INTERIM REPORT JANUARY - JUNE 2011

(The figures in brackets refer to the same period of 2010 unless otherwise specified.)

JANUARY – JUNE 2011 IN SUMMARY

• The transaction volume for the first half of the year was SEK 2,034,861 thousand (2,057,671), a decrease of 1 per cent compared to the same period of last year.
• Transaction-based revenue for the first six months was SEK 14,997 thousand (15,268), down by 2 per cent compared to the same period of 2010.
• Profit before amortization/depreciation for the first half of the year increased by SEK 226 thousand to SEK 953 thousand (727).
• Profit/loss after tax was SEK -2,704 thousand (-2,483), a drop of SEK 221 thousand compared to the first half of 2010.
• Earnings per share were SEK -0.03 (-0.03).

(For a complete report including tables, see attached file)

APRIL – JUNE 2011 IN SUMMARY

• The transaction volume for the second quarter of 2011 was SEK 1,079,154 thousand (1,096,742), a decrease of 2 per cent compared to the same period of last year.
• Transaction-based revenue for the second quarter was SEK 7,713 thousand (8,086), down by 5 per cent compared to the second quarter of 2010.
• Profit before amortization/depreciation for the second quarter amounted to SEK 339 thousand (1,264), which is SEK 925 thousand lower than in the same period of last year.
• Profit/loss after tax was SEK -1,455 thousand (-563), a drop of SEK 892 thousand compared to the second quarter of 2010.
• Earnings per share were SEK -0.02 (-0.01).

SIGNIFICANT EVENTS IN THE FIRST HALF OF 2011

• Juno Capital Asia Ltd became a new partner to Paynova and Lison Technology Ltd and co-owner in Chinova Asia Development Ltd. Juno Capital is a privately-owned corporate advice and investment company with longstanding experience of the Chinese market and of developing and establishing foreign companies in China.
• CUP eMall, developed by Paynova’s associated company Chinova, progressed from the test stage to operating mode with merchants, consumers and transactions.
• The Annual General Meeting on 5 May 2011 reelected Björn Wahlgren, Meg Tivéus and Yngve Andersson. In addition, Björn Wahlgren was reelected as Working Chairman. Jan Lundblad and Hans Wirfelt were elected as new board members. Ulf Risberg had declined re-election.

SIGNIFICANT EVENTS AFTER THE END OF THE QUARTER

• Paynova received permission from the Swedish Financial Supervisory Authority to provide payment services in accordance with the Payment Services Act.
• Paynova has terminated its agreement with Mangold Fondkommission AB as liquidity provider for the Paynova share.

COMMENTS FROM THE CEO

After a quiet first quarter, the transaction volume has once again started to pick up speed and in the second quarter reached a level that is second only to the same quarter of 2010. The fact that revenues and volumes as a whole were weaker in the first half of 2011 than for the corresponding period of 2010 is explained by a few combined factors. First of all, the Icelandic ash cloud in April 2010 dramatically affected SJ’s transaction volumes, and secondly, Paynova had temporary high revenues in the wallet fees that were charged when we began to wind up the Paynova e-wallet, while the current revenues include no such extraordinary items. Finally, in the first half of 2010 Paynova had not yet phased out all of the small customer contracts that were terminated, which created volumes but had no positive impact on profit. In view of this, the “normal” revenue from our business and customers in 2011 is more encouraging. In the second half of the year I expect the momentum we have now achieved in the offer book and new contracts to give us total full-year earnings that are better than 2010, excluding last year’s VAT effect.

Revenue is rising, cash flow is positive and we saw an upward trend towards the end of the second quarter. The offer book is continuing to grow and in the second quarter Paynova deployed more new customers than in any earlier quarter under the new business model – almost twice as many as in the first quarter. In term of profit we have fallen short of our target, mainly because the deployment of several major contracts has been postponed until the autumn.

Costs have been maintained at a low and stable level. In addition, thanks to renegotiation of supplier contracts, the total cost level will decrease somewhat during the autumn despite hiring of new staff and increased investments in the service organization.

Paynova is now gearing up for the autumn with an even stronger service package – we are more clearly defining the range of services for major merchants and integrating the necessary breadth, where Payzone’s payment services for physical stores are an increasingly central component. Paynova and Payzone sell jointly in a number of projects, of which several are large and have long sales cycles. The collaboration with Payzone is an important strategic step in a market where merchants are continuously demanding greater breadth and expertise. This is also confirmed by the response at virtually every one of our sales meetings. Furthermore, our new collaboration with Retain 24, a supplier of total solutions for gift card processing, is also in line with this; most major merchants and chains have a need for effective and integrated gift card solutions. Retain 24 simplifies the entire flow and integrates gift card handling in physical stores with online retail. The services are being built into Paynova’s platform during the autumn. In June Paynova also launched a service for so-called MOTO payments, where merchants can now receive payments over the telephone in a PCI-secure manner. This will expand the areas of use and revenue potential for Paynova’s fraud prevention services.

In response to higher demand for more intelligent checkout solutions, we are launching a whole new version of Paynova’s checkout pages to simplify the final steps in the online purchasing process. To satisfy accelerating demand in the Finnish market, we are adding several Finnish payment methods. Mobile payments are expected to account for a significant share of future payments and offer Paynova a new opportunity to increase transaction revenue as we integrate the various mobile solutions into Paynova’s payment platform.

Paynova continuously measures customer satisfaction and has seen an increase during the year. E-merchants gave Paynova an average rating of 4.25 (of a maximum of 5) in the latest survey. My assessment is that it is Paynova’s service concept that is earning high and rising ratings from the customers.

Chinova’s operations in China have started to show measurable transaction volumes. In April we saw the first Chinese transaction volumes on China UnionPay eMall and they have since then grown dramatically. Cross-border volumes, where Paynova has a larger direct return, have been delayed but should arrive in the late autumn of 2011. One positive effect is that the marketing collaboration with Chinova has resulted in new non-Nordic direct customers for Paynova, among other things in Italy.

In our last quarterly report I mentioned the new Payment Services Act and am now pleased to announce that Paynova has received permission from the Swedish Financial Supervisory Authority to provide payment services. The permit is precisely what Paynova needs to further develop its business and at the same time provides certain competitive advantages, since only a few of our competitors have such authorization.

With recharged batteries after the summer, a stronger package and a stable cash flow, I look forward to an exciting autumn in 2011.

Simon Thaning

Stockholm, 23 August 2011