Quarterly report October 1 - December 31, 2013

Fourth Quarter 2013 — Summary

During the quarter, Seamless announced a collaboration with bpost bank, one of Belgium's largest banks, which together with McDonald's will roll out SEQR throughout Belgium. Meanwhile, Garanti bank in Romania launched the service for its customers to link their bank accounts to SEQR, and Finland's largest fast-food chain, Hesburger, signed an agreement to introduce SEQR in their restaurants. This takes Seamless, together with SEQR, a step further in the international roll out of Europe's most widely available mobile payment solution - an initiative that has continued at a rapid pace, which means more people in more countries will be able to use SEQR in 2014. Our rapid expansion was supported by funding from a successful international equity placement of SEK 320 million, completed during the fourth quarter by Berenberg Bank.

Sales and earnings for the quarter, and for 2013 as a whole, were in line with management's expectations. The majority of our increased costs during the quarter was related to preparations for the international roll out of SEQR and relate primarily to the recruitment of key competencies in Sweden and other markets where Seamless operates, or will operate in the near future. 

CEO's Comments

Seamless mobile payment service SEQR had a significant international impact during the fourth quarter. Our solution for payments via your mobile phone has quickly become Europe's most widely available. In short, we already have in place what competitors can only hope to achieve.

Approximately 4,600 retailers across Europe have now chosen SEQR. The reason is quite simple - we create value ​​for both consumers and retailers in areas where we are unique. Retailers can halve the expensive fees associated with card transactions without the need for costly and complicated hardware installations, and the consumer has a superior flexible solution allowing their mobiles to function as a wallet. During the quarter we improved functionality further by adding the ability to link loyalty programs and customer clubs to SEQR, making the tedious administration of bonus cards something of the past.  This functionality provides retailers cost savings while creating value for the consumer.  Axfood, who was the first to introduce mobile payments in supermarket chains, has chosen to also link its customer programs at Hemköp and Willys directly to the SEQR app. Users can also take advantage of digital coupon offers that are valid in all Axfood stores.

I want to emphasize that Seamless is an international company and SEQR is a global payment service. We aim to be a driving force in changing the payments industry. We have a unique position. In addition to the actual solution that connects retailers and consumers, we have our proprietary transaction switch that already manages billions of transactions annually and makes it possible to control payments alongside the bank and card companies' infrastructures. Even banks and card companies have realized that there is a great need for a mobile payment solution, but many banks are stuck in old infrastructures where they struggle to defend their high profits from the cards they issue - profits paid for by retailers and consumers.

During the quarter, we raised SEK 320 million and we now have the financial muscle to take advantage of our growth potential. We are building an international organization, and in parallel to our establishment in Europe we are also establishing ourselves in North America, with the first management recruitments already in place. We have even achieved awareness of our services with retailers in Asia.

International interest is strong and many banks are interested in launching SEQR. One important reason is that there is a very large proportion of cash payments in many countries outside northern Europe, often 50-75 percent, something that is very costly. In these regions there is the opportunity to bypass the use of cards entirely and instead go directly to mobile payments. It underlines the fact that countries that have not had fixed telephony will never build such an infrastructure, but rather will invest directly in a mobile solution.

During the quarter, we signed agreements with some major banks. Belgian bpost bank, with 1.1 million customers, together with McDonald's, will roll out SEQR during the spring of 2014. Turkish Garanti Bank in Romania is already offering their customers the ability to pay with SEQR.

We are in the same paradigm shift as when the cards began to replace checks. My belief is that this time it will go much faster — because today we are more accustomed to adopting new technologies. The smart phone is very quickly gaining ground, and today 90 percent of all phones sold in Sweden are smartphones. This trend is global and therefore our objective is to rapidly capture new markets; something we are already doing, quickly.

When I look back at 2013, our focus and emphasis has been on developing the SEQR functionality and adding values that are important for both retailers and consumers - a development that gives us a world-leading technology combined with functionality that I have not encountered anywhere else. With this solid foundation, we are ready to face 2014 with a focus on global expansion.

Peter Fredell

PS. We at Seamless want to change both the way payments are made and reduce the costs of payments. One important area I'm particularly proud of is our work to help charity organizations. Our initiative with Allainsamlingar.se allows donations to be made either directly through the SEQR app, or on the website, without having up to 10 percent of your donation being consumed in fees, and this is before the donation even reaches the charity organization.

We do not charge any fees from anyone who wishes to donate to Bris, Barncancerfonden, Stockholms Stadsmission, Plan Sverige and Operation Smile, the organizations that are already connected to the new portal. Allainsamlingar.se is a clear example of how SEQR can be used in virtually all payment situations, contributing to savings for all parties and even change our behavior. 

The Group

Revenues

Seamless sales increased by 51 percent in the fourth quarter to SEK 52 369 (34 743) thousand. Revenues by business area were: Transactions switch with 19 (44) percent, Distribution with 76 (56) 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 area. The business areas Transaction Switch and Distribution is negatively affected by the allocation key the company uses for allocating corporate overhead expenses. Overhead expenses such as finance and administrative functions are allocated as a percentage to the different business areas in accordance with how the people that are doing project time reporting have divided their time. The effect of this is that margins reported in the quarter is lower than the actual profitability of these businesses areas.

Earnings

•           Group operating profits amounted to SEK -29 605 (-12 227) thousand during the fourth quarter.

•           Net financial items for the quarter amounted to SEK 572 (66) thousand.

•           Earnings per share amounted to SEK -0,64 (-0,40) for the quarter.

Employees

The number of employees was 143 (88) at the end of the period. In addition, Seamless has approximately 40 consultants, primarily in Ghana and Pakistan.

Investments

During the quarter, investments were made at a value of SEK 11 909 (4 590) thousand. Product development costs have been capitalized at a value of SEK 7 523 (2 015) thousand, while depreciation was SEK -5 676 (-555) thousand.

Cash Flow and Financial Position

Cash flow from operating activities amounted to SEK -11 351 (-7 086) thousand for the fourth quarter. Cash and cash equivalents amounted to SEK 302 765 (14 004) thousand at the end of the quarter.

The Group has interest-bearing liabilities in the form of equipment leasing amounting to SEK -2 888  (-3 258) thousand, divided accordingly into non-current liabilities of SEK -912 (-1 840) thousand and current liabilities of SEK -1 976 (-1 418) thousand. The Company has no interest-bearing liabilities to banks or other financial institutions.

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

To achieve the strong growth potential of our mobile payment solution, SEQR, management decided last summer to raise additional equity financing. This financing was announced in the Q3 interim report and in a press release dated August 23, 2013.

During the period, Seamless completed a targeted international equity placement of SEK 320 million through an accelerated book-building process. In this process, Seamless issued 8 000 000 shares to Berenberg Bank, a German multinational financial institution. The final issue price, as determined by the accelerated book-building process, was SEK 40 per share, which meant Seamless received SEK 320 000 000 before issue costs. Issue costs are expected to reach a total of about SEK 15.3 million. Berenberg resold the shares they underwrote to selected qualified institutional investors.