TIDMBNN
RNS Number : 4186C
BNN Technology PLC
13 April 2017
13 APRIL 2017
BNN Technology plc
Final Results for the 12 months ended 31 December 2016
BNN Technology (AIM: BNN), a London-listed Chinese technology,
content and services company, today announces its unaudited
financial results for the 12 months ended 31 December 2016.
Darren Mercer, Chief Executive of BNN Technology, said:
"2016 has been a year of significant investment. We have
invested heavily in building our new platform and we have pivoted
to becoming a technology portal in China. We have a clear strategy,
and are focused on developing our capabilities in three core areas:
payments, content and value-added services.
We announced a number of commercial deals, including the Xinhua
News agency deal and FC Barcelona agreement that will help grow
revenue streams, notably in the mobile payments and content space,
and raised GBP51.2 million in three placings to secure the future
of the business. We also rebranded the Group, moved our FTSE sector
classification to 'Internet', formally began our NASDAQ listing and
added three new directors to the Board.
As a result of this transformation, we have made significant
investment upfront to build out our expertise in both data and
operations. We believe this investment will add significant value
to the group in building, what we hope, will be one of the largest
databases in China, have been critical in opening up further
commercial opportunities with key partners, and also drive the
Group's revenue growth, in 2017 and beyond. Reflecting this
investment, our technology and people costs have increased and this
has meant our loss for the year has widened from what we reported
in 2015.
We are tremendously excited about 2017, and the announcements we
have made to the market recently demonstrate our ambitions to
develop our student services platform and our intention to enter
the credit rating industry, both underpinned by further funding
from leading institutional investors to support these initiatives.
These new services, in addition to the payments and content
businesses we are growing, will help us progress into a
fully-fledged portal."
Financial Highlights
-- Revenue for the Group was GBP2.1 million in 2016, down from
GBP5.5 million in the prior year as the business pivoted into a
technology company and began generating revenues from its new
business model in the second half of 2016.
-- Gross Transaction Volumes (GTV) increased GBP210.2 million to
GBP289.6 million following the launch of the B2B mobile payments
business in second half of 2016. This metric reflects the volume of
transactions across all of our platforms.
-- Operating Loss widened from GBP9.3 million in 2015 to GBP16.5
million in 2016, as the business invested in people and technology,
sought a secondary listing in the United States and entered into
the partnership with the Xinhua News Agency in 12 provinces across
China.
-- Loss per share of 10.08p versus 8.48p in 2015.
-- Cash and cash equivalents GBP28.0 million at year end 2016
versus GBP4.0 million 2015 year end.
Operating and Corporate Highlights
-- Raised GBP51.2 million across three placings in the year,
providing vital funding to grow our business and adding a number of
high quality institutions into the share register including Capital
Research & Management and Hadron Capital LLP.
-- Began our formal application for a secondary listing on NASDAQ at the end of October 2016.
-- Rebranded the Group from DJI Holdings plc to BNN Technology
plc to reflect our current business model and Chinese heritage.
-- Formally moved FTSE sector classification on LSE AIM from 'Gambling' to 'Internet'.
-- Added three new directors to the Board, two of which are
Chinese, providing an appropriate balance on the Board of our
operational scope. New directors were: Group CFO Scott Kennedy,
China CEO Wei Qi, and new Non-Executive Dong Jinhua.
-- Actively recruiting two additional non-executive directors,
including an Audit Chair, following Robert Lerwill's
retirement.
Payments business
-- Signed a significant commercial deal, through our technology
partner NewNet, with Xinhuatong and Xinhua News Agency for the
exclusive rights for payment processing and key services on the
Xinhua News mobile app.
-- Completed a 10% strategic investment in Xinhuatong, further
strengthening the relationship between BNN and Xinhuatong and
ensuring BNN has access to opportunities to build additional
revenue streams.
-- Completed signing of all 12 targeted provinces, as part of
the Xinhua deal, before year end, well ahead of schedule.
-- Launched the B2B mobile payments business in the second half
of 2016, generating GBP285m of digital GTV in the year.
-- Post year end, signed an agreement to develop a motorist
services platform for Xinhua News Mobile app, allowing consumers in
China to top-up pre-paid petrol cards. Motor insurance, car park
payments, car maintenance and traffic fines will follow.
Content business
-- Signed unique mobile content and competitions deals with FC
Barcelona in December and Arsenal in March 2017, with content
accessible via the Xinhua News mobile app.
-- Signed advertising deal that will allow us to generate
advertising revenues from our mobile content.
Services business
-- Announced intention to develop student services platform,
providing recruitment, business incubator and financial services to
students in China. This is a platform where we expect to generate
advertising revenues and cross sell our payments business.
-- Announced intention to develop a credit rating platform with
key local Chinese partners in 2017.
Post Year End and Q1 Trading Update
-- The partnerships with FC Barcelona and Arsenal FC are
progressing well. We are currently building and testing the content
interfaces with Xinhua and organising the coaching clinics. We
expect the content and football clinic competitions to go live in
Q2 2017.
-- Business to consumer (B2C) mobile phone top-ups are live on
the Xinhua News app, although the volumes are very low in Q1 2017,
compared to B2B transactions.
-- Announcement of a platform for motorists, working with
strategic local partners, to bring fuel card top-ups, car insurance
and motoring fines payments onto the Xinhua News app, which will
provide a further revenue stream for our payments business.
-- GTV grew 53% quarter on quarter from GBP269.5 million in Q4
2016 to GBP413.4 million Q1 2017 driven by B2B mobile payments.
-- Up to GBP25 million placing to fund the building of the
student services platform, creating a business incubator platform
for student-led technology start-ups, as well as recruitment and
financial services, providing working capital for the payments
business and funds to develop a credit rating platform with local
partners.
Outlook
-- The business is expected to deliver growth in the remainder
of 2017 across all three Key Performance Indicators (KPIs) used by
the board to evaluate the Group's financial and operating
performance. These are:
o Revenue growth: we anticipate revenues to increase as we
develop new payments, receive advertising revenues from our unique
content, and launch our new student and credit services
propositions.
o Gross Transaction Volumes (GTV): This measures the volume of
all gross transactions that are fulfilled by our platform. The
group will notably increase GTV from the previous year, a lead
indictor of revenue growth, via our payments platform, which will
demonstrate the size and scope of our technology.
o Average monthly active users (MAU): The increase in our
average monthly active users, who visit our content and utilise our
student services platform, will mean this expanded base can
generate network effects, ensuring greater amounts of user data and
advertising revenues.
-- Mobile sports content is expected to go live in Q2 2017.
Further content deals, including mobile games, are expected to be
announced shortly, bringing more internationally recognised brands
into our sports portfolio.
-- We anticipate generating advertising revenues in the second
half of 2017 following the launch of the mobile sports content.
-- Motorist platform will go live in the second half of 2017
with fuel card top-up payments expected to be a key contributor to
Group revenues.
-- Nasdaq application continues, though we are well advanced in
our application process with the United States Securities &
Exchange Commission. We are optimistic we will be listed in the
third quarter of 2017.
-- Like many high-growth emerging technology companies in a
similar phase in their life cycle as us, we will continue to see
operating expenditure, reflecting the investments we will make in
people and technology, especially as we look to build our platform
with the addition of student and credit rating services, and new
payments. Accordingly, the results for the first half of 2017 will
reflect continued investment, whilst we remain hopeful that we will
generate an operating profit in the second half of 2017.
CHAIRMAN'S REVIEW
2016 has been a year of transition and transformation for BNN
Technology. Back in Q1 2016, before we signed the ground-breaking
deal with Xinhuatong and the Xinhua News Agency, I could not have
predicted the diversity and number of opportunities that the Group
now has, nor the variety of business models we have developed. The
business had an uncertain future following the suspension of the
online lottery in China in March 2015. However, in 2016, we
successfully pivoted from a lottery company into a Chinese
technology company offering mobile payments, unique content and
value-added services to millions of Chinese consumers and started
the journey of BNN Technology becoming a Chinese technology portal.
This transition was formalised in September by changing the name of
the company to BNN Technology and our FTSE Industry Classification
Benchmark from "Gambling" to "Internet".
In 2016, we successfully raised a total of GBP51.2 million to
build out our technology platform, allowing us to enter into key
partnerships and develop and establish our three business areas:
payments, content, and value-added services. In a relatively short
period of time, we have made significant strides in growing each of
these areas, and we demonstrated the potential of our new business
model in September 2016 with the first revenues coming from mobile
top-ups. Entry into mobile payments, using our platform and the
strong business relationships we developed in China, has opened up
access to more opportunities in payments and services, which we are
eager to explore in 2017.
To support our ambitious business development goals, we formally
started our application for a secondary listing on Nasdaq. This
listing will allow us access to a deeper pool of capital and
attract investors with a greater understanding of our business to
support us in our ambition to become a leading technology player in
China.
With all the changes the Group has experienced and the
developments in the pipeline, we will need a strong and diverse
Board to support the business. In 2016, we strengthened the Board
with the appointment of three Directors: Scott Kennedy as Group
Chief Financial Officer, current China CEO and COO Wei Qi, and
Xinhuatong CEO Dong Jinhua as a non-executive director. Scott's
financial background brings to the Group stability and focus in the
Finance area, while the introduction of Wei Qi and Dong Jinhua to
the Board better reflects our market focus and provides cultural
balance and valuable local expertise. In particular, the
appointment of Dong Jinhua demonstrates the strength and long-term
nature of the relationship and partnership between NewNet,
Xinhuatong and BNN.
In December 2016, Robert Lerwill, Non-Executive Director and
Chairman of the Audit Committee, announced his retirement from his
position. Robert has been on the Board since before the IPO of the
company and has provided enduring support during BNN's evolution. I
would like to thank Robert for the major contribution he has made
to BNN Technology and for his invaluable counsel to the Board on
regulatory and compliance matters throughout his tenure. I wish him
the very best and a happy and enjoyable retirement.
Given our transformation to a technology company, the tremendous
opportunities that lie ahead and the tougher regulatory environment
we will face in the US as a Nasdaq listed company, corporate
governance is a constant priority. We are already well advanced in
our search for a new Audit Committee Chair and additional
non-executive board members to provide the right mix of regional,
regulatory and industry expertise to match the company's
development ambitions. With the help of our advisors, we are making
a number of improvements to strengthen corporate governance and
regulatory oversight to support the Group through its development
in 2017 and beyond.
Looking back at the significant progress we have made in 2016 to
transform our business, I am proud of what the Group has achieved
thus far and I would like to thank all of the BNN team in the UK
and China for their dedication and hard work. The Nasdaq listing
and reinforced Board will bolster our confidence and ability to
capitalise on the rapid growth of China's mobile payment and
ancillary services. I am very excited about the new content and
services we have planned for 2017, as well as the opportunities
ahead.
Lord Mancroft
Chairman
13 April 2017
CHIEF EXECUTIVE'S REVIEW
Overview
Over the past year, we have made great strides in the
transformation of BNN into a Chinese technology, content and
value-added services company and started our journey to becoming a
Chinese technology portal. We have come a long way since our days
as a specialist provider to the Chinese lottery industry, and as
China has evolved, so has the company. We made many changes
throughout 2016, from the ground-breaking Xinhua deal, our
strategic rebrand to BNN, to becoming a regional sponsor of FC
Barcelona, and proving our B2B strategy in mobile payments. Yet we
have stayed true to our core strengths: we continue to leverage our
highly scalable and robust technology platform, and are working
with our partners to develop value-added services and engaging
content.
Strategy
Our vision is to become a leading Chinese technology portal with
three key business areas: payments, value-added services, and
content. We will continue to build out our technology
infrastructure, diversify our revenue mix, offer more services,
build out our database, as well as delivering engaging content to
our partners.
Payments
On payments, we secured B2B contracts with businesses across 31
provinces in China to facilitate mobile top up payments. As of now,
the vast majority of our payments revenue is currently from B2B
transactions, which are extremely high volume, though low margin,
but this allows us to demonstrate the strength of our technology
and provides us with valuable customer data. We are looking to
develop more B2B partnerships, as we expand the portfolio of
payments and diversify our revenue mix. As we announced in December
2016, we had over RMB 1 billion of mobile top-up transactions being
facilitated though our platform in the month of November 2016.
Whilst the B2B model is an important entry point for us to prove
our concept and refine our offering for the B2C model, the B2C
model is where we want to grow the business strategically in the
mid-term, as it is higher margin and provides richer customer data
than the B2B model. We announced in December 2016 that our
technology partner NewNet had signed all 12 of the targeted
provinces under the Xinhua News Agency-Xinhuatong partnership. We
have been working hard to build the infrastructure to support B2C
payments on the Xinhua News app and our mobile top-up business went
live in 10 provinces in the first quarter of 2017. Whilst volumes
are low at this time, we will be using the launch of the FC
Barcelona content on the Xinhua app to begin an aggressive
marketing campaign to advertise the payments functionality and
convert readers of Xinhua's news into active users of the payments
platform. Xinhua confirmed that 140 million users had downloaded
their news app by October 2016.
Strategically we aim to grow the GTVs our platform fulfils,
demonstrating the size and scope of our technology. In 2016 we
fulfilled GBP289.6 million in digital transactions on our platform.
Growing the GTVs, which is a leading indicator of revenue growth
and growth in our data platform, is a key operating metric that the
Board and management will be focusing on in 2017.
Content
We continue to use our strong relationships with international
football clubs to develop unique engaging digital content for our
mobile partners. Football in China is seeing explosive growth
spurred by President Xi Jinping's mission for the country to
qualify for, host and win a World Cup. BNN is supporting China in
achieving this ambitious goal by bringing world famous football
clubs together with grassroots Chinese footballers to foster social
participation. The partnership with FC Barcelona ("FCB"), to
deliver FCB content on the sports channel of the Xinhua News app,
and to run a series of football camps to train hundreds of young
football players, is the latest example of our commitment to
China.
Since we announced the FCB deal, we have been actively building
the content platform and are expected to launch the FCB content on
the Xinhua News app in the coming weeks. FCB has 5.5 million
registered fans in China and we are hopeful both these fans and new
ones will sign up, on our platform, for access to unique FCB
content and for the chance to be trained by FCB coaches, or travel
to train at FCB's facilities in Barcelona. These are opportunities
that are not available anywhere else in China, so we are confident
that we will attract high volumes of consumers to access the
content. We have also been working with various partners to
organise the first amateur training camps and expect to deliver
those before the end of June 2017. With the development and
delivery of this mobile content, we expect to further diversify our
revenue streams, as this allows us to generate advertising revenues
for the Group.
Post year end we have announced an extension of the deal we did
with Arsenal football club. This deal is similar in nature to the
FCB deal, providing content, competitions, and coaching
opportunities that will offer unique content and opportunities for
Chinese consumers. We are also launching a fantasy football game,
tied in with the Chinese Super League, one of the first games of
its type in China. The content will go live in the second quarter
of 2017 and we are confident we will see growth in active users
over the year, as we promote the content across a number of media
outlets throughout China and increase the volume of unique content
and competitions.
Strategically we aim to grow the number of active users on our
platform, and measuring and reporting the number of consumers that
regularly access content on the sports content we have introduced
on the Xinhua News app, will be a key operating metric for the
Board and management team in 2017. The more we grow the user base,
the greater amount of consumer data we collect and the more we can
grow our advertising revenues. Some of the largest technology
companies in the world, such as Facebook, Snapchat and Tencent, all
have active users as a key operating metric, and as an emerging
technology portal, we also see active user growth as key to
measuring our performance and a leading indicator of future revenue
growth.
Value-added Services
In 2017 we will be announcing some new and exciting services
that we will be developing alongside new and existing commercial
partners, subject to agreeing final terms and financing where
necessary.
The first is our student services platform that was announced
post year end, providing a one stop-shop for students to find jobs,
develop their business ideas, and attract funding for those ideas
and financial services.
One of the key initiatives in China's 13th Five-Year plan
(2016-2020) is to promote education. The plan encourages the
cultivation of students' entrepreneurship and innovation
capabilities and practical skills. It also emphasizes the need for
recruitment reforms. One of the key government initiatives is to
ensure that students who complete higher education are either
successful in getting an appropriate job upon graduation, or
successfully launching a new business. To help the government
achieve this goal, we expect to sign key new partnerships to launch
our student services platform initially in one province later this
year, though we have aspirations to roll it out nationally. Our
platform will have three core services;
1. A recruitment portal that will connect university students
with potential employers, providing robust verification of both
student and employers credentials.
2. A business incubator platform where students can seek
information on how to develop their business ideas and source
funding from angel investors or crowdfunding
3. A platform that allows students to access financing to
support them through their studies by purchasing expensive
equipment such as mobile phones and laptops.
We are delighted to be working on such an important initiative
and are confident this will drive further growth of active users on
our technology platform.
The second services platform is a credit rating platform that we
also announced post year end. This is a tremendously exciting
opportunity for the company to participate in a market that has
been described as "probably the largest untapped consumer finance
market globally," by the founder and chief executive of China Rapid
Finance, Zane Wang, who spent years as the head of analytics at the
credit arm of Sears, the American retailer. In the western world,
the large established credit rating companies, such as Equifax and
Experian, compile borrowing and repayment records to create credit
ratings or scores. Lending institutions, including banks, rely
heavily on those scores to make lending decisions for both
companies and individuals. China lacks a direct equivalent of this
and there are no established credit rating companies operating in
the country. The central bank's main database includes personal
credit history data on less than a third of the country's
population.
Aligning ourselves to another critical government initiative,
where the government has announced the intention to establish a
centralised "social credit system" for all citizens and companies
by 2020, we have announced that following the recent placing, we
now have sufficient funding to be able to begin building out a
credit rating platform and hire the relevant technical expertise in
this field. In addition to the initial build-out phase where we
will invest heavily in people and technology over the next few
months, we will be reaching out to, and working with a number of
companies, as a technology partner, to provide them access to our
platform and expertise and begin to develop the commercial side of
the business. This is a tremendously exciting opportunity for the
company and is one which will notably support growth of our data
platform. It is also an opportunity which we feel will add
considerable value to the Group over the coming months and
years.
We look forward to keeping the market abreast of how these new
services evolve over the coming months.
Fundraising & Strategic Partnerships
During 2016, we completed a total of GBP51.2 million in
fundraising to support our growth into payments, data, and
advertising, as well as welcomed a number of high quality
institutional investors onto our shareholder register. With this
additional capital, we have recruited a highly-experienced
specialist data team with analytic and data mining experience to
enrich product development and generate advertising revenue
potential with our partners. We are now classified as an internet
company on the London Stock Exchange, placing us within the
appropriate peer group for our business model.
In 2016, we completed a strategic investment and agreed to
transfer NewNet's legacy lottery related assets into Xinhuacai, our
joint venture with Xinhuatong. This is in exchange for a 10% stake
in Xinhuatong, which holds the exclusive rights for payment
facilitation services on the Xinhua News app. This strategic
investment strengthens our relationship with Xinhuatong, offering
us the opportunity to work with them on a number of future
commercial initiatives, as well as allow us to benefit from the
return of the Chinese online lottery market if, and when, the
suspension is lifted. As of today, the Chinese online lottery
market is still under temporary suspension by Chinese
authorities.
Nasdaq
I am pleased to report that we submitted our formal application
for a secondary listing on the Nasdaq in the fourth quarter of
2016, and that process is progressing well towards a Q3 2017
listing. We continue to work with the Nasdaq exchange, our legal
and financial advisers and the US Securities and Exchange
Commission on the application and we will appraise the market when
we have further updates.
Financial Review
For the year ended 31 December 2016, the company reported
revenues of GBP2.1 million and an operating loss of GBP16.5 million
versus GBP5.5 million and GBP9.3 million in 2015. The gross
transaction volumes for the group grew from GBP79.4 million in 2015
to GBP289.6 million in 2016. Whilst revenue declined year on year,
this reflects the fact the business has transformed from a lottery
provider in 2015 to a technology company in 2016, with the majority
of transactions relating to its new mobile payments business in the
latter half of 2016.
In December, GTVs grew approximately 3% versus November but in
January we saw the volume of transactions jump 20%. Overall, we
have seen Q1 2017 GTVs grow to GBP413.4 million versus GBP269.5
million in Q4 2016 and we anticipate continued growth in 2017 as
new services come on line through the year.
Administration expenses before exceptional items in 2016 were
GBP15.9 million (2015: GBP9.0 million). A further GBP0.7 million of
costs were charged to the income statement relating to the formal
application for a secondary listing on Nasdaq in 2016 (2015: GBP0.7
million relating to the issue of warrants, settlement agreements
and placing costs). These have been treated as exceptional. In
2015, we downsized corporate overheads, restricting expenses where
we could given the change in regulation and suspension of the
online lottery. In 2016 expenses have increased reflecting business
investment in a number of key commercial developments.
We have grown headcount across the organisation from a low of
226 in 2015 to 285 employees in 2016. This increase reflected the
ongoing investment being made in our technology and data teams, and
finance and marketing functions, as we prepare for the Nasdaq and
operationalising our Xinhua contracts respectively. The increase in
headcount is reflected in the increase in wages and salaries that
increased GBP0.8 million (18.3%) to GBP5.0 million in 2016. The
signing of the Xinhua News Agency deal in April 2016, and the speed
by which we signed up our twelve targeted provinces, plus the
signing of advertising rights on the Xinhua app, resulted in
expenses increasing by GBP3.5 million versus the prior year. Under
the terms of the Xinhua deal, we pay a profit share to each Xinhua
province, subject to an agreed guaranteed minimum, which varies
across the provinces, and thus these will be ongoing costs we
expect to incur in future years. These investments made in 2016
have provided a foundation for growth and also opened up new
commercial opportunities with key partners for 2017 and beyond.
In August 2015 Beijing New Net Science and Technology
Development Limited ("NewNet"), a company within the Group, entered
into an agreement with a Chinese national to develop and promote
online sports lottery products in the Chinese province of Shandong.
As part of the agreement a new company was formed, Qingdao BaiFa
Technology Co, Limited ("BaiFa"), of which the Group owned 50%.
However, in October 2016, due to the uncertainty surrounding the
resumption of the online lottery and the repositioning of the group
as a technology company, the group decided to dispose of its
interests in BaiFa. The associate had a loss on disposal of GBP0.2
million.
At year end, BNN had GBP28.0 million in cash and cash
equivalents (GBP4.0 million in 2015). The GBP24.0 million increase
in cash can be accounted for as a net inflow of cash from
fundraising after expenses of GBP48.3 million less approximately
GBP24 million of cash outflow. The utilisation of cash can be
explained by the GBP16.5 million operating loss recognised in 2016,
together with capital required to invest strategically in
Xinhuatong and Longti totalling GBP3.3 million. In common with many
foreign companies operating in China, the debt funding model we
have adopted to move capital from the UK into China, via an
established Asian bank, means we were required to provide a cash
security deposit, which at 31 December 2016 was GBP2.8 million
higher than the loans received. This cash is fully refundable, held
on deposit by the Asian bank and will become unrestricted on
repayment of the borrowings. We purchased property, plant,
equipment and intangibles to an amount of GBP1.3 million, as part
of the group's ongoing investment in our technology platform.
Post Year End
In the first quarter of 2017, we announced the launch of a
motorist services platform, which will offer a range of consumer
services to Chinese motorists from pre-paid petrol card top-ups to
motor insurance, car park payments and car maintenance in the
future. The motorist platform is another example of our efforts to
diversify our revenue mix, as well as capture valuable consumer
data to support further product development and additional revenue
streams.
The market for motoring related services in China is substantial
and set to grow. The market for pre-paid petrol cards is already
large, worth RMB 2.4 trillion (GBP280.2 billion) in 2016 and
forecast to grow to RMB 3.7 trillion (GBP399.3 billion) by 2020.
Similarly, car insurance in China is forecast to grow from RMB
619.9 billion (GBP72.1 billion) in 2016 to RMB 1 trillion (GBP116.3
billion) by 2020 and almost one-third of car insurance in China is
purchased online. Car ownership rates are expected to increase from
75 vehicles per 1,000 people to 600 per 1,000 by 2030, driven by
rising incomes in China.
We announced a further content deal with Arsenal football club,
further expanding our sports content portfolio, and are confident
this and new content deals we are seeking to sign in the first half
of 2017, will deliver active user growth and advertising revenues
for the Group.
On 13(th) April 2017, we announced the intention to launch our
student services platform and a funding of up to GBP25 million. We
believe the Students "one-stop-shop" for their recruitment,
financial services and business start-up needs will bring
considerable user growth onto our platform, and will drive revenue
growth for the business in the latter part of 2017. There are
approximately 35 million students in higher education with around 8
million graduating each year. This is a group of people that are
extremely comfortable with mobile technology, having grown up with
it from a very young age, and frequent users of mobile content and
platforms. Added to the fact that the 13th Five-Year growth plan
for China, and specifically the Government, wanting to improve
student's chances of gaining employment, is providing a clear
incentive for BNN to enter this space. We are confident this
business area will add tremendous value to the Group.
We also announced the launch of our credit ratings business,
where we will enter the market through the development of a credit
rating platform and establishing a number of partnerships where, as
a technology partner, we will begin to establish the commercial
side of the business.
Outlook
China continues to invest heavily into upgrading its mobile
internet infrastructure in rural areas, and it is expected that
over 1 billion people will have smartphones by the end of 2017. In
2016, China's mobile payment market was USD 5.5 trillion - almost
50 times greater than the US - and is expected to reach USD 13
trillion by 2019. Digital payment platforms are an important source
of transaction and financial data that is increasingly being
leveraged by payment companies for new fintech platforms, targeted
advertising, product development and social credit scoring. It is
these trends and other macro trends across China that we hope to
take advantage of over the coming year.
During 2017, we will be broadening our B2B payments business,
and building out our B2C service offering through our partnership
with Xinhuatong and Xinhua News to take advantage of these digital
payment trends. We also expect to utilise capital to take advantage
of exciting new opportunities in our three key business areas:
payments, value-added services, and content.
In 2017, we have already made a number of announcements marking
further progress in our key areas of Payments, Content and
Value-added Services, and expect to continue to do so. As we
develop more services and content to drive user rates, we gather
more data, assisting us with further product and content
development to diversify our revenue base and attract new users to
our partners' platforms, increasing user stickiness. We anticipate
that this virtuous cycle will drive the growth of our business.
2017 will be our first full year, as a fully-fledged technology
company and we aim to grow into our ambition of being a Chinese
technology portal. With the roll-out of content and advertising,
extension of our payments platform and services, we anticipate to
see growth in all three key performance indicators: revenue growth,
gross transaction volumes and average active users. Like many
high-growth emerging technology companies in a similar phase in
their life cycle as to where we are, we will continue to see
operating expenditure in the business grow, reflecting the
necessary investments we will make in people and technology,
especially as we look to build out. Accordingly, the results for
the first half of 2017 will reflect continued investment, whilst we
remain hopeful that we will generate an operating profit in the
second half of 2017.
With the Nasdaq listing process underway, the establishment of
our payments business in the second half of 2016, and the
opportunities we have in the pipeline, I am extremely proud of the
progress we have made in the last year and look forward to the
exciting developments in 2017.
Darren Mercer
Chief Executive
13 April 2017
Unaudited Consolidated Income Statement
For the year ended 31 December 2016
(all figures reported in GBP'000 sterling)
Notee 2016 2015
Continuing operations
Revenue 2 2,064 5,519
Cost of sales (1,138) (4,297)
-------------------------------------- ------ ------- -------
Gross profit 926 1,222
Administrative expenses before
exceptional items (15,908) (9,035)
Exceptional items 5 (677) (652)
-------------------------------------- ------ ------- -------
Administrative expenses after
exceptional items (16,585) (9,687)
Share of results of associates (812) (848)
-------------------------------------- ------ ------- -------
Operating loss (16,471) (9,313)
Finance costs (1,739) (1,395)
-------------------------------------- ------ ------- -------
Loss before tax (18,210) (10,708)
Tax 6 - (157)
-------------------------------------- ------ ------- -------
Loss for the year from continuing
operations 3 (18,210) (10,865)
-------------------------------------- ------ ------- -------
Discontinued operations
Loss for the year from discontinued
operations - (583)
-------------------------------------- ------ ------- -------
Loss for the year (18,210) (11,448)
-------------------------------------- ------ ------- -------
Attributable to:
Owners of the Company (18,062) (11,366)
Non-controlling interests (148) (82)
-------------------------------------- ------ ------- -------
(18,210) (11,448)
------------------------------------- ------ ------- -------
Earnings per share
From continuing and discontinued
operations:
10.08 8.48
Basic loss per share 4 pence pence
10.08 8.48
Diluted loss per share 4 pence pence
From continuing operations:
10.08 8.05
Basic loss per share 4 pence pence
10.08 8.05
Diluted loss per share 4 pence pence
Unaudited Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
(all figures reported in GBP'000 sterling)
2016 2015
Loss for the year (18,210) (11,448)
Items that may be reclassified
subsequently to profit or loss:
Exchange differences on translation
of foreign operations (1,406) 156
Income tax relating to items that
may be reclassified subsequently
to profit or loss - -
Total comprehensive loss for the
year (19,616) (11,292)
---------------------------------------- ------- -------
Attributable to:
Owners of the Company (19,490) (11,206)
Non-controlling interests (126) (86)
(19,616) (11,292)
------------------------------------- ------- -------
Unaudited Consolidated Balance Sheet
As at 31 December 2016
(all figures reported in GBP'000 sterling)
Note 2016 2015
Non-current assets
Goodwill 4,383 3,919
Other intangible assets 949 192
Property, plant and equipment 663 383
Investments in associates 6,322 5,218
Other investments 2,342 -
Other receivables 7,600 -
---------------------------------- ----- ------- -------
22,259 9,712
Current assets
Inventories 5 19
Trade and other receivables 14,767 4,449
Cash and cash equivalents 28,028 4,028
------- -------
42,800 8,496
----- ------- -------
Total assets 65,059 18,208
---------------------------------- ----- ------- -------
Current liabilities
Trade and other payables 5,262 5,626
Borrowings 7 6,110 -
11,372 5,626
--------------------------------- ----- ------- -------
Net current assets 31,428 2,870
---------------------------------- ----- ------- -------
Non-current liabilities
Borrowings 7 13,564 5,978
-----
13,564 5,978
-----
Total liabilities 24,936 11,604
---------------------------------- ----- ------- -------
Net assets 40,123 6,604
---------------------------------- ----- ------- -------
Equity
Share capital 20,527 14,431
Share premium 65,394 22,432
EBT Reserve (575) (575)
Accumulated deficit (45,353) (29,940)
---------------------------------- ----- ------- -------
Equity attributable to owner of
the Company 39,993 6,348
Non-controlling interests 130 256
------- -------
Total equity 40,123 6,604
---------------------------------- ----- ------- -------
Unaudited Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Equity
Attributable
to the
Share owners
Share premium EBT Accumulated of the Non-controlling Total
capital account reserve deficit Company interest equity
---------------- -------- -------- -------- ------------- -------------- ----------------- ----------
Balance at
1 January 2015 13,052 19,433 (575) (17,473) 14,437 686 15,123
----------------- ------- -------- ------- --------- --------- --- --------- ------ -------
Loss for the
year - - - (11,366) (11,366) (82) (11,448)
Exchange
differences - - - 160 160 (4) 156
----------------- ------- -------- ------- --------- --------- --- --------- ----- -------
Total
comprehensive
loss for the
year - - - (11,206) (11,206) (86) (11,292)
Issue of share
capital 1,379 2,999 - 178 4,556 - 4,556
Credit to equity
for
equity-settled
share based
payments - - - 455 455 - 455
Disposal of
subsidiary - - - (2,382) (2,382) (344) (2,726)
Proceeds for
shares not
yet issued - - - 488 488 - 488
--------- --- -------
Balance at
31 December
2015 14,431 22,432 (575) (29,940) 6,348 256 6,604
----------------- ------- -------- ------- --------- --------- --- --------- ------ -------
Loss for the
year - - - (18,062) (18,062) (148) (18,210)
Exchange
differences - - - (1,428) (1,428) 22 (1,406)
----------------- ------- -------- ------- --------- --------- --------- ------ -------
Total
comprehensive
loss for the
year - - - (19,490) (19,490) (126) (19,616)
Issue of share
capital 6,328 42,962 - (488) 48,802 - 48,802
Credit to equity
for
equity-settled
share based
payments - - - 129 129 - 129
Cancellation
of shares (232) - 232 - - -
Equity component
of convertible
debt - - - 4,204 4,204 - 4,204
----------------- ------- -------- ------- --------- --------- --- --------- ------ -------
Balance at
31 December
2016 20,527 65,394 (575) (45,353) 39,993 130 41,123
----------------- ------- -------- ------- --------- --------- --- --------- ------ -------
(all figures reported in GBP'000 sterling)
Unaudited Consolidated Cash Flow Statement
For the year ended 31 December 2016
(all figures reported in GBP'000 sterling)
Note 2016 2015
Net cash used in operating activities 8 (16,975) (8,831)
-------------------------------------------- ----- ------- -------
Investing activities:
Purchases of property, plant
and equipment (481) (252)
Proceeds on disposal of property,
plant and equipment - 19
Investment in associate (1,136) (1,342)
Other investments (2,212)
Purchase of other intangible
assets (865) -
Disposal of subsidiary net of
cash disposed - (178)
Restricted cash deposits (14,211) -
Net cash used in investing activities (18,905) (1,753)
-------------------------------------------- ----- ------- -------
Financing activities:
Proceeds on issue of shares 48,341 4,401
Proceeds on shares not yet issued - 488
Payment of contingent consideration - (1,167)
Proceeds from borrowings 11,387 -
Net cash generated by financing
activities 59,728 3,722
-------------------------------------------- ----- ------- -------
Net increase/(decrease) in cash
and cash equivalents 23,843 (6,862)
Cash and cash equivalents at
the beginning of year 8 4,028 10,834
Effect of foreign exchange rate
changes 152 56
Cash and cash equivalents at
the end of the year 8 28,028 4,028
-------------------------------------------- ----- ------- -------
Notes to the Unaudited Financial Statements
For the year ended 31 December 2016
(all figures reported in GBP'000 sterling)
1. Accounting policies and basis of preparation
Directors' responsibilities
The Directors of BNN Technology plc are responsible for
preparing and issuing this unaudited preliminary announcement,
which was approved on the 12 April 2017
Basis of preparation
While the financial information included in this unaudited
preliminary announcement has been prepared in accordance with the
recognition and measurement criteria of International Financial
Reporting Standards (IFRSs), this announcement does not itself
contain sufficient information to comply with IFRSs nor does it
constitute statutory accounts as defined in sections 435 (1) and
(2) of the Companies Act 2006 for the years ended 31 December 2016
or 2015. The financial information for the year ended 31 December
2015 is derived from the statutory accounts for that year which
have been delivered to the Registrar of Companies and are included
on the Company website. The report of the auditor on those accounts
was unqualified, however it drew attention to the disclosures made
by the directors with respect to the going concern. The audit of
the statutory accounts for the year ended 31 December 2016 is not
yet complete. These accounts will be finalised on the basis of the
financial information presented by the directors in this
preliminary announcement and will be delivered to the Registrar of
Companies and included on the Company website following the
Company's annual general meeting.
The unaudited financial information is prepared on the basis of
the accounting policies set out in the 2015 Annual Report of BNN
Technology plc, except in relation to the standards which have been
adopted in the year with no impact on the results for the current
of prior year.
2. Revenue
IFRS 8 'Operating Segments' requires the segmental information
presented in the financial statements to be that used by the chief
operating decision maker to evaluate the performance of the
business and decide how to allocate resources. The Group has
identified the Group's Chief Executive Officer as its chief
operating decision maker. The Group's Chief Executive Officer
considers the results of the business as a whole when assessing the
performance of the business and making decisions about the
allocation of resources. Accordingly the Group has one operating
segment and therefore the results of the segment are the same as
the results for the Group.
The Group's revenues principally relate to commissions
receivable by the Group from the sale of mobile top ups, lottery
tickets and related products.
The Group's revenue is analysed between the Land and Digital as
this information is provided to the Group's chief operating
decision maker. Land revenues relate to terminal lottery ticket
machine sales and scratch cards whilst Digital revenues includes
both the historic online lottery revenues in addition to the new
mobile payments businesses. An analysis of the Group's revenue by
channel, all of which arose from the Group's operations in China,
is as follows:
2016 2015
Continuing operations:
Land 266 258
Digital 1,798 5,261
----------------------------- ----- -----
2,064 5,519
Discontinued operations:
Digital - 932
Total 2,064 6,451
----------------------------- ----- -----
Included in revenues arising from the Digital businesses are
revenues of approximately GBP614 thousand (2015: GBP880 thousand)
which arose from sales to the Group's largest customer in the year.
No other single customer contributed 10% or more to the Group's
revenue in either 2016 or 2015.
Gross transaction volumes (GTV) represents the total transaction
value of all payments or services that our technology fulfils, net
of VAT and other sales related taxes. This should not be construed
as an alternative or superior to revenue as determined in
accordance with IFRS, similarly our use of gross transaction
volumes may not be consistent with similarly described measures
used by other companies.
Gross transaction volumes
Continuing operations: 2016 2015
Land 4,599 5,379
Digital 285,020 74,039
------------------------------ ------- -------
289,619 79,418
Discontinued operations:
Digital - 25,228
Total 289,619 104,646
------------------------------ ------- -------
Geographical information
The Group's revenue from external customers is generated
entirely in China. Information about its segment assets
(non-current assets excluding financial instruments, deferred tax
assets and other financial assets) by geographical location are
detailed below:
Non-current assets 2016 2015
China 11,616 9,600
United Kingdom 701 112
12,317 9,712
-------------------- ------ -----
3. Loss for the year
Loss for the year has been arrived at after
charging/(crediting):
2016 2015
Net foreign exchange (gain)/loss (2,955) 73
Depreciation of property, plant
and equipment 252 201
Amortisation of other intangible
assets 132 77
Loss on disposal or property, plant
and equipment 1 1
Staff costs 4,994 4,221
4. Loss per share
The calculation of basic and diluted loss per share is based on
the following information:
From continuing and discontinued operations
2016 2015
Losses for the purposes of basic
and diluted loss per share being
net losses attributable to the
owners of the Company (18,062) (11,366)
2016 2015
No. No.
Weighted average number of ordinary
shares for the purposes of basic
loss per share 179,260,542 134,022,373
Effect of dilutive potential ordinary
shares
- Share warrants - -
- Convertible loan notes - -
Weighted average ordinary shares
for the purposes of diluted
loss per share 179,260,542 134,022,373
------------------------------------------ ------------ ------------
The Company incurred losses in the current and prior years and
therefore all potentially issuable shares are anti-dilutive.
2016 2015
pence pence
Basic loss per share 10.08 8.48
Diluted loss per share 10.08 8.48
From continuing operations
Losses for the purposes of basic
and diluted loss per share:
2016 2015
Net losses attributable to the owners
of the Company (18,062) (11,366)
Adjustments to exclude loss for
the year from discontinued operations - 583
Loss for the purpose of basic and
diluted earnings per share from
continuing operations (18,062) (10,783)
------------------------------------------- ------- -------
Pence pence
Basic loss per share 10.08 8.05
Diluted loss per share 10.08 8.05
The denominators used are the same as those detailed above for
both basic and diluted earnings per share from continuing and
discontinued operations.
From discontinued operations 2016 2015
pence pence
Basic loss per share - 0.44
Diluted loss per share - 0.44
5. Exceptional items
Exceptional items are those items which management consider to
be of such significance they require separate disclosure in the
financial statements to enable readers of the financial statements
to better assess the Company's performance. Exceptional items
included within administration expenses in 2016 principally related
to costs associated with the planned NASDAQ listing. Costs in 2015
principally relate to historic claims made by former advisers of
the Company (which have been settled through the issuance of
255,000 shares in the Company), the fair value of share warrants
granted to Company Director D Mercer and external consultant White
& Company and costs associated with the Company's planned
NASDAQ listing. Exceptional items incurred were:
2016 2015
Settlement agreement - (156)
Share warrant - (455)
Listing fees (677) (40)
Other fees - (1)
(677) (652)
---------------------- ---- ----
Included in the balance at 31 December 2016 were accruals and
other creditors of GBP302 thousand. There was no tax charge related
to the above transactions.
6. Tax
2016 2015
Corporation tax:
Current year - 157
---------------------- --------------- ----
- 157
Deferred tax - -
Total tax expense - 157
---------------------- --------------- ----
Corporation tax is calculated at 20% (2015: 20.25%) of the
estimated taxable loss for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions. The charge for the year can be reconciled
to the loss in the income statement as follows:
2016 2015
Loss before tax on continuing
operations (18,210) (10,708)
Tax at the UK corporation tax
rate of 20% (2015: 20.25%) (3,642) (2,169)
Effect of foreign tax rates - 55
Tax effect of non-deductible
expenses 439 309
Change in unrecognised deferred
tax assets 43 470
Carry-forward of unrecognised
tax losses 3,160 1,492
Tax expense for the year - 157
------------------------------------ ------- -------
7. Borrowings
2016 2015
Secured borrowing at amortised
cost:
Bank loans 11,555 -
Unsecured borrowing at amortised
cost:
Convertible loan notes 7,709 5,978
Loans from related parties 410 -
------------------------------------- ------ -----
19,674 5,978
---------------------------------- ------ -----
Total borrowings
Amount due for settlement within
12 months 6,110 -
Amount due for settlement after
12 months 13,564 5,978
19,674 5,978
---------------------------------- ------ -----
Analysis of borrowings by
currency: Sterling Renminbi Total
December 31, 2016
Bank loans - 11,555 11,555
Loans from related parties - 410 410
Convertible loan notes 7,709 - 7,709
7,709 11,965 19,674
---------------------------- --------- --------- ------
December 31, 2015
Convertible loan notes 5,978 - 5,978
----------------------------- --------- --------- ------
Bank loans
On June 1, 2016 BNN Technology plc established a financing
relationship with China Everbright Bank in order to efficiently
provide working capital funding to its trading subsidiary Beijing
NewNet Science & Technology Development Co., Ltd. Under the
arrangements, the China Everbright Bank Hong Kong Branch provided
Beijing NewNet Science & Technology Development Co., Ltd. with
a Chinese Renminbi denominated loan which carries an interest rate
in the range of 4.6 to 4.7 percent. This was secured by a sterling
cash deposit of the Company with the China Everbright Bank Hong
Kong Branch. These cash security deposits are shown as restricted
cash within the consolidated balance sheet.
At December 31, 2016 the Company had drawn-down RMB 99,200
thousand (c. GBP11,555 thousand) which was repayable as
follows:
2016 2015
May 31, 2017 3,358 -
July 25, 2017 2,342 -
October 10, 2018 5,855 -
11,555 -
------------------------------- ------ ----
The weighted average interest
rates paid during the year
were as follows:
2016 2015
% %
Bank loans 4.6 -
Convertible loan notes
On April 20, 2016 the Company agreed with the noteholder,
Stadium Parkgate Limited, to cancel the previously existing
Convertible Loan Notes and to issue New Notes for the same
principal amount of GBP6,000 thousand, but carrying an interest
rate of 6 per cent. The previously existing Convertible Loan Notes
were cancelled on 17 May 2016 and the New Notes issued on the same
date. This has been accounted for as an extinguishment of the
previously existing notes, which were derecognised on cancellation
and an issuance of the new convertible loan notes. At the date of
extinguishment, the Convertible Loan Notes had a carrying value of
GBP8,403 thousand and a loss of GBP2,449 thousand arose on
cancellation related to the difference between the amortised cost
of the previously existing Convertible Loan Notes and the fair
value of the New Notes.
The New Notes (GBP6,000 thousand as mentioned above), together
with accrued interest, are capable of conversion at the option of
the noteholder to Ordinary Shares at any time after December 31,
2016 and prior to July 17, 2018, other than in circumstances of
certain changes of control where the new notes will be capable of
conversion to Ordinary Shares prior to December 31, 2016. The
conversion price of the new notes will be the lower of 115p and the
closing mid-market price of an Ordinary Share on December 31, 2016
provided that the conversion price cannot be less than 60p, other
than in circumstances of certain changes of control where the
conversion price of the new notes will be 115p.
In addition, further New Interest Notes were issued for the sum
of GBP2,403 thousand, this being the accrued interest to the date
of cancellation of the previous Convertible Loan Notes. The New
Interest Notes are capable of conversion at the option of the
Company to Ordinary Shares at any time after December 31, 2016 and
prior to January 31, 2017 at the lower of 115p and the closing
mid-market price of an Ordinary Share on December 31, 2016 provided
that the conversion price cannot be less than 60p. The New Interest
Notes carry an interest rate of 20 per cent from February 17, 2017.
Furthermore, the noteholder has the option of conversion to
Ordinary Shares at any time after January 31, 2017 and prior to
July 17, 2018 at the lower of 115p and the closing mid-market price
of an Ordinary Share on December 31, 2016.
Separately, at any time after January 31, 2017 or prior to
December 31, 2016 in the event of certain changes of control, the
New Interest Notes are capable of conversion at the option of the
noteholder to Ordinary Shares at the lower of 115p and the closing
mid-market price of an Ordinary Share on December 31, 2016 provided
that the conversion price cannot be less than 60p, other than in
circumstances of certain changes of control where the conversion
price of the new notes will be 115p.
The New Notes and New Interest Notes were initially recognised
as a liability at their estimated fair value of GBP7,868 thousand
and GBP2,984 thousand respectively. Since the conversion option is
in respect of a variable number of shares it did not meet the
definition of equity at inception but represents an embedded
derivative liability which is accounted for at fair value with
changes in fair value (gains or losses) recognised as financing
income / (costs).
The net proceeds received from the issue of the convertible loan
notes have been split between the financial liability element and a
derivative financial instrument, representing the fair value of the
embedded option to convert the financial liability into equity of
the Company, as follows:
New Interest
Notes New Notes
Fair value of convertible
loan notes 2,984 7,868
Debt issue costs - (44)
Derivative liability (652) (2,746)
-------------------------------- ----------- ---------
Liability component at date
of issue 2,332 5,078
Interest charged 62 462
Interest paid - (225)
Liability component at 31
December 2016 2,394 5,315
-------------------------------- ----------- ---------
The liability component is measured at amortised cost using the
effective interest rate method. The difference between the carrying
amount of the liability component at the date of issue and the
amount reported in the balance sheet at 31 December 2016 represents
the effective interest rate less interest paid to that date.
8. Notes to the cash flow statement
2016 2015
Loss for the year after discontinued
operations (18,210) (11,448)
Adjustments for:
Share of results of associate 631 848
Loss of disposal of associates 181 -
Income tax expense - 157
Finance costs 1,739 1,395
Loss on disposal of discontinued
operations - 1,661
Loss on disposal of property,
plant and equipment 1 1
Depreciation of property plant
and equipment 252 201
Amortisation of intangible assets 132 77
Share based payments 129 610
------------------------------------------ ------- -------
Operating cash flows before movements
in working capital (15,145) (6,498)
Decrease in inventories 16 134
Increase in receivables (3,029) (2,206)
Increase in payables 1,678 116
------------------------------------------ ------- -------
Net cash used by operations (16,480) (8,454)
Income taxes paid 103 (375)
Interest paid (598) (2)
-------
Net cash used by operating activities (16,975) (8,831)
------------------------------------------ ------- -------
Significant non-cash transactions include the extinguishment and
issue of loan notes, fair value movement of the embedded derivative
on the convertible loan notes, employee share based payments and
interest accruals.
2016 2015
Cash and cash equivalents 28,028 4,028
Cash and cash equivalents comprise cash and short-term bank
deposits with an original maturity of three months or less, net of
outstanding bank overdrafts. The carrying amount of these assets is
approximately equal to their fair value.
9. Subsequent events
1. Conversion of convertible loan notes
The Company announced on 26 January 2017 that it had exercised
its conversion rights a notice of conversion in respect of the full
outstanding balance of GBP2,403,288 New Interest Notes convertible
loan notes issued on 21 April 2016 to Stadium Parkgate (Holdings)
Limited.
The Convertible Notes were capable of conversion into new
ordinary shares of 10 pence each in the capital of the Company at
any time after 31 December 2016 and prior to 31 January 2017 at the
lower of 115p and the closing mid-market price of an Ordinary Share
on 31 December 2016. As such 2,089,816 new Ordinary shares were
issued at a conversion price of 115p to Stadium Parkgate (Holdings)
Limited.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUWCCUPMUAW
(END) Dow Jones Newswires
April 13, 2017 02:00 ET (06:00 GMT)
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