Danka Reports Second Quarter Results; Second Quarter Equipment Sales Increase 10% Over the First Quarter.

ST. PETERSBURG, Fla.--(BUSINESS WIRE)--Oct. 29, 1999--

Danka Business Systems PLC (Nasdaq:DANKY) today announced results for its second quarter and six months ended September 30, 1999. For the three months ended September 30, 1999, earnings from operations increased to $36.1 million compared to a loss of $2.7 million for the comparable quarter last year. Net earnings, excluding a $1.5 million after-tax loss resulting from the sale of the Company's Omnifax business in July 1999, increased to $8.2 million or $0.14 per American Depositary Share ("ADS"), versus a loss of $0.23 per ADS for the comparable quarter last year. Including the after-tax loss of $0.02 per ADS on the sale of Omnifax, the Company earned $0.12 per ADS for the second quarter.

For the six months ended September 30, 1999, earnings from operations increased to $75.1 million compared to $20.7 million for the six months ended September 30, 1998. Excluding the loss from the sale of Omnifax, net earnings for the six months increased to $20.5 million or $0.35 per ADS compared to a loss of $0.15 for the same period a year ago.

Operational Overview

Revenue for the second quarter fell 15% to $620.3 million from $733.8 million in the comparable quarter last year. Excluding the U.S. wholesale division closed in March 1999 and the Company's Omnifax business sold in July 1999, revenue declined 10% over the comparable quarter.

Sequentially, second quarter revenue fell 4% primarily due to a decline in retail service, supplies and rentals revenue as well as the sale of the Omnifax business. On a comparable basis, excluding Omnifax, revenue declined 1% sequentially. The decline was partially offset by a 10% increase in retail equipment sales during the second quarter. The decline in retail service, supplies and rentals revenue was related to lower service and supply revenue due in part from summer seasonality.

"We are pleased with the continued operational improvements in Danka's business as a result of our worldwide restructuring initiatives substantially completed at the end of last quarter," commented Larry K. Switzer, Chief Executive Officer. "As anticipated, we are realizing additional savings in our operating expenses and achieved great success with our sales force and stronger product portfolio by generating a 10% increase in retail equipment sales during the second quarter."

Brian L. Merriman, President and Chief Operating Officer, added, "We are delighted with the improvements in our equipment sales. The vendor alliances we built in fiscal 1999 and the introduction of new products in color, digital and high-volume are improving our top-line. Our sales force productivity was up 13% on a worldwide basis compared with last year."

The combined gross profit margin increased to 35.3% for the second quarter of fiscal 2000 compared to 32.2% for the same period a year ago, due to improvements in the Company's retail equipment and retail service, supplies and rentals margin.

The retail equipment margin was up 200 basis points compared with the same quarter last year and up 20 basis points sequentially. The improvements are primarily related to the Company's inventory management initiatives taken during fiscal 1999 and changes in the current product mix resulting from new, higher margin products in color, digital and high-volume. Strengthened by the Company's expanded product portfolio, placements of black and white digital and color equipment grew solidly in the second quarter, increasing 31% and 9%, respectively. The launch of the DigiSource 9110 in July has been highly successful in both the U.S. and international markets.

The Company's retail service, supplies and rentals margin increased to 39.0% for the second quarter compared with 36.0% for the comparable quarter last year primarily due to improvements in U.S. service productivity. Compared with the first quarter, the retail service, supplies and rentals margin declined 270 basis points from 41.7% primarily due to declines in the Company's service and supply margins, due in part from summer seasonality.

Selling, general and administrative expenses ("SG&A") declined 19% to $179.6 million for the second quarter of fiscal 2000 compared with the same period last year. The decline was primarily due to cost savings achieved through the Company's restructuring initiatives and worldwide cost reduction program implemented last year as well as the closure of its U.S. wholesale division and the sale of Omnifax. Sequentially, SG&A expenses also improved declining 10% from the first quarter. As a percentage of revenue, SG&A expenses declined 190 basis points to 29.0% for the second quarter of fiscal 2000 compared to 30.9% for the recently reported first quarter. The decline reflects additional cost savings relating to the Company's restructuring initiatives and worldwide cost reduction program substantially completed in June.

Cash Flow & Financing

The Company generated $74.8 million in operating cash flow for the three months ended September 30, 1999 compared to $19.4 million for the comparable period last year.

As previously reported, the Company completed the sale of its facsimile business, Omnifax, to Xerox Corporation for $45.0 million in cash on July 30, 1999. The Company recorded a $1.5 million after-tax loss ($2.1 million pre-tax) related to the sale of Omnifax. The loss is reflected in interest & other, net in the Company's Consolidated Statements of Operations for the three and six months ended September 30, 1999.

For the three months ended September 30, 1999, the Company generated $73.6 million in EBITDA, or 11.9% of revenue, including the loss on Omnifax, compared to $37.5 million or 5.1% for the comparable quarter last year.

Danka Business Systems PLC, headquartered in London, England and St. Petersburg, Florida, is one of the world's largest independent suppliers of office imaging equipment, supplies and services. Danka provides office products and services globally in 30 countries around the world. Danka's Ordinary shares are listed on the London Stock Exchange and its ADSs are listed on NASDAQ. For additional information about copier, printer and other office imaging products, please visit Danka's web site at www.danka.com.

Forward-Looking Statements 

Certain statements contained in this press release, or otherwise made by officers of the Company, including statements related to the Company's future business and financial performance, are forward-looking, and contain information relating to the Company that is based on the beliefs of management as well as assumptions, made by, and information currently available to, management. The words "goal", "anticipate", "expect", "believe" and similar expressions as they relate to the Company or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in the forward-looking statements. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Act of 1995. Factors that might cause such differences include, but are not limited to (i) failure to obtain one or more waivers or longer term financing beyond the July 31, 2000 waiver period to meet the Company's liquidity needs, (ii) increased competition resulting from other high-volume and digital copier distributors and the discounting of such copiers by competitors, (iii) any inability by the Company to refinance its outstanding debt in a timely fashion, (iv) any inability by the Company to procure or any inability by the Company to continue to gain access to and successfully distribute new, products, including digital products and high-volume copiers, or to continue to bring current products to the marketplace at competitive costs and prices, (v) any inability by the Company to maintain achieved cost savings, (vi) business disruption resulting from year 2000 issues including unidentified noncompliance of technology, delays or difficulties in implementing new IT infrastructure, delays or difficulties in converting remaining systems and applications, and untimely third party completion of year 2000 compliance, (vii) any negative impact from the loss of any key upper management personnel, (viii) fluctuations in foreign currencies and (ix) other risks including those risks identified in any of the Company's other filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date they are made. The Company undertakes no obligation and does not intend to update these forward-looking statements to reflect events or circumstances that arise after the date such statements are made. Furthermore, as a matter of policy, the Company does not generally make any specific projections as to future earnings nor does it endorse any projections regarding future performance, which may be made by others outside the Company. -0-

DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per American Depositary Share ("ADS") amounts)

                                        For the three months ended
                                     September 30,       September 30,
                                         1999                1998
                                     (Unaudited)         (Unaudited)
Revenue:
Retail equipment sales                $  181,329          $  203,997
Retail service, supplies and rentals     414,928             476,318
Wholesale                                 24,022              53,529
   Total revenue                         620,279             733,844

Costs and operating expenses:
Cost of retail equipment sales           128,841             149,186
Retail service, supplies and
  rental costs                           253,107             304,639
Wholesale costs of revenue                19,090              43,919
Selling, general and administrative
  expenses                               179,622             221,340
Amortization of intangible assets          3,503               5,007
Commitment to Kodak under R&D
  agreements                                  --              12,500
   Total costs and operating expenses    584,163             736,591

Earnings (loss) from operations           36,116              (2,747)
Interest expense and other, net           26,729              18,520

Earnings (loss) before income taxes        9,387             (21,267)
Provision (benefit) for income taxes       2,628              (7,912)

Net (loss) earnings                   $    6,759          $  (13,355)

Basic earnings (loss) per ADS:
  Net earnings (loss) per ADS         $     0.12          $    (0.23)
  Weighted average ADSs                   57,017              56,874

Diluted earnings (loss) per ADS:
  Net earnings (loss) per ADS         $     0.12          $    (0.23)
  Weighted average ADSs                   58,345              56,874

Note: Certain prior year amounts have been reclassified to
      conform with the current year presentation.



DANKA BUSINESS SYSTEMS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per American Depositary Share ("ADS") amounts)

                                        For the six months ended
                                     September 30,       September 30,
                                         1999                1998
                                     (Unaudited)         (Unaudited)
Revenue:
Retail equipment sales                $  346,481          $  398,665
Retail service, supplies and rentals     865,649             978,865
Wholesale                                 53,858             121,713
   Total revenue                       1,265,988           1,499,243

Costs and operating expenses:
Cost of retail equipment sales           246,553             290,251
Retail service, supplies and
  rental costs                           515,683             606,723
Wholesale costs of revenue                42,440             101,669
Selling, general and administrative
  expenses                               379,077             444,565
Amortization of intangible assets          7,084              10,379
Commitment to Kodak under R&D
  agreements                                  --              25,000
   Total costs and operating expenses  1,190,837           1,478,587

Earnings from operations                  75,151              20,656
Interest expense and other, net           48,760              33,944

Earnings (loss) before income taxes       26,391             (13,288)
Provision (benefit) for income taxes       7,389              (4,944)

Net earnings (loss)                   $   19,002          $   (8,344)

Basic earnings (loss) per ADS:
  Net earnings (loss) per ADS         $     0.33          $    (0.15)
  Weighted average ADSs                   57,017              56,874

Diluted earnings (loss) per ADS:
  Net earnings (loss) per ADS         $     0.33          $    (0.15)
  Weighted average ADSs                   57,825              56,874

Note: Certain prior year amounts have been reclassified to
      conform with the current year presentation.


DANKA BUSINESS SYSTEMS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

                                      September 30,        March 31,
                                          1999               1999
                                      (Unaudited)          (Audited)
Assets
Current assets:
Cash and cash equivalents              $  74,028          $   66,095
Accounts receivable, net                 560,276             571,470
Inventories                              343,755             356,139
Prepaid expenses, deferred
  income taxes and other current
  assets                                  66,809              56,951
Assets of business held for sale              --              62,791
   Total current assets                1,044,868           1,113,446
Equipment on operating leases, net       248,405             264,625
Property and equipment, net               91,217              92,963
Intangible assets, net                   329,860             337,441
Deferred income taxes and other
  assets                                  85,962              96,667
   Total assets                       $1,800,312          $1,905,142

Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term
  debt and notes payable              $   97,984          $   89,732
Accounts payable                         176,167             162,294
Accrued expenses and other
  current liabilities                    281,248             333,446
Deferred revenue                          49,646              51,818
Liabilities of business held
  for sale                                    --              17,240
   Total current liabilities             605,045             654,530
Convertible subordinated notes           200,000             200,000
Long-term debt and notes payable,
  less current maturities                779,937             852,415
Deferred income taxes and other
  long-term liabilities                   26,942              27,033
   Total liabilities                   1,611,924           1,733,978

Shareholders' equity:
Ordinary shares, 1.25 pence
  stated value                             4,758               4,758
Additional paid-in capital               304,436             304,436
Retained earnings (deficit)              (53,813)            (72,815)
Accumulated other comprehensive
  (loss) income                          (66,993)            (65,215)
   Total shareholders' equity            188,388             171,164
   Total liabilities and
    shareholders' equity              $1,800,312          $1,905,142