DANKA"3RD Q. REVENUE OF $932MILLION

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Date: Friday February 11, 2005 11:21:00 am
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    Danka Announces
    Third-Quarter Operating Results and Next Phase of Vision 21 Initiative Designed
    to Reduce Costs by $60 – $73 Million Annually

    ST. PETERSBURG, Fla.—-Danka Business Systems PLC today 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.

    Other key
    third-quarter financial metrics:

    — Total
    third-quarter revenue was $313.8 million, a 5.2% decline from the year-ago
    quarter but 1.7% higher than the second quarter. Retail equipment and related
    revenue was essentially flat both year-over-year and sequentially. Retail
    service revenue was 3.2% lower than the year-ago period but 3.5% higher
    sequentially. Adjusting for a positive currency exchange of $13.6 million during
    the quarter, total revenue declined by 9.3% year-over-year.


    Consolidated gross margins were 36.1% of revenue, essentially flat with the
    year-ago quarter. Equipment and related margins remained steady at 35.6% and
    service margins were stable at 38.8%.


    SG&A expenses were $116.4 million, compared to $108.7 million in the
    year-ago quarter. The current quarter included Sarbanes-Oxley compliance costs
    and consulting expenses related to the Vision 21 initiative which combined for
    over $4 million of incremental expense, as well as an unfavorable impact from
    currency exchange rates. The year-ago period includes a one-time favorable
    pension adjustment of $3 million. As a percentage of revenue, SG&A was 37.1%
    in the current quarter.

    — The
    operating loss was $4.2 million, compared to a loss of $10.6 million in the
    year-ago quarter. The year-ago quarter included a $20.0 million restructuring
    charge. Net earnings were $4.5 million, compared to a net loss of $16.9 million
    in the year-ago quarter. The current quarter includes a one-time income tax
    benefit of $19.8 million resulting from favorable settlements of tax liabilities
    in our European operations. Including the impact of dividends on participating
    shares, basic and diluted loss was $0.01 per share, compared to a loss of $0.35
    per share in the year-ago period.

    — Free
    cash flow (net cash provided by operating activities less capital expenditures)
    was negative $18.6 million, compared to positive $21.9 million in the second
    quarter. Cash usage in the current quarter included a $13.2 million increase in
    inventory, $13.0 of million semi-annual interest payments on our outstanding
    notes, a $7.2 million increase in net Accounts Receivable and $2.1 million for
    the acquisition of Image One Corporation. Capital expenditures were $5.9
    million. The company’s cash balance at the end of the third quarter was $89.3
    million.

    — For
    the nine-months ended December 31, 2004, total revenue was $932.8 million,
    compared to $987.8 million in same period last year. Gross margins were steady
    at 36.9%, while SG&A declined by 3%. Operating earnings improved to $9.6
    million, compared to a year-ago loss of $4.7 million, and net earnings improved
    to $3.0 million, compared to year-ago loss of $35.0 million.The current year
    net income included a tax benefit of $19.8 million, principally due to favorable
    tax settlements in our European operations. The year ago period net loss
    included restructuring charges of $19.5 million for the nine month period and
    the write-off of debt issuance costs of $20.6 million due to the early repayment
    of our credit facility.

    “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
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