YEAR-END REPORT 2007
(NGM: PAY)
FOURTH QUARTER AND FULL YEAR 2007 IN SUMMARY
· Net turnover for the fourth quarter amounted to KSEK 6,865 (7,052). For the full year 2007, net turnover amounted to KSEK 23,221 (18,440), an increase of 26 per cent. Compared with the previous quarter, net turnover increased by 23 per cent.
· Profit/loss after tax during the fourth quarter amounted to KSEK –14,111 (-38,671) and KSEK –46,328 (–80,416) during the full year. During the period, Paynova has faced additional costs of a one-off nature for restructuring, etc. that are not related to ongoing operational activities of around MSEK 4.5 for the fourth quarter and MSEK 9.2 for the full year. Excluding these additional costs, the profit/loss for the period amounted to around MSEK –9.6 for the fourth quarter and MSEK –37.1 for the full year.
· Profit/loss per share for the fourth quarter amounted to SEK –0.3 (–1.3). For the full year 2007, the profit/loss per share amounted to SEK –1.2 (–3.0).
· The board proposes that no dividend be paid for 2007.
· The transaction volume for the fourth quarter increased by 67 per cent compared with the third quarter and amounted to KSEK 190,469 (114,218). For the full year 2007, transaction volumes amounted to KSEK 489,893 (357,440). Compared with the full year 2006, the growth in volume amounted to 37 per cent.
·
SIGNIFICANT EVENTS DURING 2007
· In February Paynova terminated the company’s agreement with the Indian IT supplier Xponse, which greatly affected the company’s status and development during 2007 in terms of transaction volumes, income and costs, as well as schedules.
· During 2007, Paynova concluded a comprehensive restructuring and a new IT supplier has been contracted. The company’s costs have thus been established at a significantly lower level.
· The sales organisation has been strengthened under recently-recruited sales manager Tomas Nörgaard. The company now has a sales-focused and effective organisation and strong growth in customers and transaction volumes. Paynova is thus well positioned for continued growth.
· During the second quarter, the partnership with CD Wow was expanded to include a complete solution for the company’s global market with the majority of Paynova’s international payment solutions with various currencies and languages. Paynova also launched a partnership with LYCOSEUROPE in five European countries. At the same time, the payment services GiroPay in Germany and iDeal in the Netherlands were implemented.
· In September, Paynova was appointed the exclusive supplier of a global payment service to Bang CD and also supplied the payment service for the Dreamhack computer and games festival.
· During 2007, Paynova gained almost MSEK 72 via new issues and share subscriptions via subscription options.
· The ending of the partnership with Xponse and the comprehensive restructuring has involved significant challenges on the company’s resources, and thus also had a greater impact on schedules, costs and customer implementations than was previously assumed. The impact in time is estimated at between 6 and 9 months. At the same time, it can be confirmed that the result is a company in a significantly better position than previously.
IMPORTANT EVENTS DURING THE FOURTH QUARTER
· Paynova signed agreements with seven attractive players in the online gaming segment: Gopets, Ironstar Helsinki, Metaversum, Playdo, Worlds.com, IMVU and Flowplay.
· During October and November, internationally notable marketing work was carried out together with Paynova’s Chinese partners CRD (Beijing Cyber Recreation District) in the USA, UK, China and South Korea. CRD is working on assignments on behalf of the Chinese government to build a comprehensive visual world aimed at building a platform for online gaming and e-retail, as well as a combination of the two.
· Transaction volumes for the fourth quarter were the highest so far, with KSEK 190,469.
SIGNIFICANT EVENTS AFTER THE END OF THE INTERIM PERIOD
· Paynova’s new offer within the online gaming segment has been launched, with Mindark as the first customer to complete implementation.
· Former Marketing Manager Karl Alberts has been made responsible for the company’s investment in new major growth markets, with China currently a very high priority. Henrik Rahmstedt has been recruited as his successor as Marketing and Product Manager.
· Paynova has employed Henrik Höglund, who most recently worked for the online gaming company Sulake. Henrik Höglund will be responsible for further development of Paynova’s prioritised online gaming segment.
· Björn Wahlgren was appointed new CEO and Group President of Paynova by the board on 23 January.
A WORD FROM THE CEO
“Paynova restructured with stronger sales focus and international position”
Recovered positions
As the new CEO of Paynova, I can confirm that 2007 was a year of major changes at the company. From having been in a very serious situation in the spring, with falling volumes, high costs and a weak balance sheet, the company has now recovered its positions thanks to a change in strategy, new financing and stringent restructuring. Since April, growth has been steadily increasing, and the market positions have been strengthened in the prioritised segments of retail and online gaming.
On site in China
Sales activities are booming at Paynova at the moment and I have spent some of my initial period at the company meeting the most important customers. These contacts have been very rewarding, and along with my discussions with Paynova’s employees, have further strengthened my belief in Paynova’s business model, offer and potential.
I have also been to China to visit our Chinese partners CRD. The project has a great deal of potential and following the visit I believe that we have taken further important steps towards a large-scale partnership with CRD. We have now dedicated a full-time resource solely to this project and I will return shortly with more information on how the partnership is progressing.
Significant strength in the offer
With my background and experience from e-retail and payment solutions where I previously viewed Paynova’s offer from the outside, I am even more confident, following discussions with our customers, in confirming the notion that Paynova’s payment service can solve several of the problems, requirements and demands from many of the market’s more progressive players. I view a number of areas as particularly important as Paynova continues to grow with new and existing customers.
Firstly, I think that Paynova’s payment service is particularly suitable for e-retailers with customer relations in a large number of countries. The complexity of managing all the agreements, accounts and technical interfaces required to be active in, for instance, ten countries, should not be underestimated – above all not if you are growing rapidly. We will, therefore, dedicate more resources to this type of customer (where CD Wow is an excellent example).
Secondly, we will continue to invest in the online gaming segment. This is the area where Paynova can offer perhaps its strongest competitive benefits. The fact that players can top up their gaming account within a game using payment methods supported by Paynova without needing to log out from the game is a very powerful application. This meets players’ demands and creates huge opportunities for the game supplier to increase their average income per player. We have already seen a strong response within this segment, having signed agreements with around ten companies in Asia and the USA, and I see huge opportunities for Paynova in the future.
In addition, we will, of course, develop our existing partnerships and increase our focus on sales in our immediate geographic area while we further develop the company as a whole for continued growth.
Strong increase in volume at the end of the year
During the final quarter of 2007, the company experienced strong growth in transaction volumes, largely thanks to strong Christmas trade for several of the company’s most important customers. We had expected strong Christmas trade, an important season for many e-retailers, but it was even better than we had thought. January will obviously not see the same level of transaction volumes as December, but January has started well compared with the same period of the previous year.
The growth in volume in the fourth quarter is largely due to new and expanded customer partnerships outside Sweden, which is positive. Paynova has a lot to offer customers with operations in several countries. The prices for customers within the retail segment are somewhat lower than the transactions where we offer greater additional value, for instance within the online gaming segment. Despite this, high volumes in retail are still a priority for Paynova, as is continued investment within the online gaming segment, where we can achieve really good margins.
Result for 2007
Paynova’s profit/loss for the fourth quarter after tax amounted to MSEK –14.1 and for the full year MSEK –46.3. Excluding additional costs of a one-off nature that are not related to ongoing operational activities of around MSEK 4.5 for the fourth quarter and MSEK 9.2 for the full year, the profit/loss for the fourth quarter amounted to around MSEK –9.6 and MSEK –37.1 for the full year.
The net transaction margin excl. transaction losses amounted to 1.2 per cent, slightly lower than the third quarter of 2007. The change is largely due to higher fees for redemptions and increased currency transaction costs in connection with new transaction volumes. We believe that ongoing measures aimed at reducing the costs of redemptions and currency transactions can improve the net transaction margin.
The relatively extensive additional costs of a one-off nature for restructuring, etc. that are not related to ongoing operational activities are divided between structural costs and other costs related to the terminated Xponse agreement and costs for extensive acquisition activities and bidding for the acquisition of a company within the framework of the ongoing consolidation within the industry. Structural costs refers to the transition to fewer employees with redundancy payments and similar winding-up expenses, costs related to the winding-up of a wholly-owned French subsidiary, reservations and proactive investments in restructuring for increased sales capacity.
The ending of the partnership with Xponse and the comprehensive restructuring have involved significant challenges on the company’s resources, and thus also had a greater impact on schedules, costs and customer implementations than was previously assumed. The effect in time is estimated at between 6 and 9 months. At the same time, it can be confirmed that the result is a company in a significantly better position than previously.
The company is currently assessing the overall effects of the restructuring, the ongoing operational cost frameworks and the conditions for an expansion in transaction volumes and margins from both existing and potential customers. All in all, this means it is currently impossible to offer a reliable cash flow scenario.
Toward a commercial breakthrough
During 2008, Paynova will work for continued growth. Sales are the top priority, and we have recently strengthened the management team, including Henrik Höglund from online gaming company Sulake and Henrik Ramstedt from Monster.
We have a good customer offer and a strong, trimmed team, and we are active in a dramatically growing international market. I look forward to leading Paynova on towards a broad commercial breakthrough.
Stockholm, 14 February 2008
Paynova AB (publ.)
Björn Wahlgren
CEO and Group President
FOR FURTHER INFORMATION, PLEASE CONTACT:
Björn Wahlgren, CEO and Group President
Telephone: +46 (0)70-728 74 40
ABOUT PAYNOVA
Paynova offers an international, account-based complete service for payments via the Internet. With Paynova as the only counterpart, e-retailers can get a payment guarantee for 21 payment options with credit cards, debit cards and Internet banks, in 12 languages with 12 currencies in a security-certified interface (PCI). Consumers can also open a Paynova account to make purchases simple and secure, as well as look after transfers between family members, friends and acquaintances. Paynova has agreements with around 1 800 e-retailers. Most are found in the following prioritised segments: travel, retail and media/network games. The company has been listed on NGM Equity since February 2004.
For further information, visit: www.paynova.com.