27th Jun 2007 13:42
Danka Business Systems PLC27 June 2007 DANKA BUSINESS SYSTEMS PLC ("Danka", the "Company" or the "Group") Announcement of results for the quarter and year ended 31st March, 2007 Danka Business Systems PLC, a leading independent provider of office imagingsystems and services, today announced its results for the quarter and year ended31st March, 2007. The Group narrowed its loss from continuing operations to£38.1 million for the year ended 31st March, 2007, compared to £47.2 million inthe prior year. Revenue from continuing operations was £237.8 million in theyear ended 31st March, 2007 versus £304.8 million a year ago. As previously reported, on 31st January, 2007, the Group completed the sale ofits European operations to Ricoh Europe B.V. For the year and quarter ended 31stMarch, 2007, the European operations are treated as discontinued operations. On 25th June, 2007, the Group completed a new financing arrangement for $145.0million (£73.7 million) in term and revolver debt that, together with theproceeds from the sale to Ricoh of the European operations, will be utilised to repay existing debt and enhance working capital. The Group also successfully remediated its last material weakness under the U.S.Sarbanes-Oxley internal controls regulations during the year and will bedisclosing that it does not have any material weaknesses as at 31st March, 2007. For the year ended 31st March, 2007: • Revenue from continuing operations was £237.8 million, down 22.0% from the prior year (down 14.6% excluding the Canadian and Central and South American operations sold in the year ended 31st March, 2006 and adverse foreign exchange movements). Retail equipment, supplies and related sales were £105.7 million, down 25.6% from the prior year (down 19.7% excluding the Canadian and Central and South American operations sold in the year ended 31st March, 2006 and adverse foreign exchange movements) while service revenue was £124.7 million, down 17.3% from the prior year (down 9.7% excluding the Canadian and Central and South American operations sold in the year ended 31st March, 2006 and adverse foreign exchange movements). • Consolidated gross margin from continuing operations was 34.6%, up 30 basis points from the prior year. • Operating costs (distribution costs plus administrative expenses) for continuing operations were £84.8 million, down £35.7 million or 29.6% from the prior year (down £28.9 million or 25.4% excluding favourable foreign exchange movements). • The group incurred a £8.0 million operating loss from continuing operations which included a £2.2 million loss on the sale of a subsidiary recorded in the first quarter and various additional expenses and write-offs recorded in respect of prior year disposals and £3.1 million of restructuring charges. • Net finance costs for continuing operations were £27.8 million, down £2.0 million from the prior year primarily due to a higher gain in the current year on the marking to market of the embedded derivative relating to the outstanding participating shares. As a result of the sale of the European operations in the fourth quarter as well as the sale of the Group's Australian operations in the second quarter, the Group reported profits from discontinued operations of £8.0 million and a gain on sale of discontinued operations of £73.1 million for the year. • The Group reported profits of £42.9 million as compared to losses of £49.3 million in the prior year. "From a financial perspective, fiscal 2007 was about fixing the Company'sliquidity and capital structure," commented Edward K. Quibell, Danka ChiefFinancial Officer. "While there is still work to be done, the progress achievedto date goes a long way toward completing the successful turnaround of theCompany." Mr. Quibell also noted that operating losses before tax and finance costs fromcontinuing operations improved by £14.2 million, on revenue down by £67.1million. This was accomplished by removing unprofitable businesses andcontrolling costs. For the fourth quarter: • Revenue from continuing operations was £58.0 million, 20.5% lower than the prior year quarter (12.5% excluding adverse foreign exchange movements), but up 5.6% sequentially. Retail equipment, supplies and related sales were £27.0 million for the quarter, down 23.9% from the prior year (16.6% excluding adverse foreign exchange movements), but up 14.7% sequentially. Service revenue was £29.4 million, down 17.7% from the prior year (9.0% excluding adverse foreign exchange movements), but down 1.5% sequentially. • Consolidated gross margin for the quarter from continuing operations was 32.6%, up 160 basis points from the prior year, but down 130 basis points sequentially. • Operating costs for continuing operations were £23.8 million, down 22.8% from the prior year (11.8% excluding favourable foreign exchange movements) and up 26.4% sequentially. • For the quarter, the group reported a £5.7 million operating loss from continuing operations. • Net finance costs were £4.6 million. Profits from discontinued operations were £2.9 million and the tax credit for continuing operations was £0.2 million. With the finalisation of the sale of the European operations to Ricoh, Danka recorded a £68.6 million gain. "While these results are important," said A.D. Frazier, Danka Chairman and ChiefExecutive Officer, "it is imperative to recognise that the Danka enterprise oftoday is significantly changed from the company I joined a little more than ayear ago. Fiscal 2007 is a watershed year in which the Company rationalised itsbusiness structure, strengthened its balance sheet, and enhanced its competitiveposition. "Danka is now leaner, far more flexible and primed to grow," Mr. Fraziercontinued. "Our prospects for the future are dramatically better now than theyhave been in a very long time. In particular, I am encouraged by the traction wehave gained in equipment sales. Q4 was the highest quarter of the year. This isnot surprising; we have increased the number of sales representatives andinvested in extensive training to support our consultative selling approach." Mr. Frazier added that service revenue remains stable. "We have a few morechanges to make in our cost structure and our capital structure, yet I amconfident that our customers will see a continually improving Danka," heconcluded. Conference Call and Webcast A conference call and Webcast to discuss Danka's results has been scheduled fortoday, 27th June, at 3:00 p.m. UK time. To participate in the conference call,please dial in five-to-ten minutes prior to the start of the call and follow theoperator's instructions. U.S. and Canada callers: please dial (+1)-800-309-1555.International callers: please dial (+1)-706-643-7754. Reference conference ID #4651644 when prompted. A replay of the call will be available from approximately two hours after thecall ends. U.S. and Canada callers: dial (+1)-800-642-1687. Internationalcallers: dial (+1)-706-645-9291. Reference conference ID #4651644 when prompted.This playback will be available until 5:00 a.m. on 3rd July, 2007. - ends - For further information please contact:Danka Business Systems PLCCheley Howes, Danka Investor Relations 001 727 622 2760Louis Kritzinger, Danka London 020 7605 0150 Weber Shandwick FinancialGeorgia Dempsey 020 7067 0749 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 our officers,including statements related to our future performance and our outlook for ourbusinesses and respective markets, projections, statements of our plans orobjectives, forecasts of market trends and other matters, are forward-lookingstatements, and contain information relating to us that is based on our beliefsas well as assumptions, made by, and information currently available to us. Thewords "goal", "anticipate", "expect", "believe", "could", "should", "intend" andsimilar expressions as they relate to us are intended to identifyforward-looking statements, although not all forward looking statements containsuch identifying words. No assurance can be given that the results in anyforward-looking statement will be achieved. For the forward-looking statements,we claim the protection of the safe harbor for forward-looking statementsprovided for in the Private Securities Litigation Reform Act of 1995,Section 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, or the Exchange Act. Such statements reflectour current views with respect to future events and are subject to certainrisks, 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 successfully implement our strategy; (ii) any inability tosuccessfully implement our cost restructuring plans to achieve and maintain costsavings; (iii) any inability to comply with the Sarbanes-Oxley Act of 2002; (iv) any material adverse change in financial markets, the economy or in ourfinancial position; (v) increased competition in our industry and thediscounting of products by our competitors; (vi) new competition fromnon-traditional competitors as the result of evolving and converging technology;(vii) any inability by us to procure, or any inability by us to continue to gainaccess to and successfully distribute current and new products, includingdigital products, color products, multi-function products and high-volumecopiers, or to continue to bring current products to the marketplace atcompetitive costs and prices; (viii) any inability to arrange financing for ourcustomers' purchases of equipment from us; (ix) any inability to successfullyenhance, unify and effectively utilize our management information systems; (x) any inability to access vendor or bank lines of credit, which could adverselyaffect our liquidity; (xi) any inability to record and process key data due toineffective implementation of business processes and policies; (xii) anynegative impact from the loss of a key vendor or customer; (xiii) any negativeimpact from the loss of any of our senior or key management personnel; (xiv) anychange in economic conditions in markets where we operate or have materialinvestments which may affect demand for our products or services; (xvv) anyincurrence of tax liabilities or tax payments beyond our current expectations,which could adversely affect our liquidity and profitability; (xvi) anyinability to comply with our new senior secured credit facility covenants,financial or other representations, warranties, or maturities in our debtinstruments; (xvii) any delayed or lost sales or other impacts related to thecommercial and economic disruption caused by natural disasters, includinghurricanes; (xviii) any delayed or lost sales and other impacts related to thecommercial and economic disruption caused by terrorist attacks, the related waron terrorism, and the fear of additional terrorist attacks; (xix) any negativeimpact of the accreted value of our outstanding participating shares and itscontinued accretion; (xx) any negative impact from our continued organisation asa England and Wales registered Company following the sale of our Europeanbusinesses; and (xxi) other risks including those risks identified in any of ourfilings with the Securities and Exchange Commission. Readers are cautioned notto place undue reliance on these forward-looking statements, which reflect ouranalysis only as of the date they are made. Except as required by applicablelaw, we undertake no obligation, and do not intend, to update theseforward-looking statements to reflect events or circumstances that arise afterthe date they are made. Furthermore, as a matter of policy, we do not generallymake any specific projections as to future earnings, nor do we endorse anyprojections regarding future performance, which may be made by others outsideour Group. The financial information for the year ended 31st March, 2007 is audited whilstthe financial information for the quarter ended 31st March, 2007 is unauditedand not reviewed. The financial information for all periods presented does notconstitute full accounts within the meaning of Section 240 of the Companies Act1985. However, the financial information for such periods is prepared on thesame basis as the financial information for the year ended 31st March, 2006. Thefinancial information for the year ended 31st March, 2006 has been extractedfrom the audited accounts for the year ended 31st March, 2006 which have beenfiled 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 31st March 2007 and 2006 Three Months Ended 31st March Income Income statement statement Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total 2007 2007 2007 2006 2006 2006 Note £000 £000 £000 £000 £000 £000 ______________________________________________________________________________________________Revenue 4 57,995 19,418 77,413 72,958 81,737 154,695Cost of sales (39,092) (13,956) (53,048) (50,361) (58,895) (109,256) __________________________________________________________________________________Gross profit 4 18,903 5,462 24,365 22,597 22,842 45,439 Distribution costs (8,338) (2,474) (10,812) (11,201) (9,562) (20,763)Administrative expenses (15,457) 24 (15,433) (19,612) (11,881) (31,493)Other operating expense - - - (534) 487 (47)Restructuring cost (expense) /release (107) 126 19 (1,836) (1,865) (3,701)Net (loss)/gain on sale of operations 5 (723) - (723) 17 251 268 __________________________________________________________________________________(Loss)/profit from operations before tax and finance items 4 (5,722) 3,138 (2,584) (10,569) 272 (10,297) Investment revenue 4,082 71 4,153 897 88 985Finance costs (8,703) (778) (9,481) (10,429) 460 (9,969) __________________________________________________________________________________(Loss)/profit from operations before tax (10,343) 2,431 (7,912) (20,101) 820 (19,281) Tax - overseas 231 490 721 (495) 2,201 1,706 __________________________________________________________________________________(Loss)/profit from operations after tax 4 (10,112) 2,921 (7,191) (20,596) 3,021 (17,575) Gain on sale of discontinued operations 5 - 68,555 68,555 - - - __________________________________________________________________________________(Loss)/profit from operations for the period (10,112) 71,476 61,364 (20,596) 3,021 (17,575) =================== ==================Result from discontinued operations 71,476 3,021 _______ _______Profit/(loss) from operations for the period and attributable to equity holders of the parent 61,364 (17,575) ======= ======= (Loss)/earnings per share: 7 Basic from continuing operations (3.9)p (8.0)pBasic from discontinued operations 27.6p 1.1p __________________________________________________________________________________Basic from total operations 23.7p (6.9)p __________________________________________________________________________________Diluted from continuing operations (3.9)p (8.0)p __________________________________________________________________________________Diluted from discontinued operations 27.6p 1.1p __________________________________________________________________________________Diluted from total operations 23.7p (6.9)p __________________________________________________________________________________Average exchange rate £1= $ 1.955 $ 1.754 ======= =======Average exchange rate £1= • 1.492 • 1.458 ======= ======= Group Income Statement For the Year Ended 31st March 2007 and 2006 Year Ended 31st March Income Discontinued Total Income Discontinued Total statement Operations 2007 statement Operations 2006 Continuing 2007 Continuing 2006 Operations Operations (Restated 2007 2006 - note 2) Note £000 £000 £000 £000 £000 £000 _________________________________________________________________________ Revenue 4 237,788 228,823 466,611 304,849 321,202 626,051Cost of sales (155,583) (159,609) (315,192) (200,312) (225,662) (425,974) ____________________________________________________________________Gross profit 4 82,205 69,214 151,419 104,537 95,540 200,077 Distribution costs (32,130) (28,400) (60,530) (48,562) (41,650) (90,212)Administrative expenses (52,688) (34,034) (86,722) (71,987) (49,441) (121,428)Other operating expense (59) - (59) (472) - (472)Restructuring costs (3,087) (1,564) (4,651) (3,585) (5,756) (9,341)Net (loss)/gain on sale of operations 5 (2,216) - (2,216) (2,134) 251 (1,883) ____________________________________________________________________(Loss)/profit from operations before tax and finance items 4 (7,975) 5,216 (2,759) (22,203) (1,056) (23,259) Investment revenue 4,116 374 4,490 950 292 1,242Finance costs (31,913) (1,722) (33,635) (30,761) (1,880) (32,641) ____________________________________________________________________(Loss)/profit from operations before tax (35,772) 3,868 (31,904) (52,014) (2,644) (54,658) Tax - overseas (2,368) 4,107 1,739 4,809 552 5,361 ____________________________________________________________________(Loss)/profit from operations after tax 4 (38,140) 7,975 (30,165) (47,205) (2,092) (49,297) Gain on sale of discontinued operations 5 - 73,106 73,106 - - - ____________________________________________________________________ (Loss)/profit from operations for the year (38,140) 81,081 42,941 (47,205) (2,092) (49,297) ================= ==================Result from discontinued operations 81,081 (2,092) _______ ________Profit/(loss) from operations for the year and attributable to equity holders of the parent 42,941 (49,297) ======= ========(Loss)/earnings per share: 7 ____________________________________________________________________Basic from continuing operations (14.8)p (18.5)pBasic from discontinued operations 31.5p (0.8)p ____________________________________________________________________Basic from total operations 16.7p (19.3)p ____________________________________________________________________Diluted from continuing operations (14.8)p (18.5)pDiluted from discontinued 31.5p (0.8)p operations ____________________________________________________________________Diluted from total operations 16.7p (19.3)p ____________________________________________________________________Average exchange rate £1= $ 1.893 $ 1.786Average ======= ======= exchange rate £1= • 1.476 • 1.466 ======= ======= Danka Business Systems PLC Group Balance Sheet 31st March 31st March 2007 2006 £000 £000 _________ _________Non-current assetsIntangible assets and goodwill 246 2,961Property, plant and equipment 16,195 28,308Other 4,071 6,129 _________ _________ 20,512 37,398 _________ _________Current assetsInventories 16,094 45,977Prepaid expenses 749 3,445Trade and other receivables 30,908 108,868Cash and cash equivalents including restricted cash of £85,842,000 (March 2006 - £11,803,000) - note 9 94,779 43,119 _________ _________ 142,530 201,409 _________ _________ _________ _________Total assets 163,042 238,807 _________ _________ Current liabilitiesTrade and other payables (34,739) (102,064)Tax liabilities (3,209) (5,071)Obligations under finance leases (306) (796)Current portion of long-term borrowings - note 9 (92,969) (6,157)Derivative financial instruments (1,139) (4,835)Deferred revenue (2,984) (18,989)Accrued expenses (21,427) (48,082)Short-term provisions (1,875) (3,665) _________ _________ (158,648) (189,659) _________ _________Non-current liabilitiesBank and other loans (32,482) (132,488)Convertible participating shares (168,201) (175,264)Retirement benefit obligations - (16,928)Deferred tax liabilities - (419)Long-term provisions (898) (4,744)Obligations under finance leases (215) (635)Other (1,691) (4,741) _________ _________ (203,487) (335,219) _________ _________ _________ _________Total liabilities (362,135) (524,878) _________ _________ _________ _________Net liabilities (199,093) (286,071) ========= ========== EquityCapital 202,417 202,094Share options 3,735 3,577Translation reserve 24,032 (17,246)Retained earnings (429,277) (474,496) _________ _________Total equity (199,093) (286,071) ========= ========== Closing exchange rate £1= $ 1.969 $ 1.739 _________ _________Closing exchange rate £1= • 1.472 • 1.433 _________ _________ Danka Business Systems PLC Group Cash Flow Statement For the Three Months Ended 31st March 2007 and 2006 31st March __________________ 2007 2006 Note £000 £000 _______________ ________ Net cash (outflow)/inflow from operating activities 10 (8,155) 10,744 Cash flows from investing activitiesInterest received 896 94Capital expenditure (1,146) (2,762)Proceeds from sale of operations 79,923 -Held for sale cash and cash equivalents 22,000 -Proceeds from sale of property, plant and equipment and equipment on operating leases 514 102 ________ ________Net cash from investing activities 102,187 (2,566) ________ ________ Cash flows from financing activitiesNet (repayments)/borrowings under line of credit agreements (3,108) 5,538Capital payments under finance leases (111) (266)Interest paid (209) (790)Proceeds from new shares issued 1 5 ________ ________Net cash from financing activities (3,427) 4,487 ________ ________ Net increase in cash and cash equivalents 90,605 12,665Cash and cash equivalents at 1st January 4,333 29,506Effect of exchange rate fluctuations on cash held (159) 948 ________ ________Cash and cash equivalents at 31st March 94,779 43,119 ======== ========= Included above in respect of discontinued operations:Net cash outflow from operating activities (720) (2,629)Net cash from investing activities 101,875 (1,036)Net cash from financing activities (782) 738 ======== ========= Danka Business Systems PLC Group Cash Flow Statement For the Year Ended 31st March 2007 and 2006 31st March __________________ 2007 2006 Note £000 £000 _______________ _______ Net cash outflow from operating activities 10 (9,621) (1,926) Cash flows from investing activitiesInterest received 1,233 351Capital expenditure (8,776) (7,583)Proceeds from sale of operations 86,172 9,652Proceeds from sale of property, plant and equipment and equipment on operating leases 1,160 538 ________ ________Net cash from investing activities 79,789 2,958 ________ ________ Cash flows from financing activitiesNet borrowings under line of credit agreements 164 5,424Capital payments under finance leases (727) (1,290)Interest paid (16,065) (16,957)Proceeds from new shares issued 316 352 ________ ________Net cash from financing activities (16,312) (12,471) ________ ________ Net increase/(decrease) in cash and cashequivalents 53,856 (11,439)Cash and cash equivalents at 1st April 43,119 51,947Effect of exchange rate fluctuations on cash held (2,196) 2,611 ________ ________Cash and cash equivalents at 31st March 94,779 43,119 ======== ======== Included above in respect of discontinued operations:Net cash inflow/(outflow) from operating activities 4,748 (7,496)Net cash from investing activities 84,222 (3,399)Net cash from financing activities (1,533) (2,153) ======== ======== Danka Business Systems PLC Group Statement of Recognised Income and Expense For the Three Months Ended 31st March 2007 and 2006 31st March _____________________ 2007 2006 £000 £000 _____________________ Income/(loss) for the period 61,364 (17,575) _____________________Income and expense taken directly to equity:Exchange translation differences in the period 2,277 2,015Exchange translation differences related to disposals recycled to the income statement 5,178 -Actuarial gains/(losses) on defined benefit pension plans 395 (517)Tax on items taken directly to or transferred from equity - - _____________________Total of income and expense taken directly to equity 7,850 1,498 _____________________ _____________________Total recognised income and expense for the period 69,214 (16,077) ===================== Danka Business Systems PLC Group Statement of Recognised Income and Expense For the Year Ended 31st March 2007 and 2006 31st March ___________________ 2007 2006 £000 £000 ___________________ Income/(loss) for the year as originally stated 42,941 (46,881)Restatement (note 2) - (2,416) ___________________Income/(loss) for the year restated 42,941 (49,297) ___________________Income and expense taken directly to equity:Exchange translation differences in the year 36,135 (21,941)Exchange translation differences related to disposalsrecycled to the income statement 5,143 (127)Actuarial gains/(losses) on defined benefit pension plans 2,278 (517)Tax on items taken directly to or transferred from equity - - ___________________Total of income and expense taken directly to equity 43,556 (22,585) ___________________ ___________________Total recognised income and expense for the year 86,497 (71,882) =================== Notes to the Financial Information 1. The financial information for the year ended 31st March, 2007 is audited whilst the financial information for the quarter ended 31st March, 2007 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. This preliminary announcement consists of the consolidated interimfinancial statements of the Company for the three months and year ended 31stMarch, 2007 and 2006, which comprise the Company and its subsidiaries (togetherreferred to as the "Group"). The preliminary announcement was authorised forissuance on 26th June, 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 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. The income statement comprises the loss for the period/year from continuingoperations plus the profit for the period/year from discontinued operationsattributable to the equity holders of the parent. Restructuring costs and thenet loss/gain on sale of operations have been separately disclosed on the faceof the income statement in accordance with IAS 1 in order to assist theassessment of financial performance owing to their materiality and infrequentnature. Restatement The balance sheet as at 31st March, 2005 has been restated to increase otherreceivables by £1.5 million and decrease accrued expenses by £0.9 million inrespect of recoveries of employees' remuneration insurance costs. The £2.4million in respect of employees' remuneration insurance costs reversed duringthe year ended 31st March, 2006 (prior to the quarter ended 31st March, 2006),which increased administrative expenses from the amount originally reported. Theimpact on basic losses per share of the above restatement is to increase thelosses for the year ended 31st March, 2006 by 0.9 pence per share from 18.4pence per share as originally reported to 19.3 pence per share (for the quarterended 31st March, 2006, no impact on previously reported losses per share). 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 31st March Year Ended 31st March ________________________________________________________ 2007 2006 2007 2006 £000 £000 £000 £000 ________________________________________________________RevenueRetail equipment,supplies and related sales 26,999 35,462 105,710 142,024Retail maintenance 29,445 35,757 124,689 150,830Retail rental sales 1,551 1,739 7,389 11,995 ________________________________________________________ 57,995 72,958 237,788 304,849 ======================================================== Gross profitRetail equipment, supplies and related sales 8,272 9,046 30,657 41,635Retail maintenance 9,788 12,749 46,529 56,758Retail rental sales 843 802 5,019 6,144 ________________________________________________________ 18,903 22,597 82,205 104,537 ======================================================== 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), theAmericas is the only primary reportable segment. The Americas segment includesthe 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. It is not appropriateto allocate these costs between the primary segment and the discontinuedoperations. For the three months and year ended 31st March, 2007: Three Months Ended Year Ended 31st March 31st March ______________________ _______________________ 2007 2006 2007 2006 £000 £000 £000 £000 ________ ________ ________ ________RevenueAmericas 57,995 72,958 237,788 304,849 ======== ======== ======== ======== Three Months Ended Year Ended 31st March 31st March ______________________ _______________________ 2007 2006 2007 2006 £000 £000 £000 £000 ________ ________ ________ ________Segment resultAmericas (3,583) (3,344) 508 (3,736)Corporate (2,139) (7,225) (8,483) (18,467) ________ ________ ________ ________Loss before tax and finance costs (5,722) (10,569) (7,975) (22,203)Investment revenue 4,082 897 4,116 950Finance costs (8,703) (10,429) (31,913) (30,761)Tax 231 (495) (2,368) 4,809 ________ ________ ________ ________Total loss fromcontinuing operations (10,112) (20,596) (38,140) (47,205) ======== ======== ======== ======== 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 year ended 31st March, 2006,the Canadian operations had cash inflows from operating activities of £0.3million and cash outflows from investing activities of £0.1 million. During theyear ended 31st March, 2006, the Canadian operations repaid funding from otherGroup entities of £0.5 million. The cash inflow on the disposal after deductingcash 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 yearended 31st March, 2006 and pre- and post-tax losses of £0.3 million in the yearended 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 yearended 31st March, 2006, the Central and South American operations had cashoutflows from operating activities of £0.3 million and cash outflows frominvesting activities of £0.2 million. During the year ended 31st March, 2006,the Central and South American operations had cash outflows from financingactivities of £3.5 million, principally relating to funding from other Groupentities. The cash inflow on the disposal after deducting cash disposed of was£2.7 million, which was recorded in the quarter ended 30th September, 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 year ended 31st March, 2006 and pre- and post-tax losses of £0.4 million inthe 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, but reclassified to gain on sale ofoperations in the following quarter and is included in discontinued 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 £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, but increased in the quarter ended 31stDecember, 2006 by £0.1 million. In the quarter ended 31st March, 2007,additional expenses and various write-offs were recorded in respect of thesedisposals in the amount of £0.7 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 £4.5 million was recorded in the three months ended 30th September, 2006after expenses of £0.2 million. The attributable tax was nil. The Australianoperations are disclosed as discontinued operations. During the year ended 31stMarch, 2007 and the year ended 31st March, 2006, the Australian operations hadcash inflows from operating activities of £0.8 million and £0.6 millionrespectively. During the year ended 31st March, 2007, the Australian operationshad cash inflows from investing activities of £5.8 million (including £6.0million net cash proceeds on the sale) and cash outflows from investingactivities in the year ended 31st March, 2006 of £0.1 million. During the yearended 31st March, 2007 and the year ended 31st March, 2006, the Australianoperations had cash outflows from financing activities of £6.7 million and £0.9million respectively, relating to funding from other Group entities. The cashinflow on the disposal after deducting cash disposed of and the costs of thedisposal was £6.0 million, which was recorded in the quarter ended 30thSeptember, 2006. At 31st August, 2006 prior to disposal, the Australian operations comprisedassets of £7.9 million less liabilities of £5.8 million. The Australianoperations reported revenue of £11.9 million and £27.9 million in the year ended31st March, 2007 and year ended 31st March, 2006 respectively and pre- andpost-tax profits of £0.3 million (excluding the gain on sale) and £0.2 millionin the years ended 31st March, 2007 and 2006 respectively. With effect from 31st January, 2007, the Group sold its European operations toRicoh for $215.0 million (£109.6 million) of which $210 million (£107.1 million)has been received in cash (subject to a $7.5 million (£3.8 million) holdback)and a further $5 million (£2.5 million), being a working capital adjustment, isdue for receipt after 31st March, 2007. A pre-tax gain of £68.6 million has beenrecorded in the three months ended 31st March, 2007 after expenses of £7.0million (a further £0.5 million of expenses were recorded within administrativeexpenses in the prior year) and the recycling of foreign exchange losses of £5.1million. The attributable tax was nil. The European operations are disclosed asdiscontinued operations. During the years ended 31st March, 2007 and 31st March,2006, the European operations had cash inflows from operating activities of £3.9million and outflows from operating activities of £8.1 million respectively andcash inflows from investing activities of £78.4 million (including £80.1 millionnet cash proceeds on the sale) and outflows from investing activities in theyear ended 31st March, 2006 of £3.3 million. During the years ended 31st March,2007 and 2006, the European operations had cash outflows from financingactivities of £107.5 million and inflows from financing activities of £11.0million respectively, principally relating to funding to/from other Groupentities (external financing cash outflows were £1.5 million and £2.2 million inthe years ended 31st March, 2007 and 2006 respectively). The cash inflow on thedisposal after deducting the $5.0 million due in respect of the working capitaladjustment, the holdback, cash disposed of and the costs of the disposal was£80.1 million, which was recorded in the quarter ended 31st March, 2007. At 31st January, 2007 prior to disposal, the European operations comprisedassets of £120.6 million less liabilities of £91.7 million. The Europeanoperations reported revenue of £216.9 million and £293.3 million in the yearsended 31st March, 2007 and 2006 respectively and pre- and post-tax profits of£3.6 million and £7.7 million in the year ended 31st March, 2007 (excluding thegain on sale) and pre- and post-tax losses of £2.8 million and £2.3 million inthe year ended 31st March, 2006. 6. Reconciliation of the weighted average number of basic and diluted ordinary shares in issue Three Months Ended Year Ended 31st March 31st March ________________________ ______________________ 2007 2006 2007 2006 _______ _______ _______ _______Shares in issue at 1st January/April 258,868,352 256,502,508 256,529,024 254,188,656Effect of shares issued during the period 10,150 16,499 921,373 1,269,861 _______ _______ _______ _______Average number of ordinary shares in issue - basic 258,878,502 256,519,007 257,450,397 255,458,517Average outstanding share options - - - -Convertible participating shares - - - - _______ _______ _______ _______Average number of ordinary shares in issue - diluted 258,878,502 256,519,007 257,450,397 255,458,517 ========= ========= ========= ========= 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/profit 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 31st March 2007 2006 _____________________ _____________________ Pence Pence £000 Per Share £000 Per Share ________ _________ ________ _________Basic loss from continuing operations (10,112) (3.9) (20,596) (8.0)Unusual items arising in respect of:Restructuring of worldwide operations 107 1,836Tax effect - - ______ ______Net of tax effect 107 - 1,836 0.7Disposal of operations 723 (17)Tax effect - - ______ ______Net of tax effect 723 0.3 (17) -Exceptional tax credit - - (685) (0.3) ________ _________ ________ _________Adjusted basic loss from continuing operations (9,282) (3.6) (19,462) (7.6) ======= ======== ======= ========Diluted loss from continuingoperations (10,112) (3.9) (20,596) (8.0) ======= ======== ======= ======== Adjusted diluted loss from continuing operations (before unusual items) (9,282) (3.6) (19,462) (7.6) ======= ======== ======= ========Basic and diluted earnings from discontinued operations 71,476 27.6 3,021 1.1 ======= ======== ======= ========Basic and diluted earnings from total operations 61,364 23.7 (17,575) (6.9) ======= ======== ======= ======== Year Ended 31st March 2007 2006 ____________________ ____________________ Pence Pence £000 Per Share £000 Per Share ________ _________ ________ _________Basic loss from continuing operations (38,140) (14.8) (47,205) (18.5)Unusual items arising in respect of:Restructuring of worldwide operations 3,087 3,585Tax effect - - ______ ______Net of tax effect 3,087 1.2 3,585 1.4Disposal of operations 2,216 2,134Tax effect - - ______ ______Net of tax effect 2,216 0.8 2,134 0.9Sales tax credit - (3,062)Tax effect - - ______ ______Net of tax effect - - (3,062) (1.2)Exceptional tax credit - - (6,664) (2.6) ________ _________ ________ _________Adjusted basic loss from continuing operations (32,837) (12.8) (51,212) (20.0) ======= ======== ======= ========Diluted loss from continuing operations (38,140) (14.8) (47,205) (18.5) ======= ======== ======= ========Adjusted diluted loss from continuing operations (before unusual items) (32,837) (12.8) (51,212) (20.0) ======= ======== ======= ========Basic and diluted earnings/(loss) from discontinued operations 81,081 31.5 (2,092) (0.8) ======= ======== ======= ========Basic and diluted earnings/(loss) from total operations 42,941 16.7 (49,297) (19.3) ======= ======== ======= ======== 8. The following shows the computation of free cash flow: Three Months Ended 31st March Year Ended 31st March _____________________________ ______________________ 2007 2006 2007 2006 £000 £000 £000 £000 _______ _______ _______ _______Cash (outflow)/ inflow from operating activities (8,155) 10,744 (9,621) (1,926) Cash inflow/ (outflow) from investing activities 102,187 (2,566) 79,789 2,958Less: cash flow from acquisitions and disposals (101,923) - (86,172) (9,652)Less: cash outflow/(inflow) from operating activities of discontinued operations 720 2,629 (4,748) 7,496Less: cash (inflow)/outflow from investing activities of discontinued operations (101,875) 1,036 (84,222) 3,399Add back: cash flow from acquisitions and disposals of discontinued operations 101,923 - 86,172 9,652 _______ _______ _______ _______Free cash flow - continuing (7,123) 11,843 (18,802) 11,927 operations ========= ======== ======== ======= 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 31st As at 31st March March 2007 2006 £000 £000 __________ ___________ Current portion of long-term borrowings 92,969 6,157Non-current bank loans 32,482 132,488Convertible participating shares including derivative financial instruments 169,340 180,099Finance leases 521 1,431Less: cash and cash equivalents (94,779) (43,119) __________ ___________Net debt 200,533 277,056 ========== =========== Restricted cash for the Group at 31st March, 2007 totalled £85,842,000 (2006 -£11,803,000) and comprises the following: $151.8 million (£77.1 million; 2006 -£Nil) of the net proceeds of the sale of the European businesses which can beused in repaying the 11% senior notes as described below; $15.8 million cash(2007 - £8.0 million; 2006 - £Nil) of the European sale proceeds is required tobe kept in an escrow account by the Group's credit facility with Bank ofAmerica; $Nil cash (2007 - £Nil; 2006 - £2.9 million) required to be kept in anoperating account by the Group's credit facility with Bank of America;collateralisation of the Group's letters of credit held by ABN Amro totalling£Nil and £8.2 million as at 31st March, 2007 and 31st March, 2006 respectively;and collateralisation of the Group's letters of credit held by other financialinstitutions totalling £0.7 million and £0.7 million as at 31st March, 2007 and2006 respectively. £87.6 million of the current portion of long-term borrowing in the table aboverelates to the Group's 11% senior notes. The indenture governing the 11% seniornotes restricts the use of the net proceeds (as defined in the indenture) fromthe sale of the European businesses. Per the terms of the indenture, the use ofthese net proceeds is restricted to the following: • repayment of indebtedness under the Group's credit facility with a corresponding reduction in the amount available under the facility; • acquisitions of other companies; • capital expenditures; • acquisitions of other long-term assets deemed useful by the Group. Within 365 days from the date of sale, the Group is obliged to make a tenderoffer at par for the outstanding 11% senior notes using the balance of the netproceeds that has not been used for any of the permitted expenditures listedabove. As a result of this obligation, the 11% senior notes have been classifiedas current debt in the Group balance sheet. In compliance with this requirement,the Group initiated a tender offer at par to the holders of the senior notes on25th June, 2007 as described in note 12. Also on 25th June, 2007, the Group completed a new financing arrangement with GECapital Corporation for $145.0 million (£73.7 million). The Credit Facilityincludes a $40 million (£20.3 million) senior secured revolving credit facility(the "Revolver"), a $60 million (£30.5 million) senior secured term loan (the"Term Loan") and a $45 million (£22.9 million) second lien loan (the "SecondLien Loan"). The Revolver and Term Loan are expected to terminate on the earlierof 18th June, 2012 and the date that is six months prior to the maturity ofthe Group's 6.50% convertible participating shares, which is currently December2010. The Second Lien Loan is expected to terminate on 18th December, 2012.Proceeds from this financing will be utilised in conjunction with the proceedsof the Group's previously completed sale of its European businesses to reduceand refinance the Group's existing debt and enhance working capital. A Notice of Redemption was initiated by the Group on 25th June, 2007 to theholders of the 11% senior notes (the "Notes") that the Group has elected toredeem and pay and will redeem and pay on 27th July, 2007 (the "RedemptionDate") all of its outstanding Notes at a redemption price equal to 105.5% of theprincipal amount of the Notes plus accrued and unpaid interest thereon to theRedemption Date. A Notice of Redemption was initiated by the Group on 25th June, 2007 to theholders of the 10% subordinated notes that the Group has elected to redeem andpay and will redeem and pay on 27th July, 2007 (the "Redemption Date") all ofits outstanding 10% notes at a redemption price equal to 100% of the principalamount of the 10% notes plus accrued and unpaid interest thereon to theRedemption Date. 10. Net cash flow from operating activities Three Months Ended Year Ended 31st March 31st March _____________________ _____________________ 2007 2006 2007 2006 £000 £000 £000 £000 ________ ________ ________ ________Loss before tax (7,912) (19,281) (31,904) (54,658)Restructuring cost (release)/expense (19) 3,701 4,651 9,341Cash paid in respect of restructuring charges (722) (2,228) (6,360) (11,308)Depreciation and amortisation 1,954 3,639 10,121 16,720(Gain)/loss on sale of property, plant and equipment and equipment on operating leases (414) 835 (612) 1,421Loss/(gain) on sale of operations 723 (268) 2,216 1,883Share-based payments 91 1,099 158 1,916Net finance costs 5,328 8,984 29,145 31,399(Increase)/decrease in inventories (972) 5,919 (8,991) 5,636Decrease in receivables 6,224 4,026 10,824 21,504(Decrease)/increase in payables and retirement benefit obligations (12,314) 10,842 (17,759) (18,597)Tax paid (122) (6,524) (1,110) (7,183) ________ ________ ________ ________Net cash flow from operating activities (8,155) 10,744 (9,621) (1,926) ========== ========== ========== ========== 11. Group Statement of Changes in Equity for the Three Months and Years Ended 31st March, 2007 and 2006 31st March _________________________ 2007 2006 £000 £000 _________ _________ Balance at 1st January (268,406) (271,098)Profit/(loss) for the period 61,364 (17,575)Shares issued 8 5Share option expense in the period 91 1,099Exchange translation differences in the period 2,277 2,015Exchange translation differences related to disposals 5,178 -Actuarial gains/(losses) on defined benefit pension plans 395 (517) _________ _________Balance at 31st March (199,093) (286,071) ========== ========== 31st March ________________________ 2007 2006 £000 £000 _________ _________ Balance at 1st April - as originally reported (286,071) (218,873)Restatement - note 2 - 2,416 _________ _________Balance at 1st April - restated (286,071) (216,457)Profit/(loss) for the year 42,941 (49,297)Shares issued 323 352Share option expense in the year 158 1,916Exchange translation differences in the year 36,135 (21,941)Exchange translation differences related to disposals 5,143 (127)Actuarial gains/(losses) on defined benefit pension plans 2,278 (517) _________ _________Balance at 31st March (199,093) (286,071) ========== ========== 12. Post balance sheet events On 2nd May, 2007, the Group received notification from Ricoh Europe B.V.("Ricoh") that, after completing the Completion Accounts and Completion Scheduleper the Share Purchase Agreement dated 12th October, 2006, the Group is entitledto a purchase price adjustment of $5.0 million (£2.5 million) on the sale of itsEuropean businesses. While the Group has 60 days to review and examine theCompletion Accounts and Completion Schedule, it does not intend to object to thenotice provided by Ricoh. As such, the financial statements presented hereinreflect the purchase price adjustment. On 25th June, 2007, the Group completed a new financing arrangement with GECapital Corporation for $145.0 million (£73.7 million). The Credit Facilityincludes a $40 million (£20.3 million) senior secured revolving credit facility(the "Revolver"), a $60 million (£30.5 million) senior secured term loan (the"Term Loan") and a $45 million (£22.9 million) second lien loan (the "SecondLien Loan"). The Revolver and Term Loan are expected to terminate on the earlierof 18th June, 2012 and the date that is six months prior to the maturity ofthe Group's 6.50% convertible participating shares, which is currently December2010. The Second Lien Loan is expected to terminate on 18th December, 2012.Proceeds from this financing will be utilised in conjunction with the proceedsof the previously completed sale of the European businesses to reduce andrefinance the Group's existing debt and enhance working capital. The Lien CreditAgreements governing this new financing arrangement contain customary covenantsthat the Group must comply with on a quarterly basis relating to leverageratios, fixed charge coverage ratio, capital expenditures and cumulativeearnings before interest, tax, depreciation and amortisation ("EBITDA")calculated using financial information prepared under U.S. generally acceptedaccounting principles. The borrowings under the financing arrangement willaccrue interest at one of the following rates, at the Group's option: (i) in thecase of a base rate loan, at the base rate plus the applicable margin; (ii) if aeurodollar rate loan, at the eurodollar rate plus the applicable margin; and(iii) in the case of swing line loans, at the base rate plus the applicablemargin. The applicable margin is initially, with respect to each of base rateloans and eurodollar rate loans, a fixed percentage per annum, and thereafter,with respect to the revolving loans, swing line loans and term loans, apercentage per annum, determined by reference to the leverage ratio in effectfrom time to time. The Group expects to incur $8.0 million (£4.1 million) indebt issue costs which will be amortised over the term of the agreement. A Notice of Redemption was initiated by the Group on 25th June, 2007 to theholders of the 11% senior notes (the "Notes") that the Group has elected toredeem and pay and will redeem and pay on 27th July, 2007 (the "RedemptionDate") all of its outstanding Notes at a redemption price equal to 105.5% of theprincipal amount of the Notes plus accrued and unpaid interest thereon to theRedemption Date. A Notice of Redemption was initiated by the Group on 25th June, 2007 to theholders of the 10% subordinated notes that the Group has elected to redeem andpay and will redeem and pay on 27th July, 2007 (the "Redemption Date") all ofits outstanding 10% notes at a redemption price equal to 100% of the principalamount of the 10% notes plus accrued and unpaid interest thereon to theRedemption Date. Issue costs and discount relating to existing indebtedness that will berefinanced as a result of this refinancing will be written off upon theindebtedness being extinguished; such costs and discount total £1.8 million asat 31st March, 2007. 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 ExchangeRelated Shares:
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