RNS Number : 4733A
DJI Holdings PLC
29 September 2015
 

29 September 2015

 

DJI Holdings plc

 

Unaudited interim results for the six months ended 30 June 2015

 

DJI Holdings plc (AIM: DJI, "the Group", "DJI"), a licensed promoter and distributor of Chinese sports and welfare lottery products to third party retailers and direct to consumers, announces its unaudited interim results for the six months ended 30 June 2015.

 

Highlights

 

·    Trading materially affected by the action of the Chinese Government to temporarily suspend the sale of lottery products online throughout China from 1 March, while a review of the online market is conducted ahead of introducing new legislation.

·    Gross sales of £86.0m (H1 2014: £134.2m) 

·    Net revenue of £2.1m (H1 2014: £3.4m) Operating loss of £2.5m (H1 2014: £2.2m)

·    Net loss of £3.4m (H1 2014: £2.3m)

·    Revenues from online booking platform for sports facilities and equipment hire throughout Heilongjiang province scheduled to commence from November 2015 in partnership with three of China's largest websites, each providing access to a significant customer base

·    Steps taken during period and subsequently to diversify revenue base: 

o New joint venture initiatives with provincial lottery partners

o Development of online booking platform for sports facilities and sports equipment hire

o Progress towards development of new lottery games 

o Advances in application of core back end technology to support provincial lotteries

·      Post period end, completed a £5.6m capital raising to part finance the above initiatives, conditional on shareholder approval.

                                                    

Commenting on the first half performance, Darren Mercer, CEO of DJI, said:

 

"Against the background of a strong performance in 2014, the temporary suspension of online lottery sales has materially and adversely impacted our operating results and our financial position in the first half of 2015.  We have, however, taken advantage of this down-time to significantly improve our long term prospects by (i) exploring new ways to work with provincial lottery partners to develop other revenue streams, both lottery and non-lottery; and (ii) strengthening our position in the lottery sector to enable us to fully capitalise on the resumption of online lottery sales once the suspension is lifted.

 

Our recently announced joint venture with Heilongjiang is one such example where we have developed a very exciting opportunity which covers a multitude of commercial activities, including the distribution of physical lottery products (via stores and scratch cards), the sale of online lottery products (B2B, B2C and mobile) and the sale of non-lottery services and products.

 

The non-lottery activities that we have progressed include the launch and operation of the Heilongjiang Sports Bureau online booking platform for sports facilities and sports equipment hire throughout the province, which is the location of the most popular winter-sports destination in China, with 290 million tourists visiting in 2014. The platform is scheduled for launch in November 2015, in partnership with three of China's most popular websites with substantial customer bases, and is expected to make a significant contribution to the Group's revenues before the end of 2015 and throughout 2016. As a result of this agreement, DJI is also now in discussions with a number of other provinces in China to enter into similar joint ventures and partnerships.

 

In addition to building a position where the Group is trading strongly outside of online lottery sales, we also continue to improve our technology and strengthen our ability to capitalise on the significant revenue opportunities that a better regulated Chinese lottery sector will bring when the temporary suspension of online trading is lifted and the market resumes.

 

The progress that the Group has made in diversifying its activities and repositioning itself promises a very exciting six months ahead."

 

For further information please contact:

 

DJI Holdings plc 

+44 (0) 1565 872990

Darren Mercer, Chief Executive

 


IHA Consulting (Public Relations)

+44 (0) 20 3393 1185

Stephen Benzikie




Strand Hanson Limited (Nominated & Financial Adviser)

+44 (0) 20 7409 3494

Andrew Emmott / Ritchie Balmer




Mirabaud Securities LLP (Broker to DJI)

+44 (0) 20 7878 3362

Peter Krens


 

 

About the Group

 

The Group is a licensed and authorised distributor and promoter of regulated lottery products in the rapidly expanding Chinese lottery market. 

 

The Group is principally engaged in:

·      supply and fulfilment of lottery products to third party e-commerce websites

·      offering lottery products directly to consumers via its own websites and mobile applications and through a number of official provincial lottery websites

·      partnerships or affiliate agreements with key government and corporate partners to deliver lottery solutions to consumers. 

 

The Group is committed to bringing its management and technology expertise, as well as its international relationships to the lottery industry to improve the offering to the millions of lottery consumers in China.

 

The Group's subsidiary companies have been serving the Chinese lottery industry since 2001 and have demonstrated a strong track record of delivery and reliability in working with provincial lottery partners, government agencies and corporations to improve standards throughout the lottery industry in China. 

 

DJI's growth is a testament to the quality and depth of the Group's relationships with key participants within the industry and with its employees as well as the quality of management, technology and partners. 

 

The Group employs more than 270 employees and professionals throughout China (2014: 275). 

 

 

Strategy and objectives

 

DJI's strategy is to capitalise on the rapidly expanding Chinese lottery market and the opportunity to deliver lottery ticket fulfilment sales to its substantial client base of large Chinese corporations (B2B) and individual consumers via the Group's owned and operated websites (B2C), within the online and mobile environment.

 

Through the combination of the Group's long-standing relationships with the Chinese regulators, portfolio of lottery contracts and reliable technology platform, the Group is well positioned to capture the market opportunity.

 

The principal activities of the Group are the development, promotion and distribution of authorised lottery products in China. DJI's subsidiaries are licensed and/or contractually authorised to distribute and promote Sports and Welfare lottery products online, via mobile and through physical retail outlets across China.

 

The Group has a differentiated approach to the Chinese lottery market in that it operates throughout the promotion and distribution value chain. The Group offers:

 

•     front-end lottery ticket sales via websites owned and operated by the Group, third party websites, mobile applications and physical retail outlets

•     back-office lottery ticket fulfilment services to large online and offline lottery partners

 

 

Business review

 

Temporary Suspension of Online Lottery Sales

 

On 1 March 2015, in response to the Notice on "Issues Related to Self-Inspection and Self-Remedy of Unauthorized Online Lottery Sales" promulgated jointly by the Ministry of Finance, Ministry of Civil Affairs and the General Administration of Sports of the People's Republic of China, a number of Provincial Lottery Centres temporarily suspended accepting online purchase orders for lottery products while they began their respective self-inspection processes.  Online trading of lottery products has not resumed and the Group has experienced severely reduced sales.

 

While the suspension has created hardships for the Group, the Group views this development as an important step to control unauthorised online lottery sales and to ensure healthy development of the online lottery market in China.  DJI believes such measures will have long-term beneficial effects on the industry. The Group continues to engage actively with all relevant authorities regarding this temporary situation and has taken steps in the intervening period to position the business to continue to be a major player in the lottery industry in the immediate and foreseeable future.

 

Since the trading suspension was announced, the Group has operated strictly according to official guidance and ceased all unauthorised online trading of lottery products. Further trading has been limited to DJI's remaining retail distribution agreements in a number of provinces.

 

 

 

 

Outlook

 

2015 started with a strong and improved order book over 2014. However, temporary suspensions in online sales at the beginning of March have had a substantial impact on first half results and are expected to also have a significant impact in the results of the second half of the year.

 

Following the full suspension of internet lottery sales by eight PRC government ministries, the Group has focused on diversifying revenue streams using its three key strengths: strong government relationships, channel partnerships with China's leading websites and a leading edge, robust technology platform. Our recent announcement of a partnership with Heilongjiang Sports Bureau is the first commercial contract to result from this strategy. As a result of this partnership, we are optimistic that revenues will resume in earnest from November 2015.  

 

Our exclusive online booking system, which uses our technology platform and is supported by three of China's leading websites, will ultimately be implemented in a significant majority of sporting venues in the Heilongjiang province.  In addition, the pending introduction of new lottery games, which will not require the resumption of online trading, has delivered excellent results in the latest phase of testing and we are hopeful of final approval for some of these games in the near term.  Both of these initiatives have potential to contribute strongly to revenue in 2016.  At the same time, we continue to advance similar discussions with other provinces that can also lead to further new revenue streams.

 

Subsequent to the imposition of the temporary suspension of the online sale of lottery products, the National Audit Office recently published an audit report on the lottery funds of 18 provinces and cities. The suspension in March, and measures implemented since then, demonstrates that the CPC Central Committee and the State Council attach great importance to the healthy development of the lottery, which generates funds for good causes. It also highlights lottery authorities' urgent need for standardized management of new media in the lottery, in order to create a favourable market environment for new channels and new game development.  As a Board, we are confident that the Company is well positioned to benefit from these expected changes when the temporary suspension is lifted and online lottery product sales continue. 

 

 

Statement of Directors' responsibilities

 

This interim management report is the responsibility of, and has been approved by, the Directors of DJI Holdings plc. Accordingly, the Directors confirm that to the best of their knowledge:

 

• the unaudited condensed consolidated set of financial information has been prepared in accordance with IAS 34 - Interim Financial Reporting as issued by the IASB and endorsed and adopted by the European Union;

 

•  the interim management report includes a fair review of the information required by:

 

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

 

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the Annual Report for the year ended 31 December 2014.

 

The Directors of DJI Holdings plc are listed on the Group's website: www.djiholdings.com

 

By order of the Board of Directors

 

Darren Mercer, Chief Executive

29 September, 2015

 

Financial review

Gross revenues in the half were severely impacted by the voluntary suspension of trading enacted by its major client in February 2015, followed by the complete suspension of online trading in March in response to the Notice related to Self-Inspection and Self-Remedy of Unauthorized Online Lottery Sales (the "Self-Inspection Notice").  As a result, net revenues in the second quarter were substantially reduced from £2m in Q1 to £0.1m in Q2.

 

Gross sales and net revenue amounted to £86.0m and £2.1m respectively (H1 2014: £134.2m and £3.4m respectively).

 

The majority of the Group's lottery ticket sales for the period (97%) were derived from the online sale of lottery products (H1 2014: 97%). 

 

The Group's B2B business accounted for 29% of online revenue (H1 2014: 43%), while the Group's websites and mobile applications accounted for 71% (H1 2014: 57%). The Group's largest B2B business substantially reduced online sale of lottery products in January, on a voluntary basis, well in advance of the official suspension in March.  

 

Gross profit of £2.1m (H1 2014: £2.1m) yielded 2.4% on gross sales (H1 2014: 1.5%). This was largely due to the higher proportion of web and mobile sales as a result of the decline in fulfilment sales directly attributable to the voluntary suspension of sales by a large B2B client prior to the full suspension in March.  Online and mobile revenues accounted for 19% of the Group's gross sales (H1 2014: 10%).

 

Overheads of £4.6m increased by 5.3% over H1 2014 due, in part, to increased legal and professional fees associated with being a listed company and financing activity during the period.  Overall wage-related costs increased only 2.2% year on year as IT and development resources replaced land based retail resources. 

 

The net loss for the period of £3.4m (H1 2014: £2.3m) increased largely due to incremental finance costs associated with the convertible note issued in July 2014 and the Company's share of losses in associates related to the ongoing operating costs of Xinhuacai. Xinhuacai, an online lottery product sales provider launched at the end of 2014, voluntarily delayed the start of trading in January due to the pending suspension of the online sale of lottery products.  Xinhuacai has no sales to date.   

 

The Board has not declared an interim dividend.

 

Cash and cash equivalents were £5.1m (31 Dec 2014: £10.8m).  There was a net cash outflow of £5.7m during the period attributable primarily to a £4.2m decrease in cash from operations and £1.4m of payments for contingent consideration for acquisitions.

 

At the half year the Group had deposits with various lottery centres totalling £0.9m and held deposits on clients' behalf of £0.1m.

 

Total assets and net current assets of the Group were £26.8m and £2.4m respectively (31 Dec 2014: £33.5m and £6.2m respectively).

 

The majority of the Group's bank deposits are denominated in renminbi and pounds sterling.  Since the majority of its operations, monetary assets and liabilities are conducted or transacted in these two currencies, the Group manages exchange risk as an ordinary part of its financial decision-making process.  The Group faced minimal exchange rate risk during the period.

 

Staff costs for the period amounted to £2.5m (H1 2014: £2.3m).

 

Financial information (unaudited)

 

Condensed consolidated statement of comprehensive income

 




2015

2014

Six months ended 30 June

 

 

Notes

£ 000

 

£ 000

Gross sales

3

85,957

134,158

 

Revenue

 

3

 

2,128

 

3,370

Cost of sales


(25)





Gross profit


2,103

2,117

Selling and administrative expenses


(4,553)





Loss from operating activities


(2,450)

(2,208)

Finance expense


(489)

(52)

Share of loss of associates


(379)

-





Loss before tax


(3,318)

(2,260)

Tax charge


(105)





Loss after tax and for the period


(3,423)

(2,272)





Other comprehensive income




Items that will or may be reclassified to profit or loss:



Exchange differences on translation of foreign operations, net of tax

96





Total comprehensive expense for the period


(3,327)

(2,182)




Loss for the period attributable to:




Equity holders of the parent


(3,441)

(2,249)

Non-controlling interests


18







(3,423)

(2,272)





Total comprehensive expense for the period attributable to:



Equity holders of the parent


(3,296)

(2,256)

Non-controlling interests


(31)







(3,327)

(2,182)





Loss per share (pence)




Basic


(2.6)

(1.9)

Diluted


(2.6)

(1.9)





 

 

Condensed consolidated statement of financial position




As at


As at



30 June


31 December



2015


2014



£ 000


£ 000

Non-current assets





Goodwill


12,000


12,193

Other intangible assets


331


268

Property, plant and equipment


413


412

Investments

 


4,896

 


4,941








17,640


17,814

 

Current assets





Inventories


145


151

Trade and other receivables


3,960


4,712

Cash and cash equivalents


5,097


10,834








9,202


15,697






Total assets


26,842


33,511

 

Current liabilities





Trade and other payables


2,117


4,074

Contingent consideration


4,482


5,459








6,599


9,533






Non-current liabilities





Contingent consideration


2,477


2,891

Convertible loan


5,970


5,964








8,447


8,855






Total liabilities


15,046


18,388






Net assets


11,796


15,123






Equity





Share capital


13,052


13,052

Share premium


19,433


19,433

EBT reserve


(575)


(575)

Retained earnings


(20,769)


(17,473)





Equity attributable to equity holders of the parent 

11,141


14,437

Non-controlling interests


655


686






Total equity


11,796


15,123


Condensed consolidated statement of changes in equity





Share capital

Share premium

EBT reserve

Retained earnings

Total attributable to equity holders of the parent

Non-controlling interests

Total equity

£ 000

£ 000

£ 000

£ 000

£ 000

£ 000

£ 000









As at 1 January 2014

34

31,435

(508)

(23,058)

7,903

(51)

7,852

Total comprehensive loss for the period

-

-

-

(2,256)

(2,256)

74

(2,182)

Acquisitions

1

2,140

-

-

2,141

210

2,351

Reclassification of EBT

-

(508)

-

508

-

-

-

Bonus issue of shares

12,117

(12,117)

-

-

-

-

-

Other issue of shares

-

1,574

-

-

1,574

-

1,574

Other share-based payments

-

-

-

29

29

-

29









As at 30 June 2014

12,152

22,524

(508)

(24,777)

9,391

233

9,624

Total comprehensive loss for the period

-

-

-

(1,996)

(1,996)

533

(1,463)

Adjustment to acquisitions

-

-

-

-

-

(80)

(80)

Reclassification of EBT

-

508

-

(508)

-

-

-

Adjustment to bonus issue of shares

(298)

298

-

-

-

-

-

Other issue of shares

1,198

6,103

(67)

(178)

7,056

-

7,056

Capital reduction

-

(10,000)

-

10,000

-

-

-

Other share-based payments

-

-

-

(14)

(14)

-

(14)









As at 31 December 2014

13,052

19,433

(575)

(17,473)

14,436

686

15,123

Total comprehensive loss for the period

-

-

-

(3,296)

(3,296)

(31)

(3,327)









As at 30 June 2015

13,052

19,433

(575)

(20,769)

11,141

655

11,796



 

Condensed consolidated statement of cashflows




2015

2014

 Six months ended 30 June

£ 000

£ 000




Loss for the period

(3,423)

(2,272)

Adjustments for:



  Depreciation and amortisation

152

184

  Interest expense

489

52

  Share of loss of associates

379

-

  Income tax charge

105

12




Operating cashflows before movements in working capital

(2,298)

(2,024)

Decrease in inventories

6

251

Decrease (increase) in trade and other receivables

809

(6,042)

(Decrease) increase in trade and other payables

(2,184)

3,686

 



Cash generated from operations

(3,667)

(4,129)

Income taxes paid

(105)

(12)




Net cash outflow from operating activities

(3,772)

(4,141)




Investing activities



Purchase of property, plant and equipment

(99)

(166)

Acquisition of subsidiaries (net of cash acquired)

-

526

Change in investments

-

(95)




Net cash generated by (used in) investing activities

(99)

265




Financing activities



Issue of shares

-

1,574

Interest paid

(483)

(52)

Payment of contingent consideration

(1,391)

-




Net cash generated by (used in) financing activities

(1,874)

1,522




Net decrease in cash and cash equivalents

(5,745)

(2,354)

Exchange differences

8

(7)

Cash and cash equivalents at beginning of period

10,834

5,307




Cash and cash equivalents at end of period

5,097

2,946

 

Notes to the condensed consolidated financial information

 

1.       Basis of preparation

 

The unaudited interim condensed consolidated financial statements for the six months ended 30 June 2015 have been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting, and have been prepared on the basis of International Financial Reporting Standards ("IFRSs") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations as adopted by the European Union that are effective for the year ending 31 December 2015.

 

The unaudited interim condensed consolidated financial statements for the six months ended 30 June 2015, which were approved by the Board on 28 September, 2015, do not comprise statutory accounts, and should be read in conjunction with the Annual Report for the year ended 31 December 2014.  Those accounts have been reported upon by the Group's auditors and delivered to Companies House.  The report of the auditors on those accounts was unqualified.  The Annual Report is published in the Investors section of the Group website at www.djiholdings.com and is available from the Company on request.

 

The unaudited interim condensed consolidated financial statements are prepared on the basis of the accounting policies stated in the Group's Annual Report 2014 which is available on the Group's website at www.djiholdings.com. In the current reporting period, the Group has adopted a number of revised Standards and Interpretations.  However, none of these has had a material impact on the Group's reporting. In addition, the IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

 

 

2.       Significant accounting policies

 

Going concern

The Directors have reviewed trading and cash flow forecasts which take into consideration the uncertainties in the current operating environment. 

 

At 30 June 2015, the Group was funded by cash balances of £5.1m and did not have access to any borrowing facilities.  As a continuation of the Company's business strategy and in response to the need for continuing investment support, subsequent to the end of the reporting period, as noted in more detail in note 4, the Company has conditionally raised £5.6m through the placement of approximately 16 million new ordinary shares. 

 

After making enquiries and taking into account the conditional financing referred to above, the Directors have a reasonable expectation that the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim condensed consolidated financial statements.

 

3.      Gross sales and revenue

 

Gross sales are shown below as a memorandum disclosure and represent the total transaction value of all lottery sales and services, net of VAT and other sales taxes for the six month periods as indicated.  The Group reports the total transaction value since the Directors believe that it reflects more accurately the transactional volume within the Group.

 

All of the Group's revenue arose from operations in China.

 


        Gross sales

           Revenue


2015

2014

2015

2014

Six months ended 30 June

£ 000

£ 000

£ 000

£ 000






Land business

2,855

3,647

55

216

Digital business

83,102

130,511

2,073

3,154







85,957

134,158

2,128

3,370

 

 

4.      Events after the balance sheet date

 

On 11 September 2015 the Group announced a cooperation agreement with Heilongjiang Sports Bureau to establish a joint venture (the "HSB Joint Venture") and a placing of new ordinary shares to raise £5.6 million before expenses (the "Placing"). 

 

The Placing

DJI, through its broker, Mirabaud Securities LLP, has agreed conditionally to place 15,957,000 new Ordinary Shares at a price of 35p each (the "Placing Shares"), raising gross proceeds of £5.6 million.  The net proceeds of the Placing, together with existing cash resources, will be used to meet the Group's approximate £2.0m funding commitment to the HSB Joint Venture and other similar arrangements (as and when agreements are reached), and for general working capital purposes.

 

The Placing is subject to, inter alia, the receipt of shareholder approval of the necessary resolutions to enable the issue of the Placing Shares.  DJI Holdings plc has convened a general meeting for the purpose of considering, inter alia, the necessary resolutions on 1 October 2015.

 

 


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