YEAR-END REPORT 2006
FOURTH QUARTER AND FULL YEAR 2006 IN SUMMARY
· Net turnover for the fourth quarter increased to KSEK 7,052 (3,942). For the full year 2006, net turnover amounted to KSEK 18,440 (6,277).
· The result after tax during the fourth quarter amounted to KSEK -38,671 (-12,507). The corresponding result for the whole of 2006 was KSEK -80,416 (-42,092). Excluding structural costs , the result after tax amounted to KSEK -11,616 for the fourth quarter and KSEK -51 361 for the whole of 2006.
· The result per share for the fourth quarter amounted to SEK -1.3 (-0.7). For the full year 2006, the result per share was SEK-3.0 (-1.9).
· The board proposes that no dividend be paid for 2006.
· The transaction volume for the fourth quarter increased to KSEK 122,179 (87,549). Compared with the third quarter, transaction volumes increased by 50 percent. For the full year 2006, transaction volumes amounted to KSEK 357,440 (155,061), an increase of 131 percent.
· Paynova concluded an agreement concerning the acquisition of the new American company Global Product Management (“GPM”). The acquisition was achieved through the issuing of 767,644 shares.
· During 2006, shares have been subscribed to and paid via subscription options TO2 and TO7, to a value of MSEK 32.5.
· The aim of the contract terminated after the end of the period was for Xponse to supply Paynova with services within the fields of: Operational Management Services, Strategic Advice, Execution of the Restructuring Plan, Software Support and Development, Marketing Management Services and other Management Services. In this report, these services and written-off redundancy payments of KSEK 3,000 have been jointly referred to as “structural costs”. Payment for the agreed services and contributions has been made with newly-issued shares. During 2006 services and capital contributions have been received totalling KSEK 37,450. Payment was made through an offset issue in December 2006. In addition, Xponse has undertaken to submit a cost recovery contribution of KSEK 1,000 per month to Paynova for 12 months and to guarantee Paynova access to a Credit Facility of KSEK 15,000.
· Per Sunnemark was appointed CEO and Group President of Paynova by the board on 9 November.
SIGNIFICANT EVENTS AFTER THE END OF THE INTERIM PERIOD
· With immediate effect, Paynova has terminated the company’s agreement with Xponse. The board’s decision was caused by the blockade aimed at Xponse by the Indian authorities during the ongoing official investigation of Xponse’s CEO. One result of the blockade is that the financing and development work received by Paynova via Xponse has ceased. The uncertainty this involves has caused the board of Paynova to secure alternative financing and commence negotiations with a new IT supplier.
· The financing previously received via Xponse has been replaced with a new issue of shares with preferential rights for existing shareholders amounting to around MSEK 19. This financing will lead to a significantly lower dilution, as the number of new shares will be only 2.9 million, compared with the previously planned 5.4 million. The company’s main owners, who together represent over 2/3 of the remaining votes and capital in the company, have undertaken to vote for the planned new issue. The issue is also fully guaranteed through a combination of subscription commitments and so-called emission guarantees. The board shortly plans to call an extraordinary general meeting to make a decision on the issue.
· The company previously believed that the transfer to a positive cash flow on a monthly basis would occur in June. It is believed that the effect of the change of supplier will involve some delay, as in addition to the “time lag”, the matter will also be affected by the fact that payment of IT development services will be made in cash and not in shares, as was previously the case.
· Against the background of the information suggesting that Paynova’s payment service would have been used by e-retailers operating illegal trade, Paynova has checked this and can confirm that the information is incorrect. Paynova does not have business relationships or dealings with any of the suspected e-retailers.
· Board member Erik Hallberg has asked to resign from the Paynova board due to the new duties he has been given at TeliaSonera. Erik Hallberg will therefore be leaving the board. Erik Hallberg has been on the Paynova board since 2005. The board thanks Erik Hallberg for his excellent efforts.
“2007 BREAKTHROUGH FOR PAYNOVA”
After having worked intensively over the last few months on Paynova’s restructuring work, where we have established a strong platform for Paynova’s continued growth, we were greatly surprised and frustrated when information reached us at the end of last week that the CEO of Paynova’s Indian supplier Xponse was the subject of an official investigation.
We currently have a lot of momentum after having successfully completed our planned restructuring. The fact that we are now opting to employ a new IT supplier and secure new financing will, therefore, not affect Paynova to any great extent in the future, even if this work involves some delay. I will return to this and our plan for 2007 below.
NEW FINANCING SECURED, NEGOTIATIONS WITH NEW IT SUPPLIER INITIATED
The background to the board’s decision to secure alternative financing and commence negotiations for a new IT supplier is the blockade aimed at Xponse by the Indian authorities during the ongoing official investigation of Xponse’s CEO. One result of the blockade is that the financing and development work received by Paynova via Xponse has ceased. The uncertainty created for Paynova due to the current situation is the reason for the board’s decision in this matter.
The financing previously received via Xponse has been replaced with a new issue of shares with preferential rights for existing shareholders of around MSEK 19. This financing will lead to a significantly lower dilution, as the number of new shares amounts to only 2.9 million compared with the previously planned 5.4 million. The company’s main owners, who together represent over 2/3 of the remaining votes and capital in the company, have undertaken to vote for the planned new issue. The issue is also fully guaranteed through a combination of subscription commitments and so-called emission guarantees.
Paynova has also commenced a process for negotiating and starting up cooperation with new subcontractors. Operation of Paynova’s systems is not affected by this, as all vital processes are operated by Paynova in Stockholm. It is believed that the process will have a limited effect in the short term on Paynova’s development work, with a delay of a few months. In the long term, the supplier replacement will have no effect on the company’s development work.
AGGRESSIVE PLAN FOR REMAINDER OF 2007
Paynova’s growth investments during 2007 and onwards will take place within the main fields of online gaming and the community segment, plus the development of existing and new customers within the retail and travel segments.
Within the online gaming segment, we have a very competitive product and, through our cooperation with Mindark (Entropia Universe), we have now also established an interesting position in China through our cooperation with CRD. China and Asia form part of the most significant markets within online gaming and we believe that existing and potential agreements offer huge opportunities for Paynova in the future.
In addition, we already have a large number of partnerships with e-retailers within the retail and travel segments. The market within these fields is growing by over 30 percent per year, and for Paynova there is the potential, through both existing and new customers, to grow more quickly than the market. Within these segments Paynova is mainly working for growth in the European market.
A different, but also very interesting opportunity, is our new partnership with the Chinese superstar Wei Wei. Paynova supplies the mobile payment service for sales of her new album on the European market. The album will only be sold via the Internet and mobile downloading. Wei Wei expects over 1 billion downloads, of which several hundred million will be in Europe, resulting in a significant income potential for Paynova. This partnership also allows a real breakthrough for our mobile payment service.
In addition to these investments, Paynova will also act to participate in industry consolidation. We are observing, for instance, that national payment service companies seldom have as well-planned a security system as Paynova.
2007 BREAKTHROUGH YEAR FOR PAYNOVA
I see 2007 as a breakthrough year for Paynova. We have the organisation in place, a further strengthened management and strong market conditions.
Paynova is now entering a period in which we will grow with existing customers, and where we will also increase the rate at which new partnerships are established. The company previously believed that the transfer to a positive cash flow on a monthly basis would occur in June. It is believed that the effect of the change of supplier will involve some delay, as in addition to the “time lag”, the matter will also be affected by the fact that payment of IT development services will be made in cash and not in shares, as it was previously.
Overall, we currently believe that income generation from our aggressive activities as described above, in combination with strict cost controls, mean that 2007 will be the year that Paynova will achieve positive cash flow with a significant position on the market, in order to further grow significantly with good profitability during 2008.
We will also intensify information activities during the year and meet the company’s owners to inform them of the ongoing development.
It is with huge confidence that I look forward to leading Paynova during this exciting development.
Stockholm, 22 February 2006
CEO and Group President
FOR FURTHER INFORMATION, PLEASE CONTACT:
CEO and Group President
Telephone: +46 (0)70-147 67 55
Paynova offers an international, account-based payment service via the Internet. With Paynova as the only counterpart, e-retailers get a payment guarantee for around twenty payment options in 10 languages with 8 currencies in a security-certified interface (PCI). Consumers can open an account, a Paynova Wallet, for free on the Internet to make purchases simpler and more secure, as well as look after transfers between family members, friends and acquaintances.
Paynova has agreements with around 1,400 e-retailers. Most are found in the following prioritised segments: travel, retailing and media/network games. The company has been listed on NGM Equity since February 2004. For more information: www.paynova.com