,536 254,419,993 ====================================================== 7. The calculations of the loss/earnings per share from continuing and discontinued operations respectively are based on the loss/profit from continuing/discontinued operations respectively after taxation and the basic and diluted weighted average number of ordinary shares in issue during the period as per note 6 above. 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 in respect of discontinued operations in the periods ended 30th September, 2006 since the Group is in a loss position for the periods below from continuing operations and to include them would be anti-dilutive. Three Months Ended 30th September 2006 2005 _____________________________________________ Pence Pence £000 Per Share £000 Per Share _____________________________________________ Basic loss from continuing operations (6,653) (2.6) (16,509) (6.5)Unusual items arising in respect of: Restructuring of worldwide operations (978) 884 Tax effect - - ______ ______ Net of tax effect (978) (0.4) 884 0.3 Disposal of operations (63) 5,531 Tax effect - - ______ ______ Net of tax effect (63) - 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 (7,694) (3.0) (12,194) (4.8) ============================================= _____________________________________________Basic and diluted loss from continuing operations (6,653) (2.6) (16,509) (6.5) ============================================= _____________________________________________Adjusted basic and diluted loss from continuing operations (before unusual items) (7,694) (3.0) (12,194) (4.8) ============================================= _____________________________________________Basic earnings/(loss) from discontinued operations 5,780 2.3 (841) (0.3) ============================================= _____________________________________________Diluted earnings/(loss) from discontinued operations 5,780 2.2 (841) (0.3) ============================================= Six Months Ended 30th September 2006 2005 _____________________________________________ Pence Pence £000 Per Share £000 Per Share _____________________________________________ Basic loss from continuing operations (17,604) (6.9) (25,450) (10.0)Unusual items arising in respect of: Restructuring of worldwide operations 3,152 1,038 Tax effect - - _______ _______ Net of tax effect 3,152 1.2 1,038 0.4 Disposal of operations 1,417 2,426 Tax effect - - _______ _______ Net of tax effect 1,417 0.6 2,426 1.0 Sales tax credit - (2,100) Tax effect - - _______ _______ Net of tax effect - - (2,100) (0.9) ______________________________________________Adjusted basic loss from continuing operations (13,035) (5.1) (24,086) (9.5) ============================================== ______________________________________________Basic and diluted loss from continuing operations (17,604) (6.9) (25,450) (10.0) ============================================== ______________________________________________Adjusted basic and diluted loss from continuing operations (before unusual items) (13,035) (5.1) (24,086) (9.5) ============================================== ______________________________________________Basic earnings/(loss) from discontinued operations 8,403 3.3 (2,423) (1.0) ============================================== ______________________________________________Diluted earnings/(loss) from discontinued operations 8,403 3.3 (2,423) (1.0) ============================================== 8. The following shows the computation of free cash flow: Three Months Ended Six Months Ended 30th September 30th September ______________________________________________ 2006 2005 2006 2005 £000 £000 £000 £000 ______________________________________________Cash outflow from operating activities (5,073) (2,659) (5,006) (2,824)Cash (outflow)/inflow from investing activities (16,600) 1,458 (18,110) 6,296Less: cash flow from acquisitions and disposals (6,249) (2,854) (6,249) (9,534)Less: cash outflow from operating activities of discontinued operations 4,721 4,628 2,166 8,236Less: cash outflow from investing activities of discontinued operations 14,971 726 15,696 1,727Add back: cash flow from acquisitions and disposals of discontinued operations 6,249 - 6,249 - ______________________________________________ Free cash flow - continuingoperations (1,981) 1,299 (5,254) 3,901 ============================================== 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 30th September As at 31st March 2006 2005 2006 £000 £000 £000 _____________________________________ Current portion of long-term borrowings 6,729 93 6,157Non-current bank loans 123,702 129,643 132,488Convertible participating shares including derivative financial instruments 174,285 170,352 180,099Finance leases 789 1,923 1,431Less: cash and cash equivalents (10,016) (48,323) (43,119) _____________________________________ Net debt 295,489 253,688 277,056 ===================================== 10. Net cash flow from operating activities Three Months Ended Six Months Ended 30th September 30th September ___________________________________________________ 2006 2005 2006 2005 £000 £000 £000 £000 ___________________________________________________ Loss before tax (5,418) (16,813) (14,609) (26,651)Restructuring charges 88 1,170 5,038 4,179Cash paid in respect of restructuring charges (2,048) (2,623) (4,032) (6,388)Depreciation and amortisation 2,820 4,418 6,103 9,118(Gain)/loss on sale of property, plant and equipment and equipment on operating leases (124) 314 (179) 439(Gain)/loss on sale of operations (63) 5,531 1,417 2,426Share-based payments - 329 - 550Net finance costs 7,913 7,618 15,825 15,192(Increase)/decrease in inventories (1,665) 4,852 (5,498) (3,392)Decrease in receivables 4,913 7,360 2,332 17,637Decrease in payables and retirement benefit obligations (11,069) (14,341) (10,800) (15,336)Tax paid (420) (474) (603) (598) ___________________________________________________Net cash flow from operating activities (5,073) (2,659) (5,006) (2,824) =================================================== 11. Group Statement of Changes in Equity for the Three Months and Six Months Ended 30th September, 2006 and 2005 and the Year Ended 31st March, 2005 30th September 2006 2005 £000 £000 _______________________ Balance at 1st July (276,643) (242,017)Loss for the period (873) (17,350)Shares issued - 195Share option expense in the period - 329Exchange translation differences in the period 3,308 (3,342)Exchange translation differences related to disposals (35) (40)Actuarial losses on defined benefit pension plans - - _______________________ Balance at 30th September (274,243) (262,225) ======================= 30th September 31st March 2006 2005 2006 £000 £000 £000 _____________________________________ Balance at 1st April (286,071) (218,873) (218,873)Loss for the period/year (9,201) (27,873) (46,881)Shares issued - 203 352Share option expense in the period/year - 550 1,916Exchange translation differences in the period/year 21,064 (16,105) (21,941)Exchange translation differences related to disposals (35) (127) (127)Actuarial losses on defined benefit pension plans - - (517) _____________________________________Balance at 30th Sept/30th Sept/31st March (274,243) (262,225) (286,071) ===================================== 12. Post balance sheet event On 12th October, 2006, the Group announced the sale of all the shares of itsbusiness units in Europe for a purchase price of $210.0 million (£112.2 million)in cash, subject to upward or downward net asset adjustments of a maximum of$5.0 million (£2.7 million). The table below shows the European business unit'scarrying amounts of the major classes of assets and liabilities at 30thSeptember, 2006, which have been classified as held for sale. Of the Group'stranslation reserve of £3.8 million (credit) as at 30th September, 2006, £0.9million (credit) relates to the European business unit. 30th September, 2006 carrying values _____________________AssetsIntangible assets and goodwill 504Property, plant and equipment 6,247Other non-current assets 2,516Inventories 27,045Prepaid expenses and other current assets 3,854Trade and other receivables 60,214Cash and cash equivalents 20,725 ___________ 121,105 ___________ LiabilitiesTrade and other payables 42,402Tax liabilities 10,348Obligations under finance leases 66Deferred revenue 8,773Accrued expenses and short-term provisions 18,487Non-current liabilities 18,144 ___________ 98,220 ___________ 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