GINSMS Inc.
TSX VENTURE : GOK

GINSMS Inc.

September 29, 2011 00:55 ET

GINSMS Returns to Profitability After Two Consecutive Quarters of Losses

CALGARY, ALBERTA--(Marketwire - Sept. 28, 2011) - GINSMS Inc. ("GINSMS" or the "Company") (TSX VENTURE:GOK) has announced its financial results for its FIRST quarter ended June 30, 2011.

Performance Highlights for the Three-Month Period Ended June 30, 2011

  • After two consecutive quarters of losses, the Company returned to profitability with a net income of $16,509 during the quarter ended June 30, 2011, compared to net income of $39,548 during the quarter ended June 30, 2010.

  • Inter-SMS traffic of 34.5 million during the first quarter this fiscal year is up 25.5% from the preceding quarter. Compared to the corresponding quarter ended June 30, 2010, traffic is up 14.6%.

  • Revenue is down despite the increase in traffic owing to lower margin in a highly competitive environment.

  • Liquidity improved further this first quarter of fiscal 2012 with a working capital of $999,145, compared $957,343 the previous quarter. The working capital ratio passed from 12.3 times to 17.2 times.

  • Cash flow from operations remains attractive with EBTDA of $48,372 in the first quarter this fiscal year, compared to $76,342 in the same quarter the previous fiscal year.

RESULTS OF OPERATIONS

Financial Highlights Three-month period ended
June 30,
(Unaudited)
2011 2010
Revenues $ 181,810 208,787
Cost of sales $ (64,689) (65,644)
Gross profit $
Gross margin
117,121
64.4%
143,143
68.6%
EBITDA (1)$
EBITDA margin
48,372
N/A
76,342
N/A
Net earnings $
Net earnings margin
16,500
9.1%
39,548
18.9%
(1) EBITDA is a non-GAAP measure related to cash earnings and is defined for these purposes as earnings before income taxes, depreciation and amortization. This metric should not be considered in isolation or as a substitute for net earnings which is also reported herein but is made relevant by the fact that there is a substantial difference in the capital structure of the Company from one period to another, distorting the comparability of net earnings.
Consolidated
June 30, 2011
(Unaudited)
(1)
Consolidated
March 31, 2011
(Audited)
Consolidated
April 1, 2010
(Unaudited)
(2)
Total assets $ 1,251,080 1,256,568 1,652,884
Total liabilities $ 81,532 108,119 356,353
Shareholders' equity $ 1,169,348 1,148,449 1,296,531
Net earnings (loss) per share $
Basic 0.00 0.01 N/A
Diluted 0.00 0.01 N/A
(1) The figures reported thereto are based on the condensed consolidated interim financial statements which have been prepared in accordance with IAS 34 Interim Financial Reporting. These are the Group's first International financial reporting standards (IFRSs) condensed consolidated interim financial statements for part of the period covered by the first IFRSs annual financial statements and IFRS 1 First-time Adoption of International Financial Reporting Standards have been applied. An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Group is provided in notes 12 of the financial statements.
(2) The figures reported thereto are based on the Company's opening IFRS statements of financial position at that date as required by the rules for presentation of the interim financial statements under IFRS for the first time. There were no adjustments to the financial position of the Company under IFRS as compared to under Canadian GAAP except for the Accumulated Comprehensive Loss which was charged to Retained Earnings. Under IFRS 1, the Company is allowed an option exemption to deem the cumulative translation differences for all foreign operations to be deemed $nil at the date of transition to IFRS, with future gains or losses on subsequent disposal of any foreign operations to exclude translation differences arising from periods prior to the date of transition to IFRS The Accumulated Comprehensive Loss as at March 31, 2010 amounted to $165,732.

Three Month Period

Revenue for the first quarter of fiscal year 2012 ending June 30, 2011 were $181,810, representing a drop of 12.9% over revenue of $208,787 reported during the same three-month period in fiscal year 2011. The drop in revenue occurred despite an increase in SMS traffic of 25.5% reflecting both the substantial growth of SMS traffic in the region and the difficulty in maximising profitably in a unique marketplace where two players, one a large conglomerate and the other, the Company, compete. It is more difficult for the smaller operator to rely on the success of mobile messaging and the prospects for SMS growth to optimize productivity absent any service enhancements. Increased volume, by definition, does not increase revenue per message and by the nature of the business and its economics tend to impose constraints on margins.

Management is cognizant of the fact that the provision of new enhanced services or VAS requires considerable resources and, notwithstanding its relatively modest but healthy financial position, believes that the best way to increase shareholder value in the long term is to minimize costs, create substance through the creation and preservation of a positive cash flow, and work toward enhancing services using its unique position in a high growth market for SMS and SMS-related services.

After operating two consecutive quarters with operating losses, the Company returned to profitability generating net income of $16,509 in the first quarter ending June 30, 2011, compared to a net income of $39,548 in the corresponding period the previous year. The drop in revenue was offset marginally by a 1.5% drop in the cost of sales. Administrative expenses were kept well under control with an increase of 2.9% to $68,749.

With the increased volume, the SMS platform performed well, generating a positive cash flow or EBITDA (earnings before interest, taxes, depreciation and amortization) of $48,373 in the first quarter this year, compared with $76,342 in the corresponding quarter the previous year. The only time when the Company experienced a negative cash flow was in the second quarter of fiscal 2011. The parameters for that included investments in third-party marketing platforms that did not meet expectations causing a sharp rise in the cost of sales and therefore a decline in EBITDA. In this transition period to a more comprehensive platform with enhanced services, the Company is vying for a sustained positive cash flow, intent on increasing liquidity and preserving its capital base.

As can be seen from the table below, SMS traffic during the first quarter of fiscal 2012 experienced a sharp increase of 25.4% to 39,431,484 messages. This is owing in part to the successful renegotiation of the contracts with the mobile operators which were due for renewal this past January. It will be recalled as well that two major mobile operators were going through some temporary modifications of their transmission facilities in the preceding quarter and with their remediation contributed to improve the level of traffic going through the platform in the first quarter of this year. The main reason, however, is continued growth in active messaging users and the ability of SMS messaging applications to interoperate not only within the MNOs ecosystem but with other web-based messaging mediums as well, contributing to their sustained popularity.

Comparisons of Traffic (Inter-SMS) and Total Charges for Past Eight Quarters
Q2/FY10 Q3/FY10 Q4/FY10 Q1/FY11 Q2/FY11 Q3/FY11 Q4/FY11 Q1-12
Traffic 31,564,627 35,476,325 34,690,178 34,401,824 34,007,952 32,678,329 31,431,278 39,431,484
1.2% 12.3% -1.0%\ -1.0% -.1.0% -.96% -.96% 25.4%

Gross margin declined slightly from the first quarter of the previous fiscal year from 68.6% to 64.4% during the first quarter this year. This is attributable to slightly lower revenue, partly offset by a decline in the cost of sales. As indicated above, the lower revenue is due to market pressures requiring the means to adapt to a new set of realities in a high-growth, high-volume industry. The consequence of that is lower profit margin.

Management is confident, however, that the Company's platform and its exclusive position in the global Asian economy offer a great opportunity to expand its horizon in this market either through mergers and or acquisitions.

Forward-Looking Information

Certain information included in this press release may constitute forward-looking statements. Forward-looking statements generally can be identified by the use of terms such as "may", "could", "will", "expect", "intend", "estimate", "anticipate", "believe" or "continue" or the negative thereof or variations thereon or similar terminology. Forward-looking statements, by their very nature, involve significant risks, uncertainties and assumptions. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, without limitation, the risks factors discussed in the section entitled "Risk Factors" in GINSMS's long form prospectus dated November 12, 2009 which is available under GINSMS's profile on SEDAR at www.sedar.com. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, GINSMS cannot assure the reader that actual results will be consistent with these forward-looking statements. These assumptions are further described in GINSMS's management discussion & analysis for the three and twelve-month periods ended March 31, 2011, which is also available on SEDAR at www.sedar.com. These forward looking statements are made as of the date hereof and GINSMS assumes no obligation to update or revise them to reflect new events or circumstances except as may be required by law. Accordingly, readers should not place undue reliance on the forward-looking statements.

About GINSMS

GINSMS owns 100% of Global Edge Technology, a technology company focused on providing inter-operator short messaging services to mobile telecom operators in Hong Kong. GINSMS's stated business objective to become a leading short messaging service ("SMS") and data hubbing service provider to mobile network operators in Hong Kong and China and to establish an international SMS and value added services business.

Contact Information

  • GINSMS Inc.
    Raymond Richard
    Corporate Secretary
    450-466-2921