Moody's downgrades Danka

Moody's Investors Service said it downgraded the corporate family rating of Danka Business Systems plc to B3 from B2, affirmed the B3 $175 million senior unsecured notes due 2010 and maintained the negative outlook.

The downgrade reflects continued weak financial performance, negative cash flow from operations and a difficult competitive environment, the agency said. Despite a series of worldwide restructuring and operational initiatives over the last few years, Danka has been unable to reverse a trend of declining revenues and profitability.

Moody's attributed the poor performance to the inability of the company to adapt its high-cost business model to the intense competition and rapid technological change in the office imaging industry. Danka has lost market share consistently over the last few years, and its cash flow stream from its legacy analog service contracts has contracted sharply as the market continues to rapidly transition from analog to digital devices.

Danka's liquidity has weakened significantly in its 2006 fiscal year with cash and cash equivalents of $50 million as of Dec. 31 compared to $92 million at March 31, 2005, the agency said.

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