Second warning hits Danka shares

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SHARES in Danka Business Systems, the photocopier distributor, fell by more than 20 per cent after the company warned that first-quarter profits would be 10 per cent lower than expected.

The announcement was the second profit warning from Danka in seven months. In December shares in Danka, a former stock-market star, more than halved after it admitted that the integration of Kodak's office-imaging business was proving more complex than initially thought.

Yesterday, shares in Danka closed down 58.5p on the day at 205p. At their peak the shares were trading at 835p.

Mark Vaughan-Lee, Danka's chief executive, said the problems were confined to sales in the company's US hardware division. "International sales remain strong," he said.

Mr Vaughan-Lee identified two key US difficulties. He explained: "First, on 1 April, we announced a new compensation programme which would bring Danka and Kodak employees into line. This has produced uncertainty in the field, and we need to rekindle motivation. Second, we have talked about the necessity of increasing our sales force. It takes time to train people and to bring them up to speed." He added: "We always said this would be a transition year in merging the two businesses."

In September 1996 Danka announced it was buying Kodak's office-imaging business for $684m, which doubled the size of the company.

Mr Vaughan-Lee said the solution to Danka's problems was partly one of time, and that the company now needed to focus on driving up morale.

In a statement, Danka said: "The company expects revenue for its first quarter ending 30 June 1998 to be approximately 10 per cent below market expectations. The company's revenue and net earnings for the fiscal year to 31 March 1999 are also expected to be negatively impacted."

Analysts had been expecting Danka to achieve pre-tax profits of pounds 87m for the year to March 1999. The company is scheduled to report first-quarter results on 13 August.