Danka Announces Third-Quarter Operating Results8 Feb, 2005
Danka Announces Third-Quarter Operating Results
Danka Business Systems PLC announced third-quarter results for the period ended December 31, 2004 that include revenue of $313.8 million, gross margins of 36.1%, an operating loss of $4.2 million and net earnings of $4.5 million. The company's net earnings were favorably impacted by a $19.8 million income tax benefit, principally from tax settlements in its European operations.
"Our third-quarter results reflect steady performance in certain areas of our business, including our overall retail equipment and related revenue and total margins, which remain relatively stable," said Todd Mavis, Danka's Chief Executive Officer. "I am most pleased with the continuing validation of our TechSource strategy which continues to gain momentum in the marketplace. I am also delighted to announce that this week Danka entered into an agreement with a preeminent manufacturer of printers and related office peripheral products to provide warranty, repair, maintenance and installation services on its installed base of printers and related products worldwide. Under this agreement, Danka becomes one of a select few service companies authorized to provide such services. Our TechSource strategy was further enhanced during the quarter with the acquisition of Image One, a highly regarded printer services business which provides us with strategic management and marketing expertise and access to new products and services. Further, this expands our customer base and leverages our service infrastructure. Finally, we continued to refine our market focus by divesting non-strategic businesses in Portugal and Russia."
The Company also unveiled the next phase of its Vision 21 initiative which is comprised of strategic growth investments and cost reduction initiatives designed to optimize business operations, improve customer relationships around the world and achieve annualized savings of between $60 and $73 million once fully implemented.
"The worldwide Danka management team is excited about what this phase of Vision 21 will mean for our future," continued Mavis. "Our progress has continued to be impacted by inefficiencies in our business which contributes to a cost structure that remains too high. The launch of this new phase of our Vision 21 initiative represents definitive action to address these issues and will fundamentally strengthen our operating and financial performance. During this phase we will create a more customer-centric platform and improve our business processes and product delivery capabilities by eradicating a whole series of complexities in our business, from simplifying pricing and contracts to improving billing systems. We are confident these actions will provide the foundation to leverage our strategies and operations and enable us to invest more resources in our strategies as we substantially reduce operating expenses and our cost of goods sold. We expect to begin seeing the impact of these actions as early as next quarter."
Danka estimates that this phase of its Vision 21 program will reduce operating expenses and cost of goods sold by $60 - 73 million per year when fully implemented. The process improvements will result in a 12% decrease in the worldwide work force, facility consolidations and other related savings. The actions needed to achieve these savings will be taken in steps over the next two to three quarters and will require up to $37 million of cash. The expected payback on the cash usage is less than 12 months. The company expects to take a charge to earnings of approximately $20 to $35 million over the next several quarters.
"Our overall liquidity levels remain solid even as we made strategic investments in inventory, capital expenditures and our acquisition of Image One during the quarter," noted Mark Wolfinger, Danka's Chief Financial Officer. "Although several factors, including the timing of our revenues in the U.S., resulted in an increase in our accounts receivable balance, we would expect this to be an opportunity to create additional liquidity in the future for our strategic initiatives."