Quarterly report July 1 - September 30, 2013

Activity levels remained high during the third quarter. Seamless mobile payment solution, SEQR, has benefited from great success and the rate of growth has remained high. More and more retail chains and outlets are connecting, which means that SEQR is now available all over Sweden through more than 3,500 stores that have chosen the Seamless solution. International expansion has also been initiated and will now be intensified. After the end of the quarter, Seamless raised an additional SEK 320 million, before issue costs, through a private placement, which is expected to be sufficient to meet the projected high rate of expansion and also achieve a positive cash flow.

Sales for Distribution and Transaction Switch business areas resulted in an increase of 57% for the quarter by comparison to the same period 2012. Revenues from the Transaction Switch operations are typically irregular and vary from quarter to quarter. Distribution sales for the third quarter increased sharply, up 94 percent, compared to the same quarter last year. The rapid increase is due to Seamless' establishment on the Swedish market by becoming a provider of prepaid refills at over 500 stores. Continuously, more and more merchants are connecting to Seamless and revenues from this business are expected to exceed SEK 100 million annually.

• Net Sales increased by 64% to kSEK 56 095 (34 221)
• Operating Profit amounted to kSEK -23 016 (-8 300)
• Operating margin remained negative Neg (Neg)
• Profit after tax kSEK -19 539 (-6 571)
• Earnings per share, basic and diluted -0,59 SEK (-0,26)

Sustained high levels of activity characterized Seamless third quarter, especially for our mobile payment solution SEQR. We have continued to roll out SEQR at a very fast pace, winning new business and further developing our product. We are also very well positioned due to the substantial financing we recently finalized. Through a private placement we have added an additional SEK 320 million before issue costs. I am convinced that with this capital Seamless will be able to take advantage of SEQR's very strong market position. This includes utilizing the time window now open, meaning that SEQR is one of the world's best mobile payment solutions and the world is undergoing a paradigm shift to where we pay with our mobile phone rather then using a card.

I usually emphasize that one of the benefits of SEQR is that payment solutions can be implemented at very little cost and incredibly fast. This has led to SEQR being available all over Sweden. In total, 3500 stores have now chosen SEQR.

During the quarter, the rollout in Sweden continued at a very high pace. McDonald's, Burger King, Västtrafik, UR & Penn and Euronics now want customers to pay with SEQR because the cost is half as compared to when paying by card. During the quarter we added even Mekonomen as a customer. Common for the majority of these outlets is a high level of cost-consciousness, which played a significant role when choosing SEQR over other mobile payment solutions. The ability for these outlets to earn substantial income by cutting costs - and with virtually no investment - means that we get help in the effort to get consumers to start paying by use of their cell phones.  

Then, it requires a considerable effort to get people to change a behavior. Once people try a couple of times, however, they realize that it is more convenient than paying by card. We are in a shift similar to the shift from paying by check to paying by card. Then, as now, it was thought that the change would take a very long time, or that we would always keep the checkbook with us. So the question is not if, but when we stop using cards. Our strategic agreement with Microsoft serves as an example. SEQR will be released for Windows 8 and Windows Phone, as well as integrated with Windows Phone Wallet. This is happening already in 2013 and is an acknowledgment of our solution and as an important step in becoming a global standard for mobile payments.

And in pace with the development of the SEQR solution, it's my belief that this transition is going faster. Not only is our solution the most secure, it is considerably easier than paying by card. Already today, receipts can be saved in the mobile and customer offerings are made available directly in the app. We have also taken another important step in that it is now possible to integrate loyalty programs in SEQR, thereby avoiding plastic cards and cards to be stamped. Instead everything is available in your phone.

During the quarter, SEQR was launched in Romania in partnership with Garanti Bank, which is also Turkey's largest bank. Currently over 200 stores have signed-on and more are connecting continuously. This type of market suits us perfectly. The country has a large number of smartphone users - about 3.5 million - while the use of credit cards is low (0.6 cards / person).

For international customers, savings are not only the halved card fees; savings are also the greatly reduced cash handling costs. In much of the world cash payments represent 50 to 75 percent of transactions, compared with 25 percent in Sweden. This is why in Romania — as in many other countries — banks are a driving force for the move to a more flexible and cost-effective solution like SEQR.

Our ambition is to become an international player in mobile payments. This is strengthened in that we received authorization from the Swedish FSA to become a provider of international payments, known as remittance, which will open up another large market estimated at $ 500 billion. We offer a competitive provision for international payments compared to banks and money transmitters like Western Union. The FSA's decision allows us to port the authorization to other EU countries.

Seamless other operations have also performed well. The Distribution business' establishment in the Swedish market, as of the third quarter, exceeded our expectations in terms of revenue. The sales trend for Distribution of approximately SEK 110-120 million, on an annualized basis, is thanks to Seamless rapidly gaining market share; this can be compared with the SEK 100 million annualized revenue we estimated for Sweden a quarter ago.  

I expect that with the new share issue we will be able to achieve a positive cash flow. The share issue has been achieved through the issuance of 8 million new shares, resulting in a dilution of 19.5 percent. Shareholders can appreciate that the stock market showed great confidence in Seamless, not the least reflected in a rising share price - something that we at the company will do our utmost to manage in the best way. 

The Group

Revenues

Seamless sales increased with 64 percent in the third quarter to SEK 56 095 (34 221) thousand. Revenues by business area were: Transactions switch with 19 (36) percent, Distribution with 76 (64) percent, and SEQR with 5 (0) percent. Previously the business area SEQR was included in business area Transaction Switch, but as of January 1, 2013 SEQR is recognized as a separate business.

Earnings

•           Group operating profits amounted to SEK -23 016 (-8 300) thousand during the third quarter.

•           Net financial items for the quarter amounted to SEK -210 (-472) thousand.

•           Earnings per share amounted to SEK -0,59 (-0,26) for the quarter.

Employees

The number of employees was 137 (64) at the end of the period. In addition, Seamless has approximately 30 consultants primarily in Ghana and Pakistan.

Investments

During the quarter, investments were made at a value of SEK 3 754 (2 100) thousand. Product development costs have been capitalized at a value of SEK 3 426 (2 990) thousand, while depreciation was SEK -2 572 (-516) thousand.

Cash Flow and Financial Position

Cash flow from operating activities amounted to SEK -27 810 (-4 085) thousand for the third quarter. Cash and cash equivalents amounted to SEK 14 213 (14 116) thousand at the end of the quarter.

The Group has interest-bearing liabilities in the form of financial leasing of equipment amounting to SEK -3 494 (-446) thousand, divided accordingly into non-current liabilities of SEK -1 883 (-257) thousand and current liabilities of SEK -1 611 (-189) thousand. The Company has no interest-bearing liabilities to banks or other financial institutions.

In addition, the company has an outstanding liability to the sellers of Lettel. Otherwise, the Group has no borrowings.

After the end of the reporting period, Seamless completed a private placement of SEK 320 million through an accelerated book building process. Seamless issued 8 000 000 shares to Berenberg, a German multinational financial institution. The final subscription price, as determined by the accelerated book building process, amounted to SEK 40 per share, whereby Seamless receives SEK 320 000 000 before issue costs. The issue costs is expected to amount to approximately SEK 15,3 million. Berenberg intends to sell shares to selected qualified institutional investors. The company has financed itself through a private placement in order to take advantage of the strong growth potential, in particular for the mobile payment solution SEQR. Seamless has earlier announced its intentions to raise additional capital in order to maintain a high rate of expansion in the previous quarterly report and again in the press release dated August 23, 2013.

Annual general meeting

Seamless annual general meeting will be held on the 8th of April 2014, in Stockholm. In the prospectus recently released, 24th of April was mentioned as the date for the AGM but this has since then been changed.

This information is such information that Seamless Distribution AB (publ) is required to disclose pursuant to the Swedish Securities Market Act and/or the Swedish Financial Instrument Trading Act. The information was released for publication on 13 November, 2013 at 07.50 am (CET).