Quarterly report Q2, April - June 2015

Significant events during the second quarter

• SEQR launches MyShop – the service that allows everyone to start-up a mobile e-commerce shop. The new MyShop feature in the SEQR app provides all users their own shop with a simple, secure and free of charge payment solution. To start using the store, it is as simple as taking a picture with your mobile device of what you want to sell, writing a brief description, and then attaching a price tag. Then create an advertisement with the QR code which is automatically delivered to your e-mail. The ad can then be disseminated in any and every media, such as advertising sites, Facebook, your own blog, or Tictail, or even printed out and hung up in a stairwell or on a bulletin board. The buyer scans the QR code and makes the purchase without the need to enter either his address or payment details, since this is already registered in the SEQR app.
• SEQR is available in more than Colruyt, Okay, Bio-Planet, Cru, Dreamland, Dreambaby 500 stores as well as independent Spar stores. In autumn 2014, the Colruyt Group and SEQR began its cooperative efforts to work together. The first tests were made at selected e-commerce platforms and the cooperative efforts have now been expanded to include all physical stores.
• SEQR continues to take advantage of its strengths in e-commerce and during the quarter Instant Checkout was released, which allows shopping on mobile devices with as few steps as possible. Along with the e-commerce provider E37, the solution has been integrated in mobile E37’s mobile-customized checkout, and SWEdala Outlet’s online store is a pilot customer.
• SEQR goes live in Great Britain and the United States during the quarter.  Earlier this year, SEQR began its expansion into the U.S. market. In the past few months, with Daniel Bessmert, general manager of SEQR in the United States at the forefront, we have invested in building up our organization in the U.S. and establishing long-term strategic relationships with partners and resellers. SEQR is now one of very few providers in the world able to offer mobile payment solutions to companies operating in the global market, making it easier for both the retailer and consumer. With SEQR, merchants obtain a secure and more cost-effective alternative to traditional payment options, and consumers are able to shop both online and in physical stores - all with one single solution.
• Seamless Vice President Ingrid Lindström will be leaving her position in autumn 2015. During the two years that Ingrid worked in the company, extensive development and structuring of work has been carried out in which Ingrid has played a prominent role and contributed in a decisive manner.

CEO's Comment

I am proud to announce that during the second quarter Seamless reports our highest quarterly revenue in a single quarter – 70 MSEK, which is an increase of 60% compared to same quarter 2014. All our three business divisions now show significant growth, after three years of heavy investment.  We also see a rapid decrease in our losses – down 39% compared to the second quarter 2014 – due both to higher revenues and to lower costs.

The Transaction Switch division delivers a record result again with 23 MSEK in revenue and profit of 10 MSEK. This is an increase in profit of 326% compared to Q2 2014.

The Distribution division has a revenue of 45 MSEK, showing growth of 45% on Q2 2014. For the first time, this division shows profit, 2 MSEK. Transactions through the SEQR interface increased with 48% compared to Q2 2014. Revenue from SEQR is lagging the increase in transactions and is still flat compared to Q2 2014. The revenue lag is partly because we made a choice to forgo advertisement revenue during the quarter. Instead of selling our advertisement space, we advertised our own SEQR rewards program during the whole period. If we had not made this choice, we could have had approximately half a million SEK more in revenue for SEQR, which would have meant that SEQR also would have posted a strong quarter. Our plan is to revert back to selling the advertisement space in the middle of Q3. We expect growth in revenue for 2015 compared to 2014 for SEQR.

Overall, our revenue has increased from 44 MSEK in Q2 2014 to 70 MSEK in Q2 2015. This is the largest quarterly revenue that Seamless has ever reported and represents a growth of 60% compared to Q2 2014. Our losses have decreased significantly over the last two quarters from a peak of 51 MSEK in Q4 2014 to 24.5 MSEK in Q2 2015. Last year in Q2 2014, our losses were 40 MSEK, which means that we decreased our losses with 39% compared to Q2 2014 and with 52% from the peak loss in Q4 2014. This is a function of both a lower cost base and an increase in net revenue.

The SEQR solution was launched and went into live production in the US and the UK during the quarter. These countries represent a large potential market for SEQR and we are now building our merchant and user base there.

In the US, which has a different regulatory system compared to Europe, we need MTLs (money transfer license) to offer our full suite of products. Specifically our peer-to-peer (remittance) service. We have during the last year put considerable effort and investment into applying for MTLs which are necessary on a state by state basis. As I write this, we have received three MTLs, for Missouri, Iowa and Mississippi. We expect MTLs for the other states to be received one by one over the next twelve month period.

A crucial component for our future success lies in always having a superior solution. The product development in all divisions is continuing at a strong pace, and we now can leverage on the architecture that has been built. This means that we can add products and features at a faster tempo with less investment than could be done earlier. This is key for going forward since every new feature and product means that we add new potential income streams.

An example of this product development is in the SEQR business division, where we launched MyShop. This is a feature that lets any SEQR user create their own classified advertisement from within the SEQR app, with payment by SEQR built-in to the ad via a QR code. This solves a lot of problems that current classified ad channels have with payment logistics as well as with fraud and abuse. Maybe even more important is that MyShop is channel independent. Users can post this ad anywhere they want, whether on social media, on a classified ad site, or simply via emailing .This means that a MyShop ad can be displayed through any media such as Facebook, Pinterest, Tumblr or any of the existing classified channels such as Craigslist, Blocket, Ebay. With MyShop, everything becomes a classified ad channel.

We also launched Instant Checkout which allows a SEQR user to buy from an online merchants with unprecedented speed and convenience, regardless of if the user is shopping through the mobile phone, PC, or any other electronic device. This increases conversion rate significantly for online merchants and therefore has a positive effect on the online merchants’ revenue, above and beyond the savings merchants receive by using SEQR over other payment methods

When it comes to the financing of the company, we are constantly exploring the best solutions for our shareholders going forward. On this note, we launched a small convertible bond in a private placement the 17th of July. This issue should be seen as a limited part of a wider effort to fund the company for continued growth.

Peter Fredell

CEO

Consolidated

Revenues

Seamless’ revenues increased during the First Quarter by 60 percent to SEK 70,411 thousand (44,104). The sales are distributed between the various business segments, with 33 percent (25) from the Transaction Switch business segment, 64 percent (71) from the Distribution business segment, and 3 percent (4) from the SEQR business segment.

Financial Results

• •           The consolidated operating loss amounted to SEK -24,422 thousand (-39,502) in the second quarter.
• •           Second quarter net losses from financial items amounted to SEK -38 thousand (-108).
• •           Earnings per share amounted to SEK -0.58 (-0.95) for the quarter.

Personnel

We had a total of 131 (160) employees at end of the quarter. In addition to this, Seamless has retained approximately 40 consultants – primarily in India, Ghana and Pakistan. 

Investments

During the quarter, investments have been made in a total amount of SEK 6,811 thousand (1,107). Product development costs have been capitalized at a value of SEK 5,126 thousand (5,514), while depreciation taken and amortization amounted to SEK -6,086 thousand (-4,138).

Cash flow and financial position

Cash flow from operating activities amounted to SEK -30,345 thousand (-27,822) for the second quarter. Bank deposits and cash equivalents at the end of the quarter amounted to SEK 21,019 thousand (224,807).

The Group has interest-bearing liabilities in the form of leases for hardware amounting to SEK            -2,005 thousand (-3,152), divided between long-term debt of SEK -607 thousand (-1,231) and short-term debt of SEK -1,398 thousand (-1,921). The Company has no interest-bearing liabilities to banks or other credit institutions.

Other than the above, the Group has no borrowings. Seamless has an equity ratio of 67 (84) percent. As announced in press releases and in the previous quarterly reports, savings measures have been implemented in the third and fourth quarter of 2014, which will result in an anticipated savings of approximately SEK 80 million on an annual basis. One of these savings measures has been to discontinue the Swedish part of the Seamless development department, which resulted in that about 30 people were not able to continue with the company. Additionally, Seamless has issued SEK 29 million of convertible debentures after the end of the period. The issue, which was fully subscribed, was sold to private and institutional investors, arranged by Evli Bank PLC, who acted as bookrunners for the deal. The successful completion of this issue gives Seamless an adequate working capital buffer. The board of directors of Seamless resolved to issue these bonds pursuant to the authorization granted at the latest annual general meeting of the company. The convertible loan amounts to a nominal value of not more than SEK 29 million and carries interest at an annual rate of seven (7) per cent. The convertible debentures have been subscribed at a value corresponding to 100 per cent of the nominal value and the conversion price is based on the VWAP of the Seamless share on 13 July 2015. The conversion price is SEK 8.55. The issue has been implemented with deviation from the shareholders’ preferential rights. The reason for the deviation is that the company wants to have a working capital buffer. A private placement of convertible debentures has, at this point in time, been deemed to be the most favourable way to obtain such financing for the company. The convertible loan will mature 364 days after the date of issue, unless conversion or distribution has occurred prior to this date. The payment for the convertible debentures shall be made in connection with the subscription, or such later date as the board of directors resolves. The issue of convertible debentures will entail, upon full conversion, a dilution for the current shareholders of Seamless of approximately 7.49 per cent after full dilution.

Parent Company

The parent company’s net sales for the quarter amounted to SEK 1,959 thousand (0) and net financial results amounted to a loss of SEK -2,231 thousand (-6,270). Net gains/losses in the parent company from financial items amounted to SEK 0 thousand (-52), and the parent company had bank deposits/cash on hand in the amount of SEK 736 thousand (198,758) at the close of the quarter. The parent company had 5 (5) employees at the close of the quarter. 

For more information: 

Daniel Hilmgård, CFO +46 709 968 333, 

daniel.hilmgard@seamless.se

Peter Fredell, CEO Seamless +46 8 564 878 00,

peter.fredell@seamless.se

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 29 July 2015 at 07.50 am (CET)