Advantex Marketing International Inc. ("Advantex" or the "Company") (CNSX:ADX),
a leading specialist in merchant funding and loyalty marketing programs, today
announced its results for the fiscal fourth quarter and year ended June 30,
2011. All references to quarters or years are for the fiscal periods and all
currency amounts are in Canadian dollars unless otherwise noted.
Year ended June 30, 2011 (Fiscal 2011) Overview
"We had many successes in securing opportunities that will allow the Company to
expand its business profitably. A multi-year renewal of our agreement with the
Canadian Imperial Bank of Commerce ("CIBC"), an arrangement that accounts for
about 90% of the Company's gross profit; the launch of the Company's programs
into a new business segment per agreement with Aeroplan Canada Inc.
("Aeroplan"); and extension of its agreement with Accord Financial Inc.
("Accord") that gives access to a $8.5 million line of credit which the Company
can access to increase merchant participation in its Advance Purchase Marketing
("APM") program are key highlights during this fiscal year. Additionally, the
Company re-financed its debentures providing financial stability, and increased
the average number of merchants participating in its program to 823 during
current Fiscal 2011 from 627 during previous Fiscal 2010," said Kelly Ambrose,
Advantex President and Chief Executive Officer.
"While the operational launch of the Aeroplan sponsored program was a success in
terms of merchant recruitment and consumer usage, the financial outcome was
below expectations because of higher than planned reward cost due to
dramatically higher consumer uptake of the loyalty reward program. Accordingly,
in conjunction with Aeroplan, we lowered reward cost per transaction. However,
by the time the reward issue was rectified in March 2011, and the Company
re-started the sales process, about four months of selling time was lost. Sales
staff was ramped up, to take advantage of the Aeroplan and other opportunities,
during the third quarter of Fiscal 2011, and the results for Fiscal 2011 reflect
the cost, while its benefits in terms of increased merchant participation and
higher revenues are expected to be enjoyed in the next fiscal year. The net
outcome of high reward costs, lost selling time, and increased selling costs was
a net loss despite a 13% increase in revenues. Our goal was to build on the net
profit of $34,000 of Fiscal 2010 and from this perspective Fiscal 2011, despite
a 13% increase in revenues, was a disappointment," said Mr. Ambrose.
Financial Highlights
----------------------------------------------------------------------------
3 months 3 months 12 months 12 months
ended June ended June ended June ended June
30, 2011 30, 2010 30, 2011 30, 2010
----------------------------------------------------------------------------
Revenues $ 3,667,000 $ 3,195,000 $13,523,000 $11,961,000
----------------------------------------------------------------------------
Gross Profit $ 2,249,000 $ 2,210,000 $ 9,060,000 $ 8,315,000
----------------------------------------------------------------------------
Gross Margin 61.3% 69.2% 67.0% 69.5%
----------------------------------------------------------------------------
Contribution from
Operations (EBITDA(i)) $ 401,000 $ 629,000 $ 2,170,000 $ 2,337,000
----------------------------------------------------------------------------
Amortization $ 89,000 $ 137,000 $ 439,000 $ 459,000
----------------------------------------------------------------------------
Stated Interest $ 431,000 $ 353,000 $ 1,593,000 $ 1,289,000
----------------------------------------------------------------------------
Non-cash Interest $ 134,000 $ 171,000 $ 612,000 $ 670,000
----------------------------------------------------------------------------
Profit / (Loss)
Discontinued operations $ - $ 45,000 $ (18,000) $ 114,000
----------------------------------------------------------------------------
Net Profit/(Loss) $ (252,000) $ 13,000 $ (492,000) $ 34,000
----------------------------------------------------------------------------
Some numbers in the above presentation may not add due to rounding.
(i) EBITDA is a non-GAAP financial measure which does not have any
standardized meaning prescribed by the issuer's GAAP and is therefore
unlikely to be comparable to similar measures presented by other issuers.
For the Company, the most directly comparable measure to EBITDA is Profit
before Amortization and Interest.
The Company's revenues increased 13.1% in Fiscal 2011, a reflection of increased
merchant participation in the programs. The Company's premier product, APM,
generated revenues of $8.7 million in Fiscal 2011 compared with $7.4 million
during Fiscal 2010, representing 64.6% and 61.5% of the Company's revenues for
Fiscal 2011 and Fiscal 2010 respectively.
Gross Margins at 67.0% for Fiscal 2011 declined when compared with 69.5% for
Fiscal 2010, due to increases in direct costs which in turn reflect higher cost
of rewards associated with the participating merchants in men's and ladies
fashion, footwear and accessories business segment.
SG&A in Fiscal 2011 at $6.9 million is 51.0% of revenues compared with $6.0
million, 50%, in Fiscal 2010, reflecting partially the increased sales staff to
capitalize on the revenue expansion opportunities. The increase in SG&A is also
partially consequent to staff salaries being restored in latter half of Fiscal
2010 to March, 2008 levels.
Stated interest cost (cash interest paid or payable) for Fiscal 2011 was $1.6
million compared with 1.3 million for Fiscal 2010. The higher dollar cost
reflects both an increase in the utilization of the line of credit facility
(loan payable) which the Company utilized to expand its APM program business,
and increase in the interest rate on this facility effective March, 2010. The
percent of cash interest to revenues in Fiscal 2011 is 11.8% compared with 10.8%
in Fiscal 2010.
The Company closed down its online shopping mall business during the third
quarter ended March 31, 2011 and it is now a discontinued operation. Respecting
discontinued operation, Fiscal 2011 was a loss of $18,000 compared with a profit
of $114,000 in Fiscal 2010.
The Company is reporting a Net Loss for Fiscal 2011 of $492,000 vs. a Net Profit
for Fiscal 2010 of $34,000, an adverse decline of $526,000.
Prospects for Fiscal 2012
With multi-year affinity and financial partner arrangement now locked in,
operational issues such as those connected to the Aeroplan program resolved, and
potentially a large untapped merchant market for its programs, the Company
believes it has a solid platform to grow its merchant base and ensure a
sustainable high growth in its future revenues and profitability.
The ramp up in sales staff is beginning to yield results in Fiscal 2012, and the
Company is confident of its ability to increase the number of merchants
participating in its programs. The progress since June, 2011 has been
encouraging. The Company's merchant base has grown from 923 at the end of June,
2011 to 1,034 by end of September, 2011. That being said, the uncertain economic
outlook continues to be a worry; softness in the consumer spending given the
recent pressures on household incomes is expected to impact their discretionary
spending, and therefore put merchant margins under pressure which in turn
impacts Advantex though slow-down in new sales, retention and lower fees as
merchants attempt to cut costs.
About Advantex Marketing International Inc.
Advantex is a specialist in the marketing services industry, managing
white-labeled rewards accelerator programs for major affinity groups through
which their members earn bonus frequent flyer miles and/or other rewards on
purchases at participating merchants. Under the umbrella of each program,
Advantex provides merchants with marketing, customer incentives, and
additionally pre -purchase of merchants' future sales through its Advance
Purchase Marketing (APM) model. Advantex partners include more than 1,000
merchants; CIBC; and Aeroplan. Advantex is traded on the Canadian National Stock
Exchange under the symbol "ADX". For additional information on Advantex, please
visit www.advantex.com.
Forward-Looking Information
This Press Release contains certain "forward-looking information". All
information, other than information comprised of historical fact, that addresses
activities, events or developments that the Company believes, expects or
anticipates will or may occur in the future constitutes forward-looking
information. Forward-looking information is typically identified by words such
as: anticipate, believe, expect, goal, intend, plan, will, may, should, could
and other similar expressions. Such forward-looking information relates to,
without limitation, information regarding: the Company's belief that its success
in securing opportunities to date will allow it to expand its business
profitably; the Company's belief that the operational launch of the Aeroplan
sponsored program was a success in terms of merchant recruitment and consumer
usage; the Company's expectation that the benefits of ramp up in sales staff
during Fiscal 2011 will be increased merchant participation and higher revenues
in next fiscal year; the Company's belief that operational issues are resolved;
the Company's belief that there is a large untapped merchant market for its
programs; the Company's belief that it has a solid platform to grow its merchant
base and ensure sustainable high growth in its future revenues and
profitability; the Company's belief in its ability to increase the number of
merchants participating in its programs; the Company's belief that the uncertain
economic outlook may adversely impact its business; and other information
regarding financial and business prospects and financial outlook is
forward-looking information.
Forward-looking information reflects the current expectations or beliefs of the
Company based on information currently available to the Company. With respect to
the forward-looking information contained in this Press Release, the Company has
made assumptions regarding, among other things, the size of the market for the
Company's programs; its ability to increase merchant participation in its
programs; its ability to access future financing; continued affinity partner
participation with the Company; continued support from its providers of Loan
payable and holders of Debentures payable; current and future economic and
market conditions and the impact of same on the Company's business; ongoing and
future revenue sources; future business levels; interest and currency rates; the
appropriateness of the Company's tax filing position; ongoing consumer interest
in accumulating frequent flyer miles; and the Company's ability to manage risks
connected to collection of transaction credits.
Forward-looking information is subject to a number of risks, uncertainties and
assumptions that may cause the actual results of the Company to differ
materially from those discussed in the forward-looking information, and even if
such actual results are realized or substantially realized, there can be no
assurance that they will have the expected consequences to, or effects on the
Company. Factors that could cause actual results or events to differ materially
from current expectations include, among other things, changes in general
economic and market conditions; changes to regulations affecting the Company's
activities; level of merchant participation in the Company's programs;
uncertainties relating to the availability and costs of financing needed in the
future; termination of the CIBC agreement; termination of the Aeroplan
agreement; currency risks; the financial impact from failure to meet its
obligations noted under Contractual Obligations section of the Management
Discussion and Analysis ("MD&A") for the fiscal year ended June 30, 2011; the
inability of the Company to collect under its APM program; the Company's
financial status, and other factors, including without limitation, those listed
under "General Risks and Uncertainties" and "Economic Dependence" in MD&A for
the fiscal year ended June 30, 2011.
All forward-looking information speaks only as of the date on which it is made
and, except as may be required by applicable securities laws, the Company
disclaims any intent or obligation to update any forward-looking information,
whether as a result of new information, future events or results or otherwise.
Although the Company believes that the assumptions inherent in the
forward-looking information are reasonable, forward-looking information is not a
guarantee of future performance and accordingly undue reliance should not be put
on such information due to the inherent uncertainty therein.
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2011 AND 2010
NOTE June 30, 2011 June 30, 2010
-------------- --------------
ASSETS
Current:
Cash and cash equivalents $ 5,000 $ 505,941
Accounts receivable 842,249 379,366
Assets of discontinued operations 17 - 321,561
Transaction credits 1(e) 12,408,060 9,538,364
Aeronotes 4 66,451 381,309
Prepaid expenses and sundry assets 248,541 249,510
-------------- --------------
13,570,301 11,376,051
-------------- --------------
Long-term:
Other asset 5 100,000 -
Property, plant and equipment 6 761,177 807,315
-------------- --------------
861,177 807,315
-------------- --------------
TOTAL ASSETS $ 14,431,478 $ 12,183,366
-------------- --------------
-------------- --------------
LIABILITIES
Current:
Bank Indebtedness $ 83,262 $ -
Loan payable 7 4,917,446 3,030,549
Accounts payable and accrued
liabilities 3,319,363 2,617,970
Liabilities of discontinued
operations 17 432,440 475,682
14% Non-convertible debentures
payable 3/8 - 2,620,705
Convertible debentures payable 3/9 - 5,217,578
-------------- --------------
8,752,511 13,962,484
-------------- --------------
Long-term:
14% Non-convertible debentures
payable 3/8 1,747,497 -
12% Non-convertible debentures
payable 3/9 5,300,492 -
--------------
7,047,989 -
--------------
15,800,500 13,962,484
-------------- --------------
SHAREHOLDERS' DEFICIENCY
Capital Stock 10
Class A preference shares 3,815 3,815
Common shares 24,106,281 24,106,281
-------------- --------------
24,110,096 24,110,096
Contributed surplus 726,795 645,879
Equity portion of debentures 9 2,114,341 2,114,341
Warrants 8/9 1,196,013 374,554
Deficit (29,516,267) (29,023,988)
-------------- --------------
(1,369,022) (1,779,118)
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
DEFICIENCY $ 14,431,478 $ 12,183,366
-------------- --------------
-------------- --------------
Commitments and contingencies (note 14)
Approved by the Board:
(Signed): "William Polley" (Signed): "Kelly E. Ambrose"
Director: Director:
-------------------------- ----------------------------
William Polley Kelly E. Ambrose
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF PROFIT/(LOSS) AND COMPREHENSIVE PROFIT/(LOSS)
YEARS ENDED JUNE 30, 2011 AND 2010
NOTE 2011 2010
------------- -------------
REVENUE $ 13,522,952 $ 11,961,059
Direct expenses 4,462,678 3,646,323
------------- -------------
GROSS PROFIT 9,060,274 8,314,736
------------- -------------
OPERATING EXPENSES
Selling and marketing 2,906,372 2,574,062
General and administrative 3,902,798 3,335,522
Stock-based compensation 80,916 67,789
------------- -------------
6,890,086 5,977,373
CONTRIBUTION FROM OPERATIONS 2,170,188 2,337,363
AND PROFIT BEFORE AMORTIZATION AND INTEREST
FROM CONTINUING OPERATIONS
Amortization of property, plant and
equipment 439,469 458,522
Interest expense
Stated interest expense - loan
payable, debentures, and other 7/8/9 1,592,580 1,288,894
Non-cash interest expense on loan
payable, and debentures
7/8/9 612,023 669,546
------------- -------------
2,204,603 1,958,440
(LOSS) AND COMPREHENSIVE (LOSS)
- CONTINUING OPERATIONS $ (473,884) $ (79,599)
PROFIT/(LOSS) FROM DISCONTINUED
OPERATIONS 18 (18,395) 113,626
NET PROFIT/(LOSS) AND COMPEHENSIVE
PROFIT/(LOSS)
FOR THE YEAR $ (492,279) $ 34,027
BASIC AND DILUTED EARNINGS PER SHARE 12 $ 0.00 $ 0.00
------------- -------------
------------- -------------
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF DEFICIT
YEARS ENDED JUNE 30, 2011 AND 2010
2011 2010
----------------- -----------------
BALANCE AT THE START OF THE YEAR $ (29,023,988) $ (29,058,015)
Net profit/(loss) for the year (492,279) 34,027
----------------- -----------------
BALANCE AT THE END OF THE YEAR $ (29,516,267) $ (29,023,988)
----------------- -----------------
----------------- -----------------
ADVANTEX MARKETING INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2011 and 2010
NOTE 2011 2010
------------ ------------
OPERATING ACTIVITIES
(Loss) for the year - from continuing
operations $ (473,884) $ (79,599)
Items not affecting cash
Amortization of property, plant and
equipment 439,469 458,522
Accretion charge on debentures 8/9 475,958 483,354
Amortization of deferred financing
charges 7/8/9 136,065 186,192
Stock-based compensation 80,916 67,789
------------ ------------
658,524 1,116,258
Changes in non-cash working capital items
Accounts receivable (462,883) (295,300)
Transaction credits (2,869,696) (1,387,179)
Aeronotes 314,858 (381,309)
Prepaid expenses and sundry assets 969 (26,444)
Accounts payable and accrued liabilities 701,393 (271,190)
------------ ------------
(2,315,359) (2,361,422)
Cash provided by/(utilized in) operating
activities (1,656,835) (1,245,164)
FINANCING ACTIVITIES
Proceeds from draw of credit facility 1,854,728 1,985,229
Payments for maturity/retirement of
debentures 8/9 (8,665,000) -
Proceeds from renewal of debentures 8/9 8,272,000 -
Debenture renewal costs 8/9 (155,689) -
------------
1,306,039 1,985,229
INVESTING ACTIVITIES
Purchase of property, plant and equipment (393,331) (613,198)
Investment in other asset (100,000) -
------------ ------------
(493,331) (613,198)
MOVEMENT IN CASH AND CASH EQUIVALENTS
DURING THE YEAR - FROM CONTINUING (844,127) 126,867
OPERATIONS
FROM DISCONTINUED
OPERATIONS 17 259,924 34,894
Cash and cash equivalents, including bank
indebtedness -beginning of year 505,941 344,180
------------ ------------
CASH AND CASH EQUIVALENTS, including Bank
Indebtedness-end of year $ (78,262) $ 505,941
------------ ------------
------------ ------------
ADDITIONAL INFORMATION
Interest paid $ 1,541,817 $ 1,288,894
Cash and Cash Equivalents, including Bank
Indebtedness
Cash $ - $ 500,941
Term deposits $ 5,000 $ 5,000
Bank indebtedness $ (83,262) $ -
------------ ------------
Total $ (78,262) $ 505,941
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