(formerly known as dji holdings plc) annual report .../media/files/b/bnn... · deloitte llp...

Annual Report & Accounts 2016

(Formerly known as DJI Holdings plc)

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Annual Report & Accounts 2016 1

BNN TECHNOLOGY

Contents

02 Highlights03 Financial and Operating Performance Highlights 04 Officers and professional advisors 05 Chairman’s Statement

06-13 Executive & Non-Executive Management

14 Strategic Report16-19 Chief Executive’s Review20-21 Our Business Model22 How we do it23 2016 Key Achievements24-25 Our Strategic Priorities26-27 Market Overview

28-33 Corporate Governance

34-37 Statement of Directors’ Responsibilities

38-47 Risk Management

48-53 Directors’ Report

54 Financial Statements56 Independent Auditor’s Report57 Consolidated Income Statement58 Consolidated Statement of Comprehensive Income59 Consolidated Balance Sheet60 Parent Company Balance Sheet61 Consolidated Statement of Changes in Equity62 Parent Company Statement of Changes in Equity63 Consolidated Cash Flow Statement64 Parent Company Cash Flow Statement65 Notes to the Financial Statements

BNN TECHNOLOGY


Our business areas in China

PAYMENTS

• We facilitate high volumes of mobile payments across 12 provinces

• Payments such as mobile phone and petrol top-ups, and utility bills

• Business to Business (“B2B”) and Business to Consumer “B2C”) partnerships to create scale and higher margin transactions

CONTENT

• We create and distribute unique content to drive customer acquisition via online and mobile payments

• Partnerships include world renowned sports clubs, such as FC Barcelona & Arsenal

SERVICES

• We provide practical and value-added services to Chinese consumers online and on mobile

• Services include online sporting venue bookings, and are planned to include student recruitment and credit rating services

BNN Technology plc (formerly known as DJI Holdings plc) is a Chinese technology, services and content company

Underpinned by

Trusted partnerships

Robust technology

Compelling content

Founded 2008

Headquarters UK

Operations China

Employees 285

AIM Listing 2014

BNN provides technology to provide online payments and services, and deliver digital content for partners across China through its Chinese technology partner, NewNet.

2008–2015

• Formerly known as DJI Holdings plc• Processed high volume lottery transactions• Developed robust & scalable

technology platform• Delivered unique sports content

PRESENT

• Rebrand to BNN Technology• Partnership with Xinhua to facilitate

mobile payments of traffic fines, utilities, and mobile top ups

• B2B partnerships for mobile top ups• Unique sports content via mobile

NEXT PHASE

• Nasdaq listing in USA• Develop B2C mobile payment

opportunities• Multiple service partnerships• Further payment partnerships

+ +

Signed agreements in 12 provinces with Xinhua News

75%Account for more than 75% of China’s total GDP

$235bnAccess to growing mobile payments market worth US$235 bn in 2016

700mTotal population

Cooperation agreements

Highlights


Financial and Operating Performance Highlights

Business and Operating Performance • Business pivoted from a lottery company into a technology

company, beginning with its signing of the Xinhua News mobile app payments deal in April 2016, following the state mandated suspension of online sale as of lottery products in March 2015.

• Completed signing of all 12 targeted provinces before year end.

• Raised £51.2 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.

• Launched B2B mobile payments business in second half of 2016.

• Signed unique mobile content deal with FC Barcelona to be launched in first half of 2017.

• 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.

• Began secondary listing application for Nasdaq exchange.

• Rebranded the Group from DJI Holdings plc to BNN Technology plc to reflect our current business model and Chinese heritage (BNN referencing our main Chinese operating partner, Beijing NewNet).

• Formally moved sector classification on LSE AIM from ‘Gambling’ to ‘Internet’.

• Sold BaiFa in Q4 2016, as business no longer fits with company strategic direction.

• Added three new directors to the Board, two of whom are Chinese, providing an appropriate balance of our operational scope. New directors were: Group CFO Scott Kennedy, China CEO Wei Qi and Non-Executive Dong Jinhua.

Key Performance Indicators

Business expected to deliver growth in 2017 in all three KPIs that the Board are planning to use to evaluate the Group’s financial and operating performance from 2017 onwards:

1. REVENUE GROWTH

We anticipate revenues to grow as we rollout new B2B and B2C payments, receive advertising revenues from our unique content, and launch our new student and credit services propositions

2. GROSS TRANSACTION VOLUMES (“GTV”)

We expect to grow GTVs, a lead indicator of revenue growth, fulfilled by our payments platform, to demonstrate the size and scope of our technology platform

3. MONTHLY ACTIVE USERS (“MAU”)

We expect to grow the number of average monthly active users on our platform. The more we grow the user base (visiting our content and utilising our students platform), the greater amount of consumer data we collect and the greater the advertising revenues we expect to generate

Group Financial Performance

• Revenues for the Group were £2.1 million in 2016, down from £5.5 million in the prior year as a result of the suspension in online lottery sales and as the business transformed into a technology company.

• Operating loss widened from £9.3 million in 2015 to £16.5 million in 2016, as the business invested in people and technology, sought a secondary listing in the United States and the company entered into partnership with Xinhua in 12 provinces across China.

• 2016 saw the launch of BNN’s Business to Business (‘’B2B’’) mobile top up business, significantly increasing Gross Transaction Volumes (“GTV”) to £289.6 million.

• In 2016, exceptional costs have been incurred predominantly whilst preparing the business for, and in relation to, submitting a formal application for a secondary listing on the Nasdaq exchange.

• Cash and cash equivalents £28.0 million at year end 2016 versus £4.0 million at the 2015 year end.

Group financial highlights

Reported Results (£’000)

Year ended31 December

2016£’000

Year ended31 December

2015£’000

Revenue 2,064 5,519

Operating Loss before Exceptional Items

(15,794) (8,661)

Exceptional Items (677) (652)Finance Costs (1,739) (1,395)Loss before tax (18,210) (10,708)Loss per share (Basic) 10.08 8.48Loss per share (Diluted) 10.08 8.48

Cash and Cash Equivalents 28,028 4,028

Gross Transaction Volumes (“GTV”) from continuing operations

Digital 285,020 74,039

Land 4,599 5,379

Revenue 2,064 5,519

Margin 0.71% 6.95%

BNN TECHNOLOGY


Officers and professional advisors

Directors

D MercerLord MancroftR Lerwill (retired 1 December 2016)W Qi (appointed 1 July 2016) D Jinhua (appointed 1 July 2016) S Kennedy (appointed 8 August 2016)

UK Lawyers

Field FisherRiverbank House2 Swan LaneLondonEC4R 3TT

US Lawyers

CooleysThe Grace Building1114 Avenue of the AmericasNew York10036-7798

China Lawyers

Global Law OfficeChaoyang DistrictBeijing 100025China

Auditor

Deloitte LLPChartered Accountants and Statutory Auditor2 Hardman StreetManchesterM3 3HF

Nominated and Financial Advisor

Strand Hanson Limited26 Mount RowLondonW1K 3SQ10036-7798

Registrar

Computershare Investor Services PLCBridgwater RoadBristolBS13 8AE

Broker

Mirabaud Securities LLP33 Grosvenor PlaceLondonSW1X 7HY

Bankers

Bank of ChinaLondonEC2R 7DB

Lloyds42-46 Market StreetManchesterM1 1PW

Company Secretary

Gateleys Secretaries Limited (resigned 11 May 2016) P Owen (appointed 11 May 2016, resigned 28 February 2017)Field Fisher (appointed 14 March 2017)

Registered office

First Floor Mallory HouseGoostrey WayMobberleyKnutsfordCheshireWA16 7GY

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Chairman’s Statement

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 LSE AIM industry classification benchmark from “Gambling” to “Internet”.

In 2016, we successfully raised a total of £51.2 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 MancroftChairman

“Lord Mancroft

I am very excited about the new content and services we have planned for 2017, as well as the opportunities ahead.”

BNN TECHNOLOGY


BNN TECHNOLOGY


Executive & Non-Executive Management

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BNN TECHNOLOGY


Chairman and Non-Executive Director

Lord MancroftChairman and Non-Executive Director

Date of appointment:20 June 2008

Date of expiry of current term:21 July 2017

Lord Mancroft was appointed Non-Executive Director in 2014 and Chairman in 2015.

Benjamin leads BNN Technology’s Board and supports the CEO on leading the group’s strategic direction.

He has chaired several international businesses and has been a member of the UK’s House of Lords since 1997 – elected as one of 90 hereditary peers in 1999.

He is presently the Chairman of Phoenix Gaming Limited, a lottery consultancy and service provider and has been the President of the UK Lotteries Council since 2005.

Benjamin has previously been Chairman of the PYX Financial Group Limited, a Hong Kong company licensed by ASIC until 2014 and was Chairman of the Advisory Board of the Fleurette Group until 2015.

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Executive Management

Darren Mercer founded BNN Technology as its Chief Executive in 2008, as a provider of software solutions to the gaming industry, before pivoting the group’s business model in 2016.

In the last decade, Darren has built a considerable network of political and corporate contacts and has been responsible for BNN’s expansion in Beijing and into other provinces across China. In addition to being responsible for business and corporate development, Darren has led the identification and negotiation of all the Group’s commercial partnerships to date.

Prior to BNN, Darren spent many years working in the investment banking sector where he achieved considerable success specialising in the media and technology sectors in both private and publicly listed companies.

This period included serving as Director of Institutional Sales at Henry, Cooke Lumsden (now part of Brown Shipley) and then at Albert E Sharp (now Old Mutual).

Darren MercerGroup Chief Executive

Date of appointment:20 June 2008

Date of expiry of current term:Not applicable

BNN TECHNOLOGY


Executive Managementcontinued

Scott KennedyChief Financial Officer

Date of appointment:08 August 2016


Scott joined BNN as Chief Financial Officer in August 2016. He is a Chartered Management Accountant with sixteen years of experience of international finance roles in blue-chip US and UK listed companies.

He began his career with GE Capital, performing a range of roles across the finance function, culminating in his role as Profitability Initiatives Leader for GE Capital Solutions, in Danbury, Connecticut.

In 2009, he joined HSBC, beginning in the Group’s insurance division before becoming Global Head of Business Information, Planning and Analysis for the Commercial Bank.

In 2014, Scott moved to Willis Group Holdings plc, as Group Head of Financial Planning and Analysis. Following the merger of Willis Group Holdings plc and Towers Watson & Co. in 2016, he assumed the role of Finance Director, Corporate Risk and Broking for Willis Towers Watson plc. Scott also received an MBA from Manchester Business School in 2009.

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Wei Qi is the Chief Executive Officer of BNN’s operations in China. Having founded Beijing NewNet in 2002, Wei Qi left to resume his earlier career at Beijing Holdings Ltd, a Hong Kong listed conglomerate controlled by the Beijing municipal government, becoming Chief Executive Officer of the Company’s International Trade division, which had revenues in excess of US$1 billion.

Wei Qi joined BNN in 2009 as China CEO and has since worked closely with the Group CEO, Darren Mercer, building relationships and resources with both central and provincial government, as well as key channel partners from the banking, telecoms and retail sectors.

Wei QiChief Operating Officer and China Chief Executive Officer

Date of appointment:01 July 2016


BNN TECHNOLOGY


Non-Executive Management

Dong JinhuaNon-Executive Director

Date of appointment:01 July 2016


Appointed in 2016, Dong Jinhua is founder and CEO of BNN Technology’s key partner, Xinhuatong. In addition to representing our Company’s important relationship with China’s official Xinhua News Agency, Mr Dong brings valuable experience in establishing commercial agreements with blue-chip partners and key government departments in China.

Mr Dong owned and managed a number of businesses in China’s mobile telecoms and payments sectors before becoming, in 2006, founder and Chief Executive Officer of Xinhuatong Software Development (Beijing) Company (Xinhuatong), a key commercial partner of BNN.

Xinhuatong is a business which has exclusive rights for utility payment processing, payment facilitation, lottery promotion and barcode payment tools to support the Xinhua News Mobile App. Xinhuatong also enjoys a number of very significant relationships with some of China’s largest organisations.

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Robert LerwillSenior Independent Director and Audit Chair

Date of appointment:8 May 2014

Date of expiry of current term:Retired 1 December 2016

Robert, a Chartered Accountant, is an experienced board member and has held the positions of CFO, CEO and Non-Executive Director in a number of large blue-chip companies. He also has experience of chairing an entrepreneurial growth Company.

Robert has, until recently, been a Non-Executive Director of ITC Ltd, a large Indian conglomerate and associate of British American Tobacco, having served for 8 years as a Non-Executive Director and Audit Chair at British American Tobacco plc.

Robert was also a Non-Executive Director of Spire Healthcare Group plc, a private sector hospital operator in the UK, and a non-executive Director of First Utility, a challenger energy reseller. He has previously been an Independent Director of the Payments Council, a trade organisation for banks and payment providers in the UK.

BNN TECHNOLOGY



BNN TECHNOLOGY

16 Chief Executive’s Review20 Our Business Model22 How we do it23 2016 Key Achievements24 Our Strategic Priorities26 Market Overview

Strategic Report

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BNN TECHNOLOGY


Chief Executive’s Review

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 £289.6 million in GTV 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.

“Darren Mercer Our vision is to become a leading

Chinese technology portal with three key business areas; Payments, value-added services and content

GROSS TRANSACTION VOLUMES (“GTV”)

£289.6m 2015: £79.4m

REVENUE

£2.1m 2015: £5.5m

“

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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 FC Barcelona deal, we have been actively building the content platform and are expecting 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 financial services 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 with 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

BNN TECHNOLOGY


Chief Executive’s Reviewcontinued

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 and Strategic Partnerships

During 2016, we completed a total of £51.2 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 revenue from continuing operations of £2.1 million and an operating loss of £16.5 million versus £5.5 million and £9.3 million in 2015. The gross transaction volumes for the group grew from £79.4 million in 2015 to £289.6 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 £413.4 million versus £269.5 million in the fourth quarter of 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 £15.9 million (2015: £9.0 million). A further £0.7 million of costs were charged to the income statement relating to the formal application

for a secondary listing on Nasdaq in 2016 (2015: £0.7 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 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 £0.8 million, (18.3%) to £5.0 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 £3.5 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 NewNet 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 £0.2 million.

At year end, BNN had £28.0 million in cash and cash equivalents (£4.0 million in 2015). The £24.0 million increase in cash can be accounted for as a net inflow of cash from fundraising of £48.3 million less approximately £24 million of cash outflow. The utilisation of cash can be explained by the £16.5 million operating loss recognised in 2016, together with capital required to invest strategically in Xinhuatong and Longti totalling £3.3 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 £2.8 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 £1.3 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

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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 (£280.2 billion) in 2016 and forecast to grow to RMB 3.7 trillion (£399.3 billion) by 2020. Similarly, car insurance in China is forecast to grow from RMB 619.9 billion (£72.1 billion) in 2016 to RMB 1 trillion (£116.3 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 portfolios 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 April 2017, we announced the intention to launch our student services platform and a funding of up to £25 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 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 our platform. Accordingly, the results for the first half of 2017 will reflect continued investment, whilst we remain hopeful 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 MercerGroup Chief Executive

BNN TECHNOLOGY


Our Business Model

Cautionary statement

This Strategic report has been prepared solely to provide additional information to shareholders to assess the Company’s strategies and the potential for those strategies to succeed. The Strategic report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward looking information.

The Directors, in preparing this strategic report (which by reference includes the risks and uncertainties on pages 40 to 47), have complied with section 414C of the Companies Act 2006.

This Strategic report has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to BNN Technology PLC and its subsidiary undertakings when viewed as a whole.

Our vision is to become a Chinese technology, content and services company focused on becoming one of China’s leading internet portals.

Our mission

Our mission is to enrich the lives of Chinese citizens in partnership with public and private sector organisations by enabling more rural and urban communities across the country to access exclusive content and pay for services online.

BNN Technology plc is a Chinese technology, content and service provider and we aim to be one of the leading technology companies in China supplying the technology to support the rapidly growing mobile services and payments market.

At our core, we are a technology company that processes high volumes of transactions and delivers content. We have developed our platform from a pure lottery and gaming business to one that has the capability to deliver mobile content and processes transactions for partners ranging from public utility providers to banks.

Our transformation

The business was founded in 2008, initially as a software solutions provider to the Chinese gaming industry. Following the suspension of online lottery in China in March 2015, the Board took a strategic decision to diversify the business into high growth online and mobile markets.

Through the Group’s long-standing relationships with large Chinese e-commerce partners and government bodies at both national and provincial level, and utilising our robust technology platform that has

proven its scalability and reliability in lottery fulfilment, the Group was able to announce three new agreements in the past twelve months that have cemented its position in these high-growth markets.

As part of the transformation, the group undertook a strategic rebranding to emphasise the change in classification from a gaming and lottery business to a technology, content and service provider.

PaymentsPlatform

E-wallet

Utilities

MobileTop-up

OnlineBooking

MotoristPlatform

BNN Payments Platform

BNN’s partnership with Xinhuatong and branch offices of Xinhua, the national news agency in China, provides BNN with the ability to supply a technology platform and facilitate B2B and B2C mobile payments through the Xinhua News Mobile app for public utility bills including electricity, gas, water, mobile phone top up and traffic fines in 12 provinces in China. At the time of this document being published, mobile top up payments are live on the app in 10 provinces, with the company working to deliver the remaining payments onto the Xinhua mobile app in 2017.

As a member of the partnership, BNN will gather considerable data on customers that pay for services via the platform and this data is crucial to driving user growth. To drive user growth, we will be working with Xinhua to launch a promotional campaign in the first half of 2017, tied in to the offering launch of sports content, providing us with the opportunity to advertise the payments platform on the sports content pages, offering discounts and other incentives (such as loyalty points to be redeemed for sports memorabilia such as signed football shirts). We are utilising our experience of promotional campaigns in the lottery space, together with our key sports partnerships, to offer Chinese consumers incentives to use the Xinhua payments facility, as and when they go live across the country.

We will continue to work with third parties to provide B2B payments fulfilment, which is higher volume, lower margin and less data rich than the B2C model, but provides an income stream for the business whilst we grow our B2C business. We will continue to grow the B2B business in 2017, but, as the B2C business expands over the coming years, we anticipate converting customers that utilise third party platforms into customers that make their payments on the Xinhua app. As such, after an initial growth phase we anticipate the B2B volumes to plateau and decline, to be replaced by B2C volume.

Both the B2C and B2B models are transaction based revenue models. We receive a small commission for every transaction fulfilled through our platform, with the level of commission varying with the type of payment.

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As at the time of publication, we have launched the mobile top up business and online bookings (through our associate Longti) and we aim to launch the remaining services in 2017.

Content

BNN develop unique digital content to drive greater utilisation of the mobile apps and online web pages of our commercial partners, with our core focus in sports and games. On the 12 December 2016, we announced the signing of a deal with FC Barcelona to provide exclusive digital content on the Xinhua News Mobile App. A further content deal has been signed with Arsenal Football club post year end. The Arsenal content deal includes manager interviews before games, pre-match press conferences, weekly news bulletin videos, weekly training footage, monthly bespoke coaching videos and three news articles per week. Chinese fans will be offered free competitions, including the chance to win paid VIP trips to watch Arsenal play at the club’s Emirates Stadium in London and football merchandise.

We signed an agreement with the Xinhua News Agency in 2016, giving us the rights to bring advertising onto the sports channel of the Xinhua News app. The unique content we are developing will be launched in the first half of 2017, and will include advertising banners and videos. As we add more content onto the sports channel of the Xinhua News Mobile app, we expect advertising revenues to increase.

We have successfully applied for and received the appropriate extension of our business licence to allow us to exploit this opportunity.

Content is a traffic based revenue model. Revenues are driven from digital advertising. An increase in active users viewing the content on the sports channels will generate the ability to earn greater advertising revenues. As such, we are incentivised to bring new and unique content, games and competitions to the Xinhua app to ensure active user 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 service to be launched will be the Student Services platform. The platform will have three main components:

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.

The student services platform will be a fee based revenue model. We will charge employers a fee every time a successful student accepts a job through our recruitment platform, we will receive fees from students as a percentage of the funds they access from crowdfunding or angel investors, and we will receive a number of fees from providing financial services to students.

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, allowing us to target the 35 million students in higher education across China.

We are working with provincial Xinhua branches, universities and a number of third parties to launch this platform and we anticipate to go live in the latter part of 2017.

The second service platform is a credit ratings platform. 2017 will be a year in which we will build out our platform and hire the necessary expertise in the company to grow the business.

Credit rating companies offer a multitude of products and services. Initially we will be focused on developing the capability to provide our partners with the technology to produce credit reports and specific credit related information on organisations across China. Later on, once the platform is well established and we have a number of commercial partnerships in place, we expect to evolve the product set.

BNN TECHNOLOGY


How we do it

Key Strategic Relationships

In April 2016, BNN, through NewNet secured a partnership with Xinhuatong, the main operator of the Xinhua News Mobile App owned by China’s national news agency, for BNN to supply its technology platform to support the app. This deal was the first major step in BNN achieving the management’s ambition of BNN becoming a leading portal for mobile payments and information nationwide.

Agreements have been established with twelve provinces in China, allowing us the opportunity to facilitate payments through the app for public utility bills including electricity, gas and water, mobile phone top-ups and traffic fines.

Content agreements established with FCB and Arsenal football club, delivering unique mobile sports content on the Xinhua News Mobile app.

Strategic Investment

In September 2016, NewNet made a strategic investment in Xinhuatong, which entrenched the relationship between NewNet and Xinhuatong and positioned the Group for future mobile and online commercial opportunities with the Xinhua News Agency.

Our monetisation model

We are currently focussed around three primary areas: 1. Payments

Transaction based revenue

• We provide technology that has the ability to support the transaction processing for a number of online/mobile services and payments across China.

• From each transaction, we receive a commission and collect some customer data.

2. Content

Traffic based revenue: Advertising is the monetisation of content

• We develop unique digital content to drive greater utilisation of the mobile apps and online web pages of our commercial partners, with our core focus in sports and games.

• In 2016 we signed a deal with the Xinhua News Agency that gives us the rights to bring advertising onto the sports channel of the Xinhua News Mobile app.

• The unique content will be launched early in 2017, including advertising banners and videos. The content will drive revenue via the advertising.

3. Value Added Services

Fee based revenue. We will operate a student services platform that students can utilise for recruitment, business ideas and financial services needs. We expect to generate revenues in the following ways:

• Success fees, paid by employers, from successfully placing students in a job.

• Fees from providing financial services to students.

• Fees charged as a percentage of capital received from angel investors or crowdfunding for students that raise money to build out their businesses.

Our Credit platform is also likely to be a fee based business, but, as we will be allowing our partners to utilise our technology and expertise, we are likely to agree a combination of both fixed and variable fees based around demand and usage of our technology.

Embrace China’s macro trends

• Race to Rural – Connect 98% of rural areas to the internet, and mobile broadband to reach 85% of the population by 2020.

• Shift to mobile – smartphone adoption.

• Immature credit market – an opportunity for non-bank institutions to fill the gap.

• “One stop shop” approach of the Chinese consumer.

Driving Growth and Returns

While our business is influenced by general factors affecting our industry, our growth comes from the following:

• Our ability to increase active customer accounts and repeat orders from customers. Growth in active customers on the Xinhua News app, specifically using the app to make payments, is a key driver of our future revenue growth expectations.

• Our ability to further increase and leverage our scale of business. As our business grows, and the volume of transactions being fulfilled by our platform increases, we will be in a stronger position with our partners to drive growth in profit margin.

• Our ability to effectively invest in our fulfilment infrastructure and technology platform. We understand it is critical to continue to invest and maintain our technology, ensuring robustness and highest service quality from our platform.

• Our ability to create attractive and unique content. Future growth in advertising revenue will come from our ability to drive consumers to access and utilise the sports channel on the Xinhua news app.

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2016 Key Achievements

2016 Announcements

21 AprilSigned a ground-breaking deal with Xinhua News Agency to provide payment fulfilment technology to the Xinhua News App.Placing to raise £10.5 million.

30 JuneStrengthened the Board with the appointment of Scott Kennedy as CFO, Mr Wei Qi as China CEO and Group COO and Mr Dong Jinhua as a Non-Executive Director.

1 JulyPlacing to raise £29.0 million.

19 JulyPlacing to raise £11.5 million.

22 AugustXinhuatong partnership now signed 10 provinces from the 12 initially targeted.

22 SeptemberStrategically rebranded to BNN Technology plc to reflect our Chinese heritage and refocus as a technology group.Made a strategic investment into Xinhuatong, strengthening relationships with key partners.

SeptemberLaunch of the mobile top-up business.

28 OctoberSubmitted a formal application for a secondary listing on the Nasdaq.

8 DecemberSigning of all 12 targeted provinces under Xinhuatong partnership.

12 DecemberSigning of a partnership with FC Barcelona, offering various football events, money-can’t-buy experiences and football camp content online via BNN’s partner NewNet on Xinhua News app.

2016

2017

BNN TECHNOLOGY


Our Strategic Priorities

Strategic Priorities Key Initiatives

Payments

PaymentsPlatform

E-wallet

Utilities

MobileTop-up

OnlineBooking

MotoristPlatform

• Develop technology that is deployed as an interface or “bridge” between commercial partners to enable the fulfilment of online and mobile payments and other services

Content • Develop unique and differentiated digital content, displayed on our partner’s online websites and mobile apps

• Deliver exciting sports related content

• Promote money can’t buy competitions to drive users to the sites/apps

• Bring advertising onto the sports channel of the Xinhua News Mobile app

• New sports related content will include advertising banners and videos

• Use incentives to encourage users to utilise Xinhua’s Mobile payments app to establish our B2C mobile payments business

Value Added Services

Students

• Develop a “one-stop-shop” platform for students to meet their recruitment, business ideas and financial services needs

• Develop a credit ratings platform and working with a number of partners across china to commercialise the business.

Vision A Chinese technology, content and services company focused on becoming one of China’s leading internet portals

702CREDITSCORE

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Our Growth Strategy

Providing world-class, secure, robust platforms to our partners to fulfil high-volume payments to capture China’s migration to online payments

• We will continue to develop our platform to handle higher volumes of transactions for both B2B and B2C channels

• We will invest in the technology, and design and maintenance teams behind it, to ensure its flexibility and capabilities reflect the growing usage of the technology and variety of services it supports

Adapting our platform to provide a variety of mobile service offerings to consumers to simplify the consumer experience and create greater customer loyalty

• Our technology initially supported mobile top-up only, we are working with our partners to increase the number of services available to consumers on the Xinhua News app, providing an enhanced and simplified service

• We will drive customer loyalty by providing incentives for consumers to complete transactions on an ongoing basis

• Increasing services and customer loyalty will drive higher average spending per customer

Creating unique digital content to drive increasing amounts of daily active users onto our partner’s mobile apps

• We will continue to work with world class institutions such as FC Barcelona, to produce unique mobile and digital content to our customers

• This will drive growth in the daily user activity on our platform and encourage further migration from our B2B to our B2C businesses

Developing our technology to achieve outstanding data management and analytics

• Develop best in class technology to maximise and monetise the opportunity we have, as we collect customer data whilst they access content and we fulfil their payments

• The more sophisticated our technology becomes, the more bespoke our sales and marketing campaigns can become, driving higher revenues from targeted advertising

By building long term sustainable, mutually beneficial relationships with all our partners

• Crucial to sustainable success

• We will continue to develop strategic alliances where we believe it allows us to increase the variety of content or services we provide to our customers

BNN TECHNOLOGY


Market Overview

Market Opportunity

We believe by leveraging our long-term relationships and robust technology platform, we will see our business grow rapidly, as reflected by growth in the key markets that we are operating in across China. Our marketing opportunity is driven by the following factors;

• The roll out of 4G across China is central to the Chinese Government’s plans for bringing its urban and rural populations online

• The Xinhua News Group, has a national reach through its media channels and is a highly respected and established brand in China

• China’s rapid adoption of mobile payments to pay for a broad scope of services across the country

• The growth of low cost smartphones in China with over 1 billion of smartphones anticipated to be in circulation by the end of 2018

• Key initiatives targeting an improvement in student recruitment and successful launch of new businesses, as laid out by the government in their 13th Five-Year plan

Growth in China mobile internet users

• It is expected there will be over 500 million 4G users in China by the end of 2016. The 13th Five-Year Plan set out by the Government calls for the improved national fibre optic coverage (extending rural coverage to 98% of villages), as well as the full roll-out of 4G mobile communication technology across the country. This would mean 1.3 billion people would have 4G mobile access

• In 2015 there were approximately 700 million smartphone users in China. This is projected to grow to nearly 1 billion by the end of 2017. The growth in access to smartphones, combined with the 4G rollout, will drive the growth of mobile services

• Mobile app usage in China is growing strongly. Smartphone owners downloaded 38 billion apps in 2015 and this annual figure is forecast to grow to 90 billion in 2020. Average daily mobile phone usage grew by 41% between 2014 and 2015. This growth is a key driver of the national market for mobile phone top up payments in China

• The government intends to have a 4G network to cover the whole of China by 2018

• Mobile network users will increase to 1.2 billion by 2020

• 80% of all Chinese people will be internet users by 2020, and 70% of these will shop online

Competitive Strengths

• Robustness and scalability of our technology. We have worked with our partners to develop our technology platform to be able to deliver the reliable and scalable solutions, which are requested to handle large volumes of transactions

• Trusted Relationships. We have built a strong reputation and built excellent relationships originally stemming from our lottery business across both the Chinese provincial government and regulatory departments, and with businesses for whom we provide fulfilment services

• Differentiated strategy. We focus on addressing the critical gaps in the market for the Chinese consumer. The services and content we are developing with our partners are designed to better the lives of ordinary Chinese citizens by making their lives easier and more efficient

• Long term approach. Our philosophy in China is to build long standing sustainable relationships with multiple partners and government bodies. We have done this successfully over the past 9 years and are committed to continue in this approach, as we move into the mobile payments and service sector

Our confidence in the growth of the internet in China is justified, as it is a key foundation of the Chinese government’s policy. “Internet plus’’ is the headline for a raft of policies that have been launched in the new 5 year plan announced this year. The aim of the ‘’Internet plus’’ policies is to digitise the economy, create accessibility for all including the poorer rural areas and, as a result, to push the economic growth to even higher levels. To achieve this major spending initiatives have been announced.

We believe our philosophy will allow us to continue to grasp opportunity in the future that will add a tremendous amount of shareholder value

The Strategic Report was approved by the Board of Directors on 18 April 2017 and signed on behalf of the Board by:

D Mercer

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BNN TECHNOLOGY


BNN TECHNOLOGY


BNN TECHNOLOGY

Corporate Governance

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BNN TECHNOLOGY


Chairman’s statement on corporate governance

Dear Shareholder

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 accelerated development in 2017 and beyond.

I joined the Company in June 2008 and was appointed Chairman in September 2015. It has been an exciting year 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. The high growth and strategical repositioning of the business has led to challenges in ensuring that Corporate Governance standards are maintained.

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.

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.

Board focus

The Board’s priority is to ensure that our corporate governance aligns with the high standards of both the UK and US. 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.

During the year ended 31 December 2016, the focus of the Board has been to manage and mitigate the transformation of the group from being a gaming and lottery business into a technology, service and content provider. To pivot the Group on to its new strategic path, we have looked to support working capital and growth with 3 successful placings totalling £51.2 million.

We have focussed heavily on building and securing relationships in China that will offer us the opportunity to work with them on a number of future commercial initiatives.

We are focussed on further strengthening the board with additional independent non-executive directors and working with external advisors to support and develop the corporate governance and internal control systems.

The Board of Directors

Role

The Board is collectively responsible for the long-term success of the Group. Its role is essentially threefold - to provide leadership, to oversee management and to ensure that the Company provides its stakeholders with a balanced and understandable assessment of the Group’s current position and prospects.

The Board’s leadership responsibilities involve working with management to set corporate values and to develop strategy, including deciding which risks it is prepared to take in pursuing its strategic objectives. Its oversight responsibilities involve it in providing constructive challenge to the management team in relation to operational aspects of the business, including approval of budgets, and probing whether risk management and internal controls are sound. Its responsibility to ensure that accurate, timely and understandable information is provided about the Group is not only focused on the contents of the Annual Report, the Interim Report at the half year and other statements, for instance in the context of the Annual General Meeting, but also in deciding whether it is appropriate at any given time to make a statement to the market, as well as in communications with regulators or in respect of other statutory obligations.

The Board has delegated responsibility for management of the Group to the Chief Executive and his executive management team. The main areas where decisions remain with the Board include approval of the annual strategy statement, the financial statements, budgets (including capital expenditure), acquisitions and dividends. The Board is also responsible for setting the Group’s risk management policy and risk appetite. The Board has delegated some of its responsibilities to Committees of the Board. The composition and activities of these Committees are detailed in their individual reports on pages 32-33. The Board receives reports at its meetings from the Chairman of each of the Committees on their current activities. A clear division of responsibility exists between the Chairman, who is non-executive, and the Chief Executive. Each of the responsibilities have been set out in writing and have been approved by the Board. There is an established procedure for Directors to take independent professional advice in the furtherance of their duties, if they consider this necessary.

Chairman

The Chairman’s primary responsibility is to lead the Board, to ensure that it has a common purpose, is effective as a Group and at individual Director level and that it upholds and promotes high standards of integrity, probity and corporate governance. The Chairman is the link between the Board and the Company. He is specifically responsible for establishing and maintaining an effective working relationship with the Chief Executive, for ensuring effective and appropriate communications with shareholders and for ensuring that members of the Board develop and maintain an understanding of the views of shareholders. Before the beginning of the financial year, having consulted with the other Directors and the Company Secretary, the Chairman sets a schedule of Board and Committee meetings to be held in the following twelve months, which includes the key agenda items for each meeting. Further details on these agenda items are outlined under ‘Board Meetings ‘on page 31.


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Senior Independent Director

The duties of the Senior Independent Director are set out in writing and formally approved by the Board. The Senior Independent Director chairs meetings of the Board if the Chairman is unavailable or is conflicted in relation to any agenda item. He also leads the annual Board evaluation of the performance of the Chairman. The Senior Independent Director is available to shareholders who may have concerns that cannot be addressed through the Chairman or Chief Executive. Up until 1 December 2016, Robert Lerwill held the position of Senior Independent Director. The company is currently seeking a replacement following his retirement.

Company Secretary

The Company Secretary’s responsibilities include ensuring that Board procedures are followed, assisting the Chairman in relation to corporate governance matters and ensuring compliance by the Company with its legal and regulatory requirements.

Membership and Composition

The Board currently consists of three executive and two non-executive Directors. The composition of the Board and brief biographies of the Directors, which highlight the range of experience they bring to the Board table, are set out on pages 8 to 13. The Board, with the assistance of the Nomination Committee, keeps Board composition under review to ensure that it includes the necessary mix of relevant skills and experience required to perform its role. The Board’s objective is to have the appropriate mix of skills, knowledge and experience, from a wide range of industries, regions and backgrounds, necessary to address the major challenges for the Company.

Appointment

The Nomination Committee formally agrees criteria for new non-executive Director appointments, including experience of the industry sectors and geographies in which the Group operates, professional background, nationality and gender. The detailed appointment process is set out in the Nomination Committee Report on page 32. Following appointment by the Board, all Directors are, in accordance with the Articles of Association, subject

to re-election at the next Annual General Meeting. The terms and conditions of appointment of non-executive Directors are set out in their letters of appointment, which are available for inspection at the Company’s registered office during normal office hours and at the Annual General Meeting of the Company.

Independence

The Board has carried out its annual evaluation of the independence of each of its non-executive Directors, taking account of the relevant provisions of the listing authorities and governance requirements, namely whether the Directors are independent in character and judgment and free from relationships or circumstances which are likely to affect, or could appear to affect, the Directors ‘judgment. Each of the current non-executive Directors fulfilled the independence requirements of the relevant listing authorities and governance requirements.

Board Meetings

During the year ended 31 December 2016, the Board held 12 scheduled meetings. Individual attendance at these meetings is set out in the table below. Additional meetings are held on specific issues as necessary. There is regular contact as required between meetings in order to progress the Group’s business. A schedule of Board and Committee meetings is circulated to the Board in advance of the calendar year, which includes the key agenda items for each meeting. Board papers are circulated electronically as far as possible in the week preceding the meeting. The key recurrent Board agenda themes are divided into normal business (which includes budgets, financial statements, acquisitions, investor relations, human resources and governance, risk and compliance) and developmental issues, (which include strategy and succession planning).

The Board schedule includes a significant succession planning item once a year. Against a template agreed by the Chief Executive and the Nomination and Governance Committee, the Chief Executive brings a detailed plan for review by that Committee. At an immediately subsequent Board meeting the plan is presented to the Board, discussed and approved.

Table of Attendance

Executive DirectorsBoard

(maximum 15)Audit Committee

(Maximum 3)Remuneration Committee

(Maximum -)Nomination Committee**

(Maximum -)

Darren Mercer 15 2 — —

Wei Qi 5 — — —

Scott Kennedy 4 1 — —

Non-Executive DirectorsBoard

(maximum 15)Audit Committee

(Maximum 3)Remuneration Committee

(Maximum 1)Nomination Committee**

(Maximum -)

Lord Mancroft 15 3 1 —

Robert Lerwill* 9 3 1 —

Dong Jinhua 2 — — —

*Robert Lerwill left the Board effective 1 December 2016

** During 2016, nomination matters were covered during main Board meetings

BNN TECHNOLOGY


Chairman’s statement on corporate governancecontinued

Remuneration Committee

Up until the 1 December 2016, the Remuneration Committee comprised of two independent non-executive Directors, Lord Mancroft and Robert Lerwill. Since the departure of Robert, the Group is searching for new independent non-executive directors. Once an individual has been identified, they will be appointed to the Remuneration committee in due course. The Committee will meet at least twice per year and will agree further meetings at its discretion.

The Chairman of the Committee has the power to call a meeting. The Chairman of the Committee was appointed by the Board. The quorum of the Committee is two.

The duties of the Committee are to:

• determine and agree with the Board the framework or broad policy for the remuneration of the Chairman and executive Directors;

• within the terms of the agreed policy, determine individual remuneration packages including bonuses, incentive payments, share options, pension arrangements and any other benefits;

• in determining individual packages and arrangements, give due regard to the comments and recommendations of the relevant listing authorities and governance requirements;

• advise the Board on any major changes in employee benefit structures in the Company;

• renew the ongoing appropriateness of the remuneration policy;

• agree the policy for authorising claims for expenses from Directors; and

• review the design of all share incentive plans.

The Committee is authorised by the Board to:

• seek any information it requires from any employee of the Company in order to perform its duties;

• be responsible for establishing the selection criteria and then for selecting, appointing and setting the terms of reference for any remuneration consultants providing advice to the Committee, at Company’s expense; and

• obtain, at the Company’s expense, outside legal or other professional advice where necessary in the course of its activities

Nomination Committee

The Nomination Committee comprises at least two members, at least half of whom are independent non-executive Directors of the Company. The current Committee members are Lord Mancroft and Darren Mercer.

The Committee will meet at least twice per year and will agree further meetings at its discretion. During 2016, nomination matters were covered during the main Board meetings. The Chairman of the Committee has the power to call a meeting. The Chairman of the Committee will be appointed by the Board and in the absence of the Chairman, the other members present shall choose one of them to chair the meeting.


• regularly review the structure, size and composition of the Board and make recommendations with regard to changes;

• identify and nominate candidates to fill board vacancies when they arise;

• for the appointment of the Chairman, prepare a job specification;

• ensure that, on appointment to the Board, non-executive Directors receive a letter of appointment;

• review annually the time required for non-executive Directors;

• make recommendations as to the membership of the Audit and Remuneration committees; and

• make recommendations as to the re-appointment of non-executive Directors and re-election by Shareholders of Directors.

The Committee is authorised by the Board to obtain, at the Company’s expense, outside legal or other professional advice where necessary in the course of its activities.

Audit Committee

Up until the 1 December 2016, the Audit Committee comprised of two independent non-executive Directors of the Company, Lord Mancroft and Robert Lerwill. Since the departure of Robert, the group are searching for new independent non-executive directors. Once an individual has been identified, they will be appointed to the Audit Committee in due course. Generally the executive Directors and the external auditor attends by invitation.

The Committee will meet at least twice per year and will agree further meetings at its discretion. The Committee has at least part of one meeting where the external auditor is present and management are not. The Chairman of the Committee has the power to call a meeting.

Meetings are typically arranged to tie in to the publication of the Company’s financial statements and are held in advance of any meeting of the Board at which accounts or financial statements are to be approved.

The Chairman of the Committee was appointed by the Board. The quorum of the Committee requires two and in the absence of the Chairman, the other members present shall choose one of them to chair the meeting.


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• review and challenge the financial statements and policies of the company where necessary;

• review the effectiveness of the Company’s internal financial reporting and internal control policies to ensure the management of risk conforms with the risk appetite determined by the Board;

• consider and make recommendations to the Board about the re-appointment and removal of the Company’s external auditor;

• review the Company’s policy on the engagement of the external auditor to supply non-audit services;

• oversee the relationship with the external auditor and meet regularly with them;

• confirm to the Board that the financial statements taken as a whole, are fair, balanced and understandable, to ensure the narrative sections of the report are consistent with the financial performance and accurately reflect the Group’s performance;

• review and approve the annual audit plan and ensure that it is consistent with the scope of the audit engagement; and

• review the findings of the external audit with the external auditor.

The Committee is authorised by the Board to:

• seek any information it requires from any employee of the Company in order to perform its duties, obtain, at the Company’s expense, outside legal or other professional advice where necessary in the course of its activities; and

• publish in the Company’s annual report details of any issues that cannot be resolved between the Committee and the Board.

Effectiveness

In assessing Director independence, the Board considers the extent of active participation in day to day management of the business, alignment with shareholder interests and ability to separate personal interests with the broader interests of the Company, among other things. Individual Director shareholdings are provided in the Directors’ Remuneration section of this Annual Report. After careful consideration by the Board the shareholdings of the Non-Executive Directors and the Chairman are considered important in aligning interests with those of the shareholders and are not considered to impair independence.

The Board also seeks to strike an appropriate balance between continuity of experience and succession, taking into account the underlying principles of the relevant governance requirements regarding tenure and refreshing of the Board.

Each member of the Board is subject to an annual performance review process using a peer review process seeking 360 input from all Board members under the direction of the peer conducting each individual review.

The Board considers that the performance review serves as a check that each Director continues to contribute effectively and demonstrates commitment to the role. The review showed that there was a requirement to strengthen the Board following the transition from a lottery business to a technology company, resulting in 3 new board appointments throughout the year. The Board are looking to expand the skills and independence further, by appointing additional non-executive directors. This will provide the Board with an appropriate balance of skills, experience, independence, diversity and knowledge of the Company to enable the Directors to discharge their respective duties and responsibilities effectively. Commitment of time by all Directors for Board and Committee meetings and other duties was also considered sufficient for the effective discharge of responsibilities.

There has been a continued focus on the quality of information being sent and presented to the Board to optimise its effectiveness.

Directors’ conflicts of interest

The Company has in place procedures for managing conflicts of interest. The Company’s Articles of Association also contain provisions to allow the Directors to authorise potential conflicts of interest so that a Director is not in breach of his or her duty under company law. Should a Director become aware that they have an interest, directly or indirectly, in an existing or proposed transaction with BNN, they should notify same in line with the Company’s Articles of Association. Directors have a continuing duty to update any changes to their conflicts of interests. During the year there were no identified conflicts of interest raised at Board Meetings.

Board engagement with investors and relations with shareholders

The Annual General Meeting gives all shareholders the opportunity to communicate directly with the Board and BNN encourages their participation. The CEO has held meetings with shareholders to help maintain a balanced understanding of the issues and concerns of major shareholders. He has updated the whole Board on the results of these meetings and on the opinions of investors. The Company also maintains an email account; [email protected] dedicated to receiving shareholder feedback on a variety of issues. All mails received on this address are reviewed by executive management and, where appropriate, mails are forward along with responses to the full Board for consideration and feedback.

Lord MancroftNon-Executive Chairman

BNN TECHNOLOGY


BNN TECHNOLOGY


Statement of Directors’ Responsibilities

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BNN TECHNOLOGY


Statement of Directors’ Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and have also chosen to prepare company financial statements under IFRS as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Parent Company and of the profit or loss of the Group for that period.

In preparing these financial statements, International Accounting Standard 1 requires that Directors:

• properly select and apply accounting policies;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and

• make an assessment of the Company’s ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the financial and corporate information as provided on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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030_c112933.indd 37 20/04/2017 12:49

BNN TECHNOLOGY


Risk Management

BNN TECHNOLOGY


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BNN TECHNOLOGY

Risk Management

The Board is responsible for determining the nature and extent of risks it is willing to take in achieving its strategic objectives. The updating of the Risk Register is incorporated into the Audit Committee’s standing agenda and is regularly reviewed and refined according to up to data information derived from continuous reviews of the operating, competitive, regulatory, political and economic environments.

Risk Management

To ensure the risk is managed effectively, regular meetings are held, under the leadership of the Executive Directors, including, but not limited to:

• monitoring reviews and reporting mechanisms that are embedded into the business operations. Key monitoring reviews include those conducted continuously in weekly operational meetings;

• regular commercial, financial and IT functional meetings are held to review performance and to consider key issues and risks; and

• the Executive Management Team meets regularly to consider significant risks and overall business performance.

The Directors review the effectiveness of internal control, including operating, financial, compliance and risk management controls, which mitigate the significant risks identified. The mechanisms used by the Directors to review the effectiveness of these controls include the following:

• reports from management are structured to ensure that key issues are escalated through the management team and ultimately to the Board as appropriate;

• discussions with senior personnel throughout the Company;

• consideration by the Audit Committee of external audit reports; and

• review by management of controls, which mitigate or minimise high-level risks, to ensure that they are in operation. The results of this review are reported to the Audit Committee and the Board which considers whether these high-level risks are being effectively controlled.

Principal Risks and Uncertainties

The risks and uncertainties described below are considered to have the most significant effect on BNN’s business, financial results and prospects. This list is not intended to be exhaustive.

The audit committee of the Board carries out a detailed risk management process to ensure the risks are identified and mitigated where possible. Many risks, however, remain outside of BNN’s full control, for example, competitor reaction, foreign exchange rates, government regulation and macroeconomic issues.

40 Annual Report & Accounts 2016

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Risk Management Operational Risks

Risk description and potential impact Current mitigation

Dependence on third party service providers

BNN has entered into agreements with third party service providers to facilitate the delivery of mobile payments covering a significant proportion of its expected revenues. The Group is also dependent on external service providers with respect to other services.

Failure to obtain adequate services from such providers could lead to financial loss and damage to the Group’s reputation and could have a material adverse effect on the Group’s financial condition and prospects.

Loss of these contracts or inability to renew or negotiate favourable replacement contracts could have an adverse effect on revenues and/ or future operating costs.

BNN only uses reliable and established industry suppliers and ensures that contractual agreements with key partners are adequate to offer protection to the Group.

BNN works closely with its partners to ensure continuity of service, ensuring that partner’s expectations are met. We regularly seek feedback from our partners on our performance and attempt to outperform our partners expectations. To ensure continuity of service we continue to invest in our technology, and provide appropriate IT and data protection of payments and services that we fulfil on our platform.

Dependence on PRC Government agencies

BNN’s business model is highly dependent on our successful cooperation with the Chinese state news agency, Xinhua News, as well as its provincial agencies. Our future business generated from such contracts may be materially adversely affected if:

• our reputation or relationship with government agencies is impaired.

• we are suspended or otherwise prohibited from contracting with any significant government agency.

• levels of government expenditure decrease or shift to areas where we do not provide services.

• we are prevented from entering into new government contracts or extending existing government contracts based on violations of laws or regulations.

• there is a change in political climate that adversely affects our existing or prospective relationships.

Maintaining a successful working relationship with Xinhua is critical to our current and future business. As such BNN management regularly review our business to ensure that we are doing everything we can to maintain that relationship. Actions include, but is not exclusive of:

— reviews of key controls and processes within the company to ensure we are fully compliant with all PRC rules and regulations.

— Ensuring the business has all the necessary business licences and permits it needs to continue operating.

— Meeting our Chinese legal and tax obligations, including regular reporting to the Chinese authorities as and when required.

— Proactively seeking regular feedback from Xinhua on our performance and making any necessary improvements as quickly as possible.

BNN TECHNOLOGY


Risk Management Operational Risks


Ability to recruit, train and retain qualified staff

The Group need to hire additional qualified employees to support business operations and planned expansion.

Future success depends on the Group’s ability to recruit, train and retain qualified personnel, particularly technical, fulfilment, marketing and other operational personnel with experience in the online, digital technology industry.

The industry is characterised by high demand and intense competition for talent and labour, hence it is difficult to attract and retain staff. There has been an overall tightening of the labour market and emerging trend of shortage of labour supply.

China’s labour costs have increased with the economic development, particularly in the large cities where BNN’s China head office is located

We regularly scan the market for talent across China and the UK and in 2016 we have been investing heavily in data and technology experts to ensure we can deliver on our ambitious growth plans. We have looked across the whole of China to ensure we give ourselves the best opportunity to hire the talented people into the company.

As the business grows, and the complexity of the business increases, we are conscious we need to bring different types of expertise into the organisation and we appropriately evolve our hiring plans as the business needs us to.

Damage to our reputation and brand

BNN’s reputation in the industry, particularly underpinning our relationships with government departments and commercial partners as a leading, reliable and trustworthy service provider is of significant importance to the success of the business.

The online service market is highly competitive. Our ability to remain one of the market leaders in China depends largely on maintaining and enhancing reputation and brand, which may be difficult and expensive.

Any negative publicity in relation to our services or products could harm BNN’s reputation and, in turn, have adverse effects on customer loyalty

BNN have developed their reputation and established a leading position by providing users with what we believe are superior and trustworthy services.

Conducted various marketing and promotion activities to show success and ability to achieve activity enhancement goals.

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Risk Management IT System Failure Risks


Dependency on systems and processing

Systems and processes operated at key facilities in Beijing, Shanghai, Chongqing and other provincial centres. A loss of systems and access to facilities, could lead to significant disruption and could have an adverse operational, reputational and financial impact.

Key systems are hosted across two data centres in two distinct locations with failover arrangements between them. A business continuity program, including disaster recovery arrangements, is in place. This is reviewed continuously to identify areas for improvement and to ensure that arrangements are adequate and appropriate, specifically to monitor and guard against cyber security attacks.

Scalability and flexibility of key IT systems

Although for much of 2015 the Company’s IT platform was underutilised, significant upgrade and development work was undertaken in 2016 to improve its functionality, particularly in its ability to inter connect into other systems. If not managed effectively, the core applications could lose their flexibility and create issues of scalability, which could adversely affect sales, increase cost and cause delays when implementing required business change.

With the volume of data expected to be captured from users accessing the contents pages and competitions, we require a database scalable and robust enough to securely hold the large quantity of consumer data.

Enterprise architecture is reviewed continuously and improvements are made as and when considered necessary.

Structured testing is in place for key systems where required.

Systems are continuously monitored for performance and remedial action is taken as needed.

Integration with third party systems is managed closely and all upgrades and new releases are tested and approved prior to live implementation.

Identified and engaged experienced data analytic specialists, capable of scoping designing and building a database capable of secure high traffic data storage.

User behaviour on mobile devices is rapidly evolving

Users are increasingly using mobile devices in China for a wide range of purposes, including for online payments. If we fail to successfully adapt to these changes, our competitiveness and market position may suffer.

The variety of technical and other configurations across different mobile devices and platforms increases the challenges associated with this environment

If we are unable to attract significant numbers of new mobile buyers and increase levels of mobile engagement, our ability to maintain or grow our business would be materially and adversely affected.

Hiring technical experts in this field into the company, and, where appropriate, utilising third party providers or advisers, is critical to ensuring we are fully up to speed on all the technical changes in the mobile space.

We are working very closely with our football club partners and games suppliers to ensure we bring unique content, competitions and games onto the Xinhua News app. Regularly refreshing and updating this content, and bringing new and unique product to the Chinese market is something we work on daily and are very committed to doing, to ensure we drive active user growth.

Failure to protect user account information

The Group processes user’s personal data as part of its business and therefore must comply with data protection laws in China.

Notwithstanding our IT and data security systems, we may not be effective in detecting any intrusion or other security breaches, or safeguarding against sabotage, hackers, viruses and cyber-crime.

If we or any of the third-party service providers whom we rely on fail to transmit users information and payment details online in a secure manner, or if any data is lost/stolen, it could subject us to liabilities under the data protection laws

Any losses/breaches in data security could result in the loss of the goodwill of our users.

Protection of customer data is paramount to continued operations of the company and we regularly review our security and protection measures.

We have input data security and protection measures that meet both the Chinese legal requirements and, through the use of Amazon cloud technology, protection that meets US legal standards.

BNN TECHNOLOGY


Risk Management Risks related to doing business in China


Complexities, uncertainties and rapid change in PRC regulation

The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in the internet industry.

These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainty.

As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violation.

Uncertainties relating to regulation means that permits, licences or operations at some of our companies may be subject to challenge, denied or un-renewed.

New laws and regulations that regulate internet activities, may be promulgated, if so, additional licenses may be required for our operations

As the relevant rules and regulations are relatively new, the Group faces uncertainties in the implementation of such rules and regulations by the authorities.

Through our Group CEO and China CEO, the Company is actively engaged at multiple levels throughout the provincial and regulatory agencies that affect our business. We have consistently applied for and achieved the necessary licences and contracts to ensure we operate within the proper interpretation of industry regulations and work closely with our China legal counsel to ensure we are compliant in every aspect.

Going forward, we fully expect to continue to invest in understanding and properly interpreting the regulations and we will urgently apply for any new licences or other requirements that may arise as a result of any future regulatory activity that affects our industry.

Group structure results in indirect beneficial ownership of the Group’s interests in China

In common with many international groups operating in China, the Group conducts its operations in China principally through contractual arrangements among its wholly owned PRC subsidiary, Beijing Brookfield, its contractually controlled entities in the PRC and their respective shareholders, which:

(i) enable the Group to exercise effective control over these entities; and

(ii) give the Group the economic obligation to absorb losses and the right to receive benefits of these entities, requiring the Group to treat them as its contractually controlled entities and to consolidate their operating results.

Although the Directors believe that the Group is in compliance with current PRC regulations, PRC laws and regulations governing the validity of these contractual arrangements are open to varying interpretations and the relevant government authorities have broad discretion in interpreting these laws and regulations.

If the PRC government determines that the Group is not in compliance with applicable laws and regulations, it could revoke the Group’s business and operating licences, require the Group to discontinue or restrict its operations, restrict its right to collect revenues, block its websites, require it to restructure its operations, impose additional conditions or requirements with which it may not be able to comply, or take other regulatory or enforcement actions against the Group that could be harmful to its business. The imposition of any of these penalties would result in a material and adverse effect on the Group’s ability to conduct its business.

The Group regularly reviews its legal structure and all related legal agreements with China and UK counsel to ensure the current structure remains the appropriate structure for its business.

The Group also requests that China counsel regularly reviews the emerging corporate and foreign investment related laws as well as regulations and laws affecting technology and lottery companies.

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Risk Management Risks related to doing business in China


The PRC legal system embodies uncertainties which could limit the legal protections available to investors and the Group

As the Group’s main operating entities and a substantial majority of its assets are located in China, PRC laws and the PRC legal system in general may have a significant impact on its business operations. Although China’s legal system has developed over the last several decades, PRC laws, regulations and legal requirements remain underdeveloped relative to England and Wales. Moreover, PRC laws and regulations change frequently and their interpretation and enforcement involve uncertainties. For example, the interpretation or enforcement of PRC laws and regulations may be subject to government rules or policies, some of which are not published on a timely basis or at all. In addition, the relative inexperience of China’s judiciary in some cases may create uncertainty as to the outcome of litigation. These uncertainties could limit the Group’s ability to enforce its legal or contractual rights or otherwise adversely affect its business and operations. Furthermore, due to the existence of unpublished rules and policies, and since newly issued PRC laws and regulations may have retrospective effect, the Group may not be aware of a violation of certain PRC laws, regulations, policies or rules until after the event.

The Group requests that China counsel regularly reviews the emerging corporate and foreign investment related laws as well as regulations and laws affecting technology and lottery companies and proactively advises the Group on legal aspects of its operations and compliance with all applicable Chinese laws.

BNN TECHNOLOGY


Risk Management External/Economic Risk


Fluctuations in exchange rates of the Renminbi could materially affect the Group’s financial results

The exchange rates between the Renminbi and the British pound and other foreign currencies is affected by, among other things, changes in China’s political and economic conditions. The People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. As the Company may rely on dividends and other fees paid to it by its subsidiaries and affiliated consolidated entities in China, any significant revaluation of the Renminbi may materially and adversely affect the Group’s cash flows, net revenues, earnings and financial position, and the value of, and any dividends payable on, the Ordinary Shares in British pounds.

The Group may consider, on a case by case basis, implementing policies to limit its currency exposure, if appropriate, which could include currency hedging instruments when they prove to be available and cost effective.

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Risk Management Reputational Risk


Bribery Act

The Bribery Act came into force in July 2011. To date, there have only been a few precedents set in respect to how this will be enforced with respect to corporations (although no corporate prosecutions have been made as at 31 December 2016). As with all companies, if BNN were found to be in breach of the Act, this could adversely affect BNN’s reputation and financial performance.

BNN has a strong ethical tone from the top. The adoption of appropriate anti-bribery controls has been a key point of focus for the legal compliance programme at BNN. These have included:

• Completion of risk assessments to determine specific compliance needs;

• Introduction of new policies, including an anti-bribery and corruption policy;

• Inclusion of anti-bribery policies in the standard employee handbook issued to all employees as part of orientation upon joining the organization;

• Targeted face-to-face training for employee Groups perceived as higher risk;

• Implementation of a gifts and hospitality policy; and

• Annual assessment of anti-bribery compliance.

Ineffective or non-delivery of the business strategy

The Group’s operating results may fluctuate significantly in the future due to a variety of factors, many of which are outside its control.

Factors that may affect the Group’s operating results include increased competition, an increased level of expenses, technological change necessitating additional capital expenditure, slower than expected sales and changes to the statutory and regulatory regime in which it operates. It is possible that, in the future, the Group’s operating results may fall below the expectations of the Directors or investors.

The executives meet regularly to consider performance against budget and take necessary actions to achieve performance expectations.

The Board has incorporated business updates and review of results against plan as a standard item on Board agendas.

BNN TECHNOLOGY


Directors’ Report


BNN TECHNOLOGY

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49Annual Report & Accounts 2016

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Directors’ Report

The Directors present their annual report on the affairs of the Group, together with the financial statements and auditor’s report, for the year ended 31 December 2016. An indication of likely future developments in the business of the Group are included in the Strategic Report.

Change of name

On the 10 October 2016, the Company’s name was changed from DJI Holdings plc to BNN Technology plc.

Dividends

The Directors do not recommend the payment of an ordinary dividend (2015: £nil).

Capital Structure

Details of the issued share capital, together with details of the movements in the Company’s issued share capital during the year are shown in note 25. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company.

There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. With the exception of executive and non-executive Directors subject to orderly market lockups which expired on 24th July 2016, the Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company’s share capital.

Details of employee share schemes are set out in note 30 and details of the shares in BNN Technology plc, which are held by the Group’s Employee Benefit Trust (the “EBT”) are set out in note 26. The EBT has abstained from voting.

Chinese law and regulations restrict foreign investment in internet businesses. Accordingly, the Company’s Chinese business operations are conducted through a series of arrangements with Chinese incorporated entities and the nominee shareholders of these contractually controlled entities.

These arrangements provide the Group with effective control over the Chinese operations, further details are contained in note 17 to the financial statements.

Directors

The Directors who served throughout the year and thereafter, except as noted, were as follows:

D Mercer

Lord Mancroft

R Lerwill (retired 1 December 2016)

W Qi (appointed 1 July 2016)

D Jinhua (appointed 1 July 2016)

S Kennedy (appointed 8 August 2016)

Directors’ Indemnities

The Company has made qualifying third party indemnity provisions for the benefit of its Directors which were made during the year and remain in force at the date of this report.

Political Contributions

During the year, the Group did not make any political donations (2015: £nil).

Disabled Employees

Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees.

Employee Consultation

The Group places considerable value on the involvement of its employees and has continued to keep them informed on matters affecting them as employees and on the various factors affecting the performance of the Group. This is achieved through formal and informal meetings, with Company employees. Employee representatives are consulted regularly on a wide range of matters affecting their current and future interests. In addition, key employees receive an annual bonus related to their overall contribution to the Group.

Auditor

Each of the persons who is a Director at the date of approval of this annual report confirms that:

• so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and

• the Director has taken all the steps that they ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.

At the forthcoming Annual General Meeting, a resolution will be proposed to appoint our auditor for the 2017 financial year.

Going concern basis

In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable

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future; that is for at least 12 months from the date of signing of the financial statements.

As described in the Strategic Report, the Group has undergone a year of transition, away from reliance on the Chinese lottery. We successfully raised £51.2 million in 2016 to build out our technology platform, enter into key relationships and develop and establish our three business areas.

We have proved our new payments model in September 2016 with the first revenues coming from mobile top-ups.

Revenue and profitability growth in 2017 is dependent on a number of new commercial developments, including:

• The launch of the petrol card top-up business with strategic partners.

• The commencement of the B2C business across the Xinhua app.

• The launch of the unique content and generating advertising revenues.

The Directors have reviewed trading and cash flow forecasts, subjecting the assumptions underpinning the forecasts to extreme stress scenarios. The cash proceeds of the subsequent placing, in April 2017, were not taken into consideration when conducting the going concern review, neither were the proceeds included within the forecasted assumptions.

As a result of the going concern review, the Group has the reasonable expectation of profitable trading contributing to cash flow generation, and even under an extreme stress scenario, has sufficient cash resources such that there is no risk of a liquidity issue within the next 12 months. In addition, there are no factors of which the management are aware that could lead to the Group having to cease trading.

BNN TECHNOLOGY


Directors’ Reportcontinued

Report on Director’s Remuneration

BNN prides itself on offering competitive compensation to its staff in line with prevailing market conditions. This practice is also applied by the Remuneration Committee in determining remuneration policy for recommendation to the Board.

Name of DirectorFees/Basic

salaryBenefits

in kindAnnual

bonuses2016 total

2015 total

Executive

Darren Mercer 386 14 180 580 302

Wei Qi 268 51 250 569 —

Scott Kennedy 97 7 — 104 —

Rodney Davis* — — — — 190

Non-execut ive

Robert Lerwill*** 46 — — 46 50

Lord Mancroft 150 4 20 174 66

Simon Prior Palmer** — — — — 72

Dong Jinhua 67 — — 67 —

Aggregate Emoluments 1,014 76 450 1,540 680

* Rodney Davis departed from the board effective 28 October 2015

** Simon Prior-Palmer departed from the board effective 11 September 2015

*** Robert Lerwill departed from the board effective 1 December 2016

£000’sName of Director

31 Dec 2015 Granted Cancelled

31 Dec 2016

Exercise Price (p)

Date from which

exercisableExpiry

date

Darren Mercer 4,000 — — 4,000 35 10-Dec-15 09-Dec-18

The Directors’ Report was approved by the Board of Directors

on 18 April 2017 and signed on behalf of the Board by

D Mercer

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030_c112933.indd 53 20/04/2017 12:49

BNN TECHNOLOGY


continued

As at 31 December 2016

BNN TECHNOLOGY


Financial Statements

BNN TECHNOLOGY


56 Independent Auditor’s Report57 Consolidated Income Statement58 Consolidated Statement of Comprehensive Income59 Consolidated Balance Sheet60 Parent Company Balance Sheet61 Consolidated Statement of Changes in Equity62 Parent Company Statement of Changes in Equity63 Consolidated Cash Flow Statement64 Parent Company Cash Flow Statement65 Notes to the Financial Statements

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BNN TECHNOLOGY


Independent Auditor’s Report to the Members of BNN Technology PLC

We have audited the financial statements of BNN Technology PLC for the year ended 31 December 2016 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Balance Sheets, the Consolidated and Parent Company Cash Flow Statements, the Consolidated and Parent Company Statements of Changes in Equity and the related notes 1 to 32. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland) . Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statementsIn our opinion:

• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2016 and of the group’s loss for the year then ended;

• the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006In our opinion, based on the work undertaken in the course of the audit:

• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report and the Directors’ Report.

Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Anthony Farnworth, BA Hons ACA (Senior statutory auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Manchester, United Kingdom

18 April 2017

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For the year ended 31 December 2016

(all figures reported in £’000 sterling unless otherwise stated)

Consolidated Income Statement

Note 2016 2015

Continuing operations

Revenue 5 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 9 (677) (652)

Administrative expenses after exceptional items (16,585) (9,687)

Share of results of associates 18 (812) (848)

Operating loss (16,471) (9,313)

Finance costs 11 (1,739) (1,395)

Loss before tax (18,210) (10,708)

Tax 12 — (157)

Loss for the year from continuing operations (18,210) (10,865)

Discontinued operations

Loss for the year from discontinued operations 13 — (583)

Loss for the year 6 (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:

Basic loss per share 7 10.08 pence 8.48 pence

Diluted loss per share 7 10.08 pence 8.48 pence

From continuing operations:

Basic loss per share 7 10.08 pence 8.05 pence

Diluted loss per share 7 10.08 pence 8.05 pence

BNN TECHNOLOGY




Consolidated Statement of Comprehensive Income

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 (19,916) (11,292)

Attributable to:

Owners of the Company (19,490) (11,206)

Non-controlling interests (126) (86)

(19,616) (11,292)

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Consolidated Balance Sheet



Note 2016 2015

Non-current assets

Goodwill 14 4,383 3,919

Other intangible assets 15 949 192

Property, plant and equipment 16 663 383

Investments in associates 18 6,322 5,218

Other investments 19 2,342 —

Other receivables 21 7,600 —

22,259 9,712

Current assets

Inventories 20 5 19

Trade and other receivables 21 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 22 5,262 5,626

Borrowings 23 6,110 —

11,372 5,626

Net current assets 31,428 2,870

Non-current liabilities

Borrowings 23 13,564 5,978

13,564 5,978

Total liabilities 24,936 11,604

Net assets 40,123 6,604

Equity

Share capital 25 20,527 14,431

Share premium 26 65,394 22,432

EBT Reserve 26 (575) (575)

Accumulated deficit 26 (45,353) (29,940)

Equity attributable to owner of the Company 39,993 6,348

Non-controlling interests 26 130 256

Total equity 40,123 6,604

The financial statements of BNN Technology PLC (Company registration number 06624900) were approved by the Board of Directors and authorised for issue on 18 April 2017.

Signed on behalf of the Board of Directors

S KennedyChief Financial Officer

BNN TECHNOLOGY




Parent Company Balance Sheet

Note 2016 2015

Non-current assets

Investments in subsidiaries 17 11 11

Other receivables 21 15,350 —

15,361 11

Current assets

Trade and other receivables 21 54,614 45,474


79,549 47,927


Current liabilities

Trade and other payables 22 1,194 2,218

1,194 2,218

Net current assets 78,355 45,709

Non-current liabilities

Borrowings 23 7,709 5,978

7,709 5,978

Total liabilities 8,903 8,196

Net assets 86,007 39,742

Equity

Share capital 25 20,527 14,431

Share premium account 26 65,394 22,432

EBT reserve 26 (575) (575)

Retained earnings 26 661 3,454

Total equity 86,007 39,742

The financial statements of BNN Technology PLC (Company registration number 06624900) were approved by the Board of Directors and authorised for issue on 18 April 2017.

Signed on behalf of the Board of Directors

S KennedyChief Financial Officer

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Consolidated Statement of Changes in Equity

Share capital

Share premium account

EBT reserve

Accumulated deficit

Equity attributable to the owners of the Company

Non-controlling

interestTotal

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 40,123

BNN TECHNOLOGY




Parent Company Statement of Changes in Equity

Share capital

Share premium account EBT reserve

Retained earnings

Total equity

Balance at 1 January 2015 13,052 19,433 (575) 7,948 39,858

Loss for the year — — — (3,504) (3,504)

Total comprehensive loss for the year — — — (3,504) (3,504)

Issue of share capital 1,379 2,999 — 178 4,556

Credit to equity for equity settled share based payments — — — 455 455

Disposal of subsidiary — — — (2,111) (2,111)

Proceeds for shares not yet issued — — — 488 488

Balance at 31 December 2015 14,431 22,432 (575) 3,454 39,742

Loss for the year — — — (6,870) (6,870)

Total comprehensive loss for the year — — — (6,870) (6,870)

Issue of share capital 6,328 42,962 — (488) 48,802

Credit to equity for equity settled share based payments — — — 129 129

Cancellation of shares (232) — — 232 —

Equity component of convertible debt — — — 4,204 4,204

Balance at 31 December 2016 20,527 65,394 (575) 661 86,007

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Consolidated Cash Flow Statement

Note 2016 2015

Net cash used in operating activities 27 (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 13 — (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 23,848 (6,862)

Cash and cash equivalents at the beginning of year 27 4,028 10,834

Effect of foreign exchange rate changes 152 56

Cash and cash equivalents at the end of the year 27 28,028 4,028

BNN TECHNOLOGY




Parent Company Cash Flow Statement

Note 2016 2015

Operating activities:

Loss for the year (6,870) (3,504)

Adjustments for:

Finance costs 4,349 1,393

Loss on disposal of discontinued operations — 28

Share based payments 129 611

Operating cash flow before movements in working capital (2,392) (1,472)

Increase in receivables (8,678) (7,282)

Increase in payables 786 294

Net cash used by operations (10,284) (8,460)

Interest paid (225) —

Net cash used in operating activities (10,509) (8,460)

Investing activities:

Loan to subsidiaries (15,350) —

Net cash used in investing activities (15,350) —

Financing activities:

Proceeds on issue of shares 48,341 4,401

Proceeds on shares not yet issued — 488

Net cash generated by financing activities 48,341 4,889

Net decrease in cash and cash equivalents 22,482 (3,571)

Cash and cash equivalents at the beginning of year 27 2,453 6,024

Cash and cash equivalents at the end of the year 27 24,935 2,453

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Notes to the Financial Statements

1. General informationBNN Technology Plc (the “Company”) is a company incorporated in the United Kingdom under the Companies Act.

The Company is a public company limited by shares and is registered in England and Wales. The address of the registered office is given on page 4. The nature of the operations of the Company and its subsidiaries (the “Group”) operations and its principal activities are set out in the strategic report on pages 14 to 27.

These financial statements are presented in pound sterling because it is the currency of the primary economic environment in which the parent Company operates. Foreign operations are included in accordance with the policies set out in note 3.

2. Adoption of new and revised standardsIn the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2016, as summarised below. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements..

• Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception

• Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations

• Amendments to IAS 1 Disclosure Initiative

• Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation

• Amendments to IAS 27 Equity Method in Separate Financial Statements

• Annual Improvements to IFRSs 2012-2014 Cycle

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):

• IFRS 9 ‘Financial Instruments’

• IFRS 15 ‘Revenue from Contracts with Customers

• IFRS 16 ‘Leases’

• Amendments to IAS 7 (Jan 2016): Disclosure Initiative

• Amendments to IAS 12 (Jan 2016): Recognition of Deferred Tax Assets for Unrealised Losses

• Amendments to IFRS 10 and IAS 28 (Sept 2014): Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

With the exception of IFRS 15 ‘Revenue from contracts with customers and IFRS 16 ‘Leases; for which an assessment is ongoing, the Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group in future periods. Beyond this, it is not practicable to provide a reasonable estimate of the effect of these standards until a detailed review has been completed.

3. Significant accounting policiesBasis of accountingThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The financial statements have also been prepared in accordance with IFRS adopted by the European Union and therefore the Group financial statements comply with article 4 of the EU IAS regulation.

The financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair values at the end of each reporting period. Historical cost is generally based on the fair value of the consideration given in exchange for the instruments.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.



BNN TECHNOLOGY


Notes to the Financial Statementscontinued



3. Significant accounting policies (continued)In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies adopted are set out below.

Parent Company financial statementsAs permitted by s408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account or statement of comprehensive income for the year. The Parent Company reported a loss for the financial year ended 31 December 2015 of £6,870 thousand (2015: £3,504 thousand).

Going concernIn determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future; that is for at least 12 months from the date of signing of the financial statements.

As described in the Strategic Report, the Group has undergone a year of transition, away from reliance on the Chinese lottery. It successfully raised £51 million in 2016 to build out its technology platform, enter into key relationships and develop and establish its three business areas.

The Company has proved its new payments model in September 2016 with the first revenues coming from mobile top-ups.

Revenue and profitability growth in 2017 is dependent on a number of new commercial developments, including:

• The launch of the petrol card top-up business with strategic partners

• The commencement of the B2C business across the Xinhua app

• The launch of the Student Services platform, unique content and generating advertising revenues

The Directors have reviewed trading and cash flow forecasts, subjecting the assumptions underpinning the forecasts to reasonable downside scenarios.

After making the appropriate enquiries and, considering the Group’s existing cash reserves and forecasts, the Directors have concluded that they have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future.

Basis of consolidationThe consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) as at 31 December each year. Control is achieved when the Company:

• has power over the investee;

• is exposed or has rights to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it considers that it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally.

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3. Significant accounting policies (continued)The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• potential voting rights held by the Company, other vote holders or other parties;

• rights arising from other contractual arrangements; and

• any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement is made on an acquisition by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

When the Group loses control of a subsidiary, the gain or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. Reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

Business combinationsAcquisitions are accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred.

Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRS. Changes in the fair value of contingent consideration classified as equity are not recognised.

Where a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity are remeasured to fair value at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of.

BNN TECHNOLOGY





3. Significant accounting policies (continued)The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3(2008) are recognised at their fair value at the acquisition date, except that:

• Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;

• Liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in accordance with IFRS 2 Share-Based Payments; and

• Assets (or disposal Groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.

The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date, and is subject to a maximum of one year.

Investments in associatesAn associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting.

Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount, Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate, or when the investment is classified as held for sale. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition in accordance with IAS 39. The difference between the carrying amount of the associate at the date the equity method was discontinued, and the fair value of any retained interest and any proceeds from disposing of a part interest in the associate is included in the determination of the gain or loss on disposal of the associate. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

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3. Significant accounting policies (continued)GoodwillGoodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination.

Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

The Group’s policy for goodwill arising on the acquisition of an associate is described above.

Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.

The Group’s revenues principally arise from the sale of mobile phone top-ups, lottery tickets and related services. The group has determined that for its mobile top-ups and related businesses that its role in the relationship does not satisfy that of principal as determined by IAS 18 and therefore treats its revenues from this stream on net commission basis as an agent. The lottery tickets revenue stream and its related products that are generated through multiple channels are recognised at the point of sale as the commission from the lottery commission receivable from the lottery centres by the Group. Commissions payable by the Group to third parties are recognised as a cost of sale.

LeasesLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of “ownership” to the lessee. All other leases are classified as operating leases.

The Group as lesseeAssets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Contingent rentals are recognised as expenses in the periods in which they are incurred.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis.

Foreign currenciesThe individual financial statements of each Group Company are presented in the currency of the primary economic environment in which it operates (its functional currency).

For the purpose of the financial statements, the results and financial position of each Group Company are expressed in pound sterling, which is the functional currency of the Company, and the presentation currency for the financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions.

BNN TECHNOLOGY





3. Significant accounting policies (continued)At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise.

For the purpose of presenting financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Operating lossOperating loss is stated after exceptional items and the share of results of associates but before investment income and finance costs. Exceptional items are those that are of such significance that the Directors believe separate disclosure is required to avoid distortion of the underlying performance of the Group.

Retirement benefit costsPayments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.

Current taxThe tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred taxDeferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt within other comprehensive income.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

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3. Significant accounting policies (continued)Current tax and deferred tax for the yearCurrent and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

Property, plant and equipment and software intangible assetsProperty, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Similarly, software intangible assets are stated at cost less accumulated amortisation and any recognised impairment loss.

Depreciation or amortisation is recognised so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following bases:

Leasehold improvements 33%

Fixtures and equipment 20%-33%

Motor vehicles 33%

Software 10%-20%

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.

The gain or loss arising on the disposal or scrappage of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.

Impairment of tangible and intangible assets excluding goodwillAt each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

An intangible asset with an indefinite useful life is tested for impairment at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

InventoriesInventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated cost of completion and costs to be incurred in marketing, selling and distribution.

Financial instrumentsFinancial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.

BNN TECHNOLOGY





3. Significant accounting policies (continued)Financial assetsAll financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL),’held-to-maturity’ investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

The Group does not currently hold any assets classified as either FVTPL, ‘held to maturity’ or AFS.

Effective interest methodThe effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

Financial assets at FVTPLFinancial assets are classified as at FVTPL when the financial asset is

(i) contingent consideration that may be paid by an acquirer as part of a business combination to which IFRS 3 applies,

(ii) held for trading, or

(iii) it is designated as at FVTPL.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near term; or

• on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading or contingent consideration that may be paid by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other gains and losses’ line item in the income statement. Fair value is determined in the manner described in note 29.

Loans and receivablesTrade receivables loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

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3. Significant accounting policies (continued)Impairment of financial assetsFinancial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Derecognition of financial assetsThe Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities and equityDebt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instrumentsAn equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Compound instrumentsThe component parts of compound instruments (convertible loan notes) issued by the Group are classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.

The equity component is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is included in equity net of the tax effect, and is not subsequently remeasured.

Financial guarantee contract liabilitiesFinancial guarantee contract liabilities are measured initially at their fair values and, if not designated as at FVTPL are subsequently measured at the higher of:

• The amount of the obligation under the contract, as determined in accordance with IAS 37 provisions, contingent liabilities and contingent assets; and

• The amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies set out above.

Financial liabilitiesFinancial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.

Financial liabilities at FVTPLFinancial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration that may be paid by an acquirer as part of a business combination to which IFRS 3 applies, (ii) held for trading, or (iii) it is designated as at FVTPL.

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3. Significant accounting policies (continued)A financial liability is classified as held for trading if:

• it has been incurred principally for the purpose of repurchasing it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading or contingent consideration that may be paid by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses’ line item in the income statement. Fair value is determined in the manner described in note 29.

Other financial liabilitiesOther financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability or where appropriate a shorter period to the net carrying amount on initial recognition.

Derecognition of financial liabilitiesThe Group derecognises financial liabilities when and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

When the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms, such exchange is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective rate is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability.

Embedded derivativesDerivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL. An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is more than 12 months and is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Share-based paymentsEquity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 30.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period based on the Group’s estimate of equity instruments that will eventually vest. At each balance sheet date the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

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3. Significant accounting policies (continued)Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.

4. Critical accounting judgements and key sources of estimation uncertaintyIn the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in financial statements.

ControlChinese law and regulations restrict foreign ownership and investment in, among other areas, value-added telecommunications services, which include Internet content providers, or ICPs. To comply with PRC laws and regulations, the Group currently conducts substantially all of its business through two contractually controlled entities (Beijing Hulian Xincai Culture Development Co., Limited (“Hulian Xincai”) and Beijing NewNet Science & Technology Development Co., Limited (“NewNet”)) and their subsidiaries.

The relevant contractually controlled entities, which are owned by PRC citizens or by PRC entities owned by PRC citizens, hold the software licenses and operate the various platforms that underpin our businesses. Specifically, our contractually controlled entities are majority-owned by one of our Directors, Mr Wei Qi, and minority holdings are held by two of our employees, Ms. Wu Yulan and Ms. Wang Qian.

Beijing Brookfield Interactive Science & Technology Co. Limited (“WFOE”), a wholly owned subsidiary of the Group, entered into a series of contractual arrangements with Hulian Xincai, NewNet and their shareholders. These contractual arrangements enable the Group to:

• receive substantially all of the economic benefits from the entities in consideration for the services provided by WFOE;

• exercise effective control over the entities; and

• hold an exclusive option to purchase all or part of the equity interests in the entities when and to the extent permitted by PRC laws.

In making the conclusion that the Group receives substantially all of the economic benefits from Hulian Xincai and NewNet, the Group believes its rights under the terms of the exclusive business cooperation agreement, exclusive option agreement, equity pledge agreement and power of attorney are substantive given the rights to income and dividends from the entities, the substantive participating rights held by WFOE as it relates to operating matters and the substantive rights to replace the shareholders in the contractually controlled entities.

More specifically, the Group believes that the terms of the contractual agreements are valid, binding and enforceable under PRC laws and regulations current in effect. In particular the Group also believes that the minimum amount of consideration permitted by the applicable PRC law to exercise the exclusive option does not represent a financial barrier or disincentive for the Group to currently exercise its rights under the exclusive option agreement. A simple majority vote of the Group’s board of directors is required to pass a resolution to exercise the Group’s rights under the exclusive option agreement, for which the consent from Mr Wei Qi who is a shareholder of the contractually controlled companies and a director of the Company, is not required. The Group’s rights under the exclusive option agreement and equity pledge agreement give the Group the power to control the shareholders of the contractually controlled entities and thus the power to direct the activities that most significantly impact those entities economic performance. In addition, the Group’s rights under the powers of attorney also reinforce the Group’s abilities to direct the activities that most significantly impact the contractually controlled companies’ economic performance. The Group also believes that this ability to exercise control ensures that the contractually controlled companies will continue to execute and renew service agreements and pay service fees to the Group. By charging services fees, and by ensuring that the service agreements are executed and renewed indefinitely, the Group has the rights to receive substantially all of the economic benefits from the contractually controlled entities. This is reinforced by the equity pledge agreement which provides the Group with the right to collect dividends generated by the contractually controlled entities.

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4. Critical accounting judgements and key sources of estimation uncertainty (continued)The following contractual agreements were entered into by the WFOE (Beijing Brookfield Interactive Science & Technology Development Co., Ltd., or “Beijing Brookfield”) with each of Hulian Xincai and NewNet (collectively, the “Contractually Controlled Entities”) and its respective shareholders (except the loan agreement described below which was entered into with Hulian Xincai only):

Exclusive Business Cooperation AgreementBeijing Brookfield entered into an Exclusive Business Cooperation Agreement with Hulian Xincai on December 14, 2012, pursuant to which Hulian Xincai agreed to engage Beijing Brookfield as its exclusive service provider. Accordingly, Beijing Brookfield shall provide services to Hulian Xincai, including without limitation, technical services, business consulting, equipment or property leasing, marketing consultancy and product research. Hulian Xincai shall pay to Beijing Brookfield a service fee that equals to 80% of the net income of Hulian Xincai. The Exclusive Business Cooperation Agreement is for a term of ten (10) years commencing from the date of this agreement and may be automatically extended at the discretion of Beijing Brookfield. The Exclusive Business Cooperation may be terminated by Beijing Brookfield by giving Hulian Xincai a 30 days’ prior written notice of termination and Hulian Xincai is not contractually entitled to terminate the Exclusive Business Cooperation Agreement.

Moreover, Beijing Brookfield entered into an Exclusive Business Cooperation Agreement with NewNet, Mr. Wei Qi and Ms. Wu Yulan, the shareholders of Hulian Xincai. This agreement follows the same terms with the above Exclusive Business Cooperation Agreement, except that Mr. Wei Qi and Ms. Wu Yulan (the “Guarantors”) agree to take all necessary measures (including without limitation signing all necessary documents) to ensure that NewNet will perform its obligations under this agreement. Otherwise, Beijing Brookfield may demand the Guarantors to transfer their equity interests in Hulian Xincai to Beijing Brookfield or Beijing Brookfield’s designated persons (legal or natural persons) with no consideration or at the lowest price permitted by the PRC Laws and regulations.

Exclusive Option AgreementBeijing Brookfield entered into an Exclusive Option Agreement with Hulian Xincai, Mr. Wei Qi and Ms. Wu Yulan on December 14, 2012, pursuant to which Mr. Wei Qi and Ms. Wu Yulan granted to Beijing Brookfield or the designated representatives of Beijing Brookfield irrevocable options to purchase, to the extent permitted by PRC Laws and regulations, their equity interest in Hulian Xincai, entirely or partially, at a price being the registered capital corresponding to their equity interest, or at a minimum purchase price permitted under PRC Laws and regulations. The parties agree that in case of the following circumstances, Beijing Brookfield shall designate other entities to purchase all the equity interest held by Mr. Wei Qi and Ms. Wu Yulan in Hulian Xincai and all the equity interest held by Ms. Wang Qian in NewNet within 30 working days after Beijing Brookfield learns of such situation: (i) Mr. Wei Qi, Ms. Wu Yulan or Ms. Wang Qian decides to leave their position in Hulian Xincai or NewNet; (ii) Mr. Wei Qi, Ms. Wu Yulan or Ms. Wang Qian does not have full capacity for civil conduct; or (iii) the PRC laws denied the VIE structure. After such equity transfer being completed (subject to the registration with competent authority), the rights and obligations of Mr. Wei Qi, Ms. Wu Yulan and Ms. Wang Qian under this agreement will be terminated. The Exclusive Option Agreement is for a term of ten years commencing from the date of this agreement and are renewable at Beijing Brookfield’s discretion.

Moreover, Beijing Brookfield entered into an Exclusive Option Agreement with Hulian Xincai, NewNet, Ms. Wang Qian, Mr. Wei Qi and Ms. Wu Yulan. This agreement follows the same terms with the above Exclusive Option Agreement, except that Mr. Wei Qi and Ms. Wu Yulan agree to take all necessary measures (including without limitation signing all necessary documents) to ensure that Hulian Xincai and NewNet will perform their obligations under this agreement. Otherwise, Beijing Brookfield may demand Mr. Wei Qi and Ms. Wu Yulan to transfer their equity interests in Hulian Xincai to Beijing Brookfield or Beijing Brookfield’s designated persons (legal or natural persons) with no consideration or at the lowest price permitted by the PRC Laws and regulations.

Equity Pledge AgreementBeijing Brookfield entered into an Equity Pledge Agreement with Hulian Xincai, Mr. Wei Qi and Ms. Wu Yulan on December 14, 2012, pursuant to which each of Mr. Wei Qi and Ms. Wu Yulan agreed to pledge all of their respective equity interests and any dividend rights in Hulian Xincai to Beijing Brookfield to secure performance of all their obligations and the obligations of Hulian Xincai under the Exclusive Business Cooperation Agreement. Mr. Wei Qi and Ms. Wu Yulan also have agreed not to transfer, place or permit the existence of any security interest or other encumbrance on their respective equity interest, without prior written consent of Beijing Brookfield. Upon the full payment of the consulting and service fees under the Exclusive Business Cooperation Agreement and upon termination of Hulian Xincai’s obligations under the Exclusive Business Cooperation Agreement and termination of Mr. Wei Qi, Ms. Wu Yulan and Hulian Xincai’s obligations under the Exclusive Option Agreement, this agreement shall be terminated, and Beijing Brookfield shall terminate this agreement as soon as reasonably practicable.

Moreover, Beijing Brookfield entered into an Equity Pledge Agreement with Hulian Xincai, NewNet, Ms. Wang Qian, Mr. Wei Qi and Ms. Wu Yulan. This agreement follows the same terms with the above Equity Pledge Agreement, except that Mr. Wei Qi and Ms. Wu Yulan agree to take all necessary measures (including without limitation signing all necessary documents) to ensure that Hulian Xincai and NewNet will perform their obligations under this agreement. Otherwise, Beijing Brookfield may demand Mr. Wei Qi and Ms. Wu Yulan to transfer their equity interests in Hulian Xincai to Beijing Brookfield or Beijing Brookfield’s designated persons (legal or natural persons) with no consideration or at the lowest price permitted by the PRC Laws and regulations.

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4. Critical accounting judgements and key sources of estimation uncertainty (continued)Loan AgreementBeijing Brookfield entered into a Loan Agreement with Hulian Xincai, Mr. Wei Qi and Ms. Wu Yulan on December 14, 2012, pursuant to which Beijing Brookfield agrees to lend RMB10 million to Hulian Xincai in order to satisfy the funding needs of Hulian Xincai. If Hulian Xincai fails to perform its obligations under this agreement, Mr. Wei Qi and Ms. Wu Yulan shall transfer their equity interests in Hulian Xincai to Beijing Brookfield or Beijing Brookfield’s designated persons (legal or natural persons) with no consideration or at the lowest price permitted by the PRC Laws and regulations.

During the term of the Loan Agreement, Hulian Xincai shall immediately repay the full amount of the loan in the event any one or more of the following circumstances occur: (i) 30 days elapse after Hulian Xincai receives a written notice from Beijing Brookfield requesting repayment of the loan; (ii) Hulian Xincai is bankruptcy, liquidation, dissolution or wind-up; (iii) any third party filed a claim against Hulian Xincai that exceeds RMB500,000; (iv) according to the PRC applicable laws, foreign investors are permitted to invest in the industry Hulian Xincai engaged in, and Beijing Brookfield exercises the exclusive option under the Exclusive Option Agreement. The term of the Loan agreement is ten years and it is renewable upon the written consent of Beijing Brookfield.

Power of AttorneyOn December 14, 2012, each of Mr. Wei Qi, Ms. Wu Yulan, Ms. Wang Qian and Hulian Xincai has executed a power of attorney. Under each of the power of attorney, each of Mr. Wei Qi, Ms. Wu Yulan, Ms. Wang Qian and Hulian Xincai irrevocably confirmed that the power of attorney shall remain in full force and effect from the date of its execution, so long as each of Mr. Wei Qi, Ms. Wu Yulan, Ms. Wang Qian and Hulian Xincai remains the shareholder of the Contractually Controlled Entities. Pursuant to the power of attorney, each of the shareholders of the contractually controlled entities agrees to authorize any individuals appointed by Beijing Brookfield to exercise all of their rights and powers as shareholders of the Contractually Controlled Entities. These include the rights to (i) attend shareholders’ meetings; (ii) exercise voting rights and other shareholders’ rights as stipulated under applicable PRC Laws and regulations and the articles of association, including but not limited to, the sale, transfer or pledge the equity interests the shareholders held in the Contractually Controlled Entities.

Risks in relation to the structureThe Group believes that the contractual arrangements with Hulian Xincai and NewNet and its current shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Group’s ability to enforce the contractual arrangements. If the PRC government determines that we are not in compliance with applicable laws and regulations, it could revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, block our websites, require us to restructure our operations, impose additional conditions or requirements with which we may not be able to comply, or take other regulatory or enforcement actions against us that could be harmful to our business. The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business.

Furthermore, the interests of the shareholders in Hulian Xincai or NewNet may diverge from that of the Group and that may potentially increase the risk that they would seek to act contrary to the contractual terms, for example by influencing Hulian Xincai or NewNet not to pay the service fees when required to do so. The Group cannot assure that when conflicts of interest arise, shareholders in Hulian Xincai or NewNet will act in the best interests of the Group or that conflicts will be resolved in the Group’s favour. Currently, the Group does not have existing arrangements to address potential conflicts of interest the shareholders of the contractually controlled companies may encounter in their capacity as beneficial owners and directors of the contractually controlled entities. The Group believes the shareholders of the contractually controlled entities will not act contrary to any of the contractual arrangements and the exclusive option agreements provide the Group with a mechanism to remove the current shareholders of the contractually controlled entities as beneficial shareholders of the companies should they act to the detriment of the Group. The Group relies on the current shareholders of the contractually controlled entities, some of whom are also directors and executive officers of the Group, to fulfill their fiduciary duties and abide by the PRC and act in the best interests of the Group. If the Group cannot resolve any conflicts of interest or disputes between the Group and the shareholders of Hulian Xincai or NewNet, the Group would have to rely on legal proceedings, which could result in disruption of our business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

Currently there is no contractual arrangement which requires the Company to provide financial support to our contractually controlled entities. However, as the Company conducts its businesses primarily based on the licenses and approvals held by its contractually controlled entities, the Company has provided and will continue to provide financial support to the contractually controlled entities considering the business requirements of the entities as well as the Company’s own business objectives in the future.

Revenue recognitionDuring the year the Group entered into new business to business (B2B) mobile top-up contracts with various upstream and downstream partners in various provinces in China. The Group has reviewed these signed upstream and downstream contracts and also the substance of the transactions and determined that for this B2B revenue stream that the Group acts as ‘agent’ as defined in IAS 18 and therefore accounts for its revenue from this stream on a net commissions basis.

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4. Critical accounting judgements and key sources of estimation uncertainty (continued)Key sources of estimation uncertaintyThe key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Impairment of goodwillDetermining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. The carrying amount of goodwill at the balance sheet date was £4,383 thousand (2015: £3,919 thousand).

As described in note 14, key assumptions underpinning the Company’s assessment of goodwill are those regarding the discount rate and market share attainable through the Xinhua News Mobile App and related channels. Failure to obtain and expand the necessary contracts with our business partners to facilitate mobile payments, or delays in launching components of our payment processing platform and new revenue streams in line with our business plans could negatively affect the key assumptions used in determining the recoverable amount of our Chinese operations CGU.

Recoverability of software and other tangible assetsDuring the year ended December 31, 2016, management considered the recoverability of its software and other tangible assets which is included in its balance sheet at £1,612 thousand (2015: £575 thousand). The diversification away from the Group’s dependence on lottery revenues along with the development and improvement of the Group’s technology platform has provided management with confidence that future revenues will arise that will make a return on the Group’s investments.

Sensitivity analysis has been carried out and management is confident that the carrying amount of the asset will be recovered in full, even if returns are reduced. This situation will be closely monitored, and adjustments made in future periods if future market activity indicates that such adjustments are appropriate.

Compound instrumentsIn April 2016, the Company agreed with the note holder to cancel the existing convertible loan note of £6,000 thousand and accrued interest of £2,403 thousand and to issue two new convertible loan notes. On 17 May 2016, these new notes were issued, one of £6,000 thousand carrying an interest rate of 6% effective from 17 May 2016 and the other for £2,403 thousand carrying an interest rate of 20% effective from 15 February 2017. Both of these loan notes carry an option for the noteholder, and in some instances the Company, to convert the loan notes into equity. At inception, the conversion options did not qualify as equity instruments and therefore management have recognised them as embedded derivatives and have accounted for them at fair value through profit and loss. The derivative element of both instruments were valued at their effective date of 17 May 2016 with any subsequent remeasurment of the fair value to balance sheet date being recognised at FVTPL in finance costs in the income statement. The value of this fair value movement at the balance sheet date can be seen in note 11.

Furthermore, with effect from 31 December 2016, the conversion price became fixed based upon the lower of the Company’s share price on that date and 115 pence. From this date, the conversion option qualified as an equity instrument and the Company has determined the absence of a variable pricing feature from 31 December 2016 represents a change in the contractual terms applicable to the loan note and the classification of the conversion option feature has been reclassified to equity.

Recognition of deferred tax assetsAt 31 December 2016, the Group had unrecognised deferred tax assets of £9,886 thousand (2015: £7,510 thousand) principally in relation to carried forward tax losses (see note 24). The ability of the Group to utilise these losses is dependent on future profits. This is inherently uncertain and therefore the determination of the appropriate level of deferred tax assets to recognise is a key source of estimation uncertainty.

Parent Company judgements and estimationsIn the application of the Company’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities and actual results may differ from these estimates. Included within Parent Company debtors (note 21) are amounts owed by subsidiary undertakings of £69,041 thousand (2015: £45,344 thousand) and as these subsidiaries have net liabilities, the recoverability of this debtor is uncertain. However, based on current forecasts, the Directors expect these subsidiaries to be able to repay these balances as they execute their business plans and therefore the debtor has been recognised in full at 31 December 2016.

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5. RevenueIFRS 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 include 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 £614 thousand (2015: £880 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

2016 2015

Continuing operations:

Land 4,599 5,379

Digital 285,020 74,039

289,619 79,418

Discontinued operations:

Digital — 25,228

Total 289,619 104,646

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5. Revenue (continued)Geographical informationThe 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:

2016 2015

Non-current assets

China 11,616 9,600

United Kingdom 701 112

12,317 9,712

6. Loss for the yearLoss 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 (see note 10) 4,994 4,221

The auditor’s remuneration for audit and other services is disclosed in note 8.

7. Loss per shareThe 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)

2016No.

2015No.

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

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7. Loss per share (continued)The Company incurred losses in the current and prior years and therefore all potentially issuable shares are anti-dilutive.

2016pence

2015pence

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

2016pence

2015pence

Basic loss per share — 0.44

Diluted loss per share — 0.44

8. Auditor’s remuneration

2016 2015

The analysis of the auditor’s remuneration is as follows:

Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements 145 32

Fees payable to the Company’s auditor and their associates for other services to the Group

– the audit of the Company’s subsidiaries 183 163

– the audit of the 2015 annual financial statements 288 —

Total audit fees 616 195

Audit related assurance services 40 —

Tax compliance and advisory services 19 37

Other non-audit services — 2

Total non-audit fees 59 39

Fees payable to Deloitte LLP and its associates for non-audit services to the Company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis.

BNN TECHNOLOGY





9. Exceptional itemsExceptional itemsExceptional 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 administrative 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 (see note 30 for further details) 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 £302 thousand. There was no tax charge related to the above transactions.

10. Staff costsThe average monthly number of employees (including executive Directors) was: 285 (2015: 226)

2016 2015

Administration 285 226

Their aggregate remuneration comprised:

2016 2015

Wages and salaries 4,149 3,398

Social security costs 716 823

Share based payments 129 —

4,994 4,221

Remuneration in respect of the Directors is included in note 31.

11. Finance costs

2016 2015

Interest on convertible loans 1,108 1,379

Loss on de-recognition of convertible loan notes 2,449 —

Change of fair value of embedded derivative 806 —

Other interest 331 2

Foreign exchange gains (2,955) —

Debt issue costs — 14

1,739 1,395

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12. 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

13. Discontinued operationsAs reported last year, the Group obtained control of I Will Win Limited and its subsidiaries (‘Woying’) from WinFast Global Limited and its controlling parties (the ‘sellers’) with effect from 31 March 2014. Subsequent to the acquisition, and as a result of the suspension of online lottery sales in China during the first quarter of 2015, the Group and the sellers (some of whom were key management of Woying) were unable to complete certain post-closing commitments relating to the transfers of licences and other assets between Woying and the Group’s pre-existing subsidiaries, and the full operational integration of the business.

The Directors continued negotiations with the sellers throughout 2015 in the hope that the regulations covering online lotteries would have been restarted by the Ministry of Finance and that both the Group and the sellers would meet their respective post closing commitments. However it became clear that the sellers were not able to satisfy those commitments, therefore, the Group determined that, in light of other substantial opportunities available to it and because of its expectation of developments in the lottery market as a result of changes in regulation as and when the suspension is lifted, the Group’s interests are better served by focussing on these other opportunities and preparations for the lifting of the lottery suspension without Woying. The Company in 2015 therefore exercised its rights under the agreement to cancel the acquisition and has treated Woying as having been disposed of during 2015. The consolidated financial statements show Woying as a discontinued operation during the prior year and the assets and liabilities of Woying have been derecognised. The results of the discontinued operations were as follows:

2016 2015

Revenue — 932

Expenses — (124)

Profit before tax — 808

Attributable tax expense — —

— 808

Loss on disposal of discontinued operations — (1,661)

Reclassification of translation adjustments — 270

— (583)

Net (loss)/income attributable to discontinued operations

– attributable to owners of the Company — (583)

– attributable to non-controlling interest — —

— (583)

BNN TECHNOLOGY





13. Discontinued operations (continued)During the year, Woying contributed £nil (2015: £nil) to the Group’s net operating cash flows, paid £nil (2015: £nil) in respect of investing activities and paid £nil (2015: £nil) in respect of financing activities. A loss of £1,661 thousand arose in 2015 on the disposal of Woying, being the difference between the fair value of the BNN shares surrendered by the sellers (the proceeds of disposal) and the carrying amount of the subsidiary’s net assets and attributable goodwill.

The net assets of Woying at the date of deemed disposal were as follows:

Property, plant and equipment 20

Trade receivables 1,844

Prepayments and other receivables 471

Bank balances and cash 178

Trade and other payables (293)

2,220

Attributable goodwill 8,617

Contingent consideration (6,721)

Non-controlling interest (344)

3,772

Loss on disposal (1,661)

Total consideration 2,111

Satisfied by:

Share consideration 2,111

Total consideration 2,111

Net cash flow arising on disposal:

Consideration received in cash and cash equivalents —

Less: cash and cash equivalents disposed of (178)

(178)

The sellers held 2,321,300 shares in BNN Technology PLC (with an estimated fair value of £2,111 thousands) which were issued in connection with the acquisition of Woying. These shares have been returned by the sellers and have been valued at the closing share price of the Company on 1 March 2015 for the purpose of accounting for the disposal. The shares were returned to the Company on 9 May 2016, consequently the shares receivable from the sellers have been shown as a deduction within equity.

14. Goodwill

2016 2015

Cost and carrying amount

At 1 January 3,919 12,193

Disposals — (8,617)

Exchange differences 464 343

As at 31 December 4,383 3,919

Goodwill is not deductible for tax purposes.

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14. Goodwill (continued)Allocation to CGU’sGoodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. The carrying amount of goodwill had been allocated as follows:

2016 2015

Allocation to cash generating units

Chinese operations 4,383 3,919

Total 4,383 3,919

Goodwill is not deductible for tax purposes.

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amount of the Chinese operations CGU is determined from a value in use calculation. Underpinning future revenues is the development and provision of the Group’s technology and related channels to support the introduction of mobile payments through the Xinhua News Mobile App and related channels. The key assumptions for the value in use calculation are therefore those regarding the discount rate and market share attainable. The Directors have assessed the total market size based upon external market research and used this, along with their experience and discussions with the Group’s business partners, to estimate likely market shares. Commission rates have been estimated based on existing agreements and the current status of negotiations with the Group’s business partners.

Management estimates an appropriate discount rate using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The rate used to discount the future cashflows from the Chinese operations is 12.41%, which is based on the weighted average cost of capital to the Company. In the prior year the discount rate used was 60%, based upon research of venture capital rates for early stage development companies to reflect the fact that at 31 December 2015 our new mobile payments business had not launched and certain contracts remained under negotiation. A lower discount rate, based upon the weighted average cost of capital, is considered to be more appropriate for the year ended 31 December 2016 as many of these prior year uncertainties have been removed now the mobile payments business has launched and is generating revenues.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next four years (2015: five years) and extrapolates cash flows thereafter with 3 percent (2015: zero percent) growth rate as a proxy for inflation. This rate does not exceed the average long-term growth rate for the relevant markets.

The Group has conducted a sensitivity analysis on its impairment results both in terms of the key assumptions underlying the business model and the inputs into the weighted average cost of capital calculation. In all cases in this sensitivity analysis the fair value of the goodwill exceeded the carrying value and therefore management believes that any reasonably possible change in any of the key assumptions would not cause the aggregate carrying amount of the Chinese operations to exceed the recoverable amount.

BNN TECHNOLOGY





15. Other intangible assets

Software

2016 2015

Cost

At 1 January 471 522

Additions 865 —

Disposals (317) —

Reclassification — (52)

Foreign exchange 30 1

At 31 December 1,049 471

Amortisation

At 1 January 279 202

Charge for the year 132 77

Disposals (317) —

Foreign exchange 6 —

At 31 December 100 279

Carrying amount


Software is amortised on a straight-line basis over its estimated useful life, which is disclosed in note 3. All amortisation is included within administrative expenses.

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16. Property, plant and equipment

Motor vehicles

Leasehold improvements

Fixtures and equipment Total

Cost or valuation

At 1 January 2015 2 330 797 1,129

Additions 68 57 127 252

Reclassification — 16 — 16

Disposals — — (74) (74)

Exchange differences — 2 5 7

Disposal of subsidiary — — (35) (35)

At 31 December 2015 70 405 820 1,295

Additions 99 24 358 481

Disposals — — (1) (1)

Exchange differences — — 111 111

As at 31 December 2016 169 429 1,288 1,886

Accumulated depreciation

At 1 January 2015 (2) (305) (463) (770)

Charge for the year (5) (26) (170) (201)

Reclassification — (7) — (7)

Disposals — — 55 55

Exchange differences — (2) (2) (4)

Disposal of subsidiary — — 15 15

As at 31 December 2015 (7) (340) (565) (912)

Charge for the year (27) (68) (157) (252)

Exchange differences — 3 (62) (59)

As at 31 December 2016 (34) (405) (784) (1,223)

Carrying amount

At 31 December 2016 135 24 504 663

At 31 December 2015 63 65 255 383

BNN TECHNOLOGY





17. Investment in subsidiaries

Shares in subsidiary undertakings

Cost and net book value 2016 2015

At 1 January 11 2,152

Disposals — (2,141)


During the prior year the Company has treated its 80% interest in I Will Win Limited as having been disposed. Further details are included in note 13 to the financial statements.

SubsidiariesDetails of the Company’s subsidiaries at 31 December 2016 are as follows:

CompanyCountry of registration or incorporation Principal Activity

Proportion of ownership interest %

Proportion of voting power held %

Brookfield Interactive Systems Limited * England and Wales Software development 100.00 100.00

Brookfield Interactive (Travel Entertainment) Limited *

England and Wales Dormant 100.00 100.00

Brookfield Interactive (Asia) Limited * England and Wales Development of payment services technology and operations

100.00 100.00

Newei Limited * England and Wales Dormant 100.00 100.00

Beijing Brookfield Interactive Science & Technology Co. Limited*

China Investment company 100.00 100.00

Xinhuacai Trading Hong Kong Limited* Hong Kong Investment company 100.00 100.00

DJI Holding Limited England and Wales Dormant 100.00 100.00

Newnet Group Limited England and Wales Dormant 100.00 100.00

* Directly owned subsidiary of BNN Technology plc

Chinese law and regulations restrict foreign investment in lottery businesses. Accordingly, the Company’s Chinese business operations are conducted through a series of arrangements between the relevant operating Company and Beijing Brookfield Interactive Science & Technology Limited. These arrangements enable the Group to:

• receive substantially all of the economic benefits from the affiliated entities in consideration for the services provided by the wholly-owned subsidiary Beijing Brookfield Interactive Science &Technology Limited;

• exercise effective control over the affiliated entities; and

• hold an exclusive option to purchase all or part of the equity interests in the Company’s affiliated entities when and to the extent permitted by PRC laws.

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17. Investment in subsidiaries (continued)The Group does not have any equity interest in the affiliated entities. However, as a result of the arrangements in place, the Company has effective control over and has a variable interest in the returns from these companies, and for this reason the Directors consider the affiliated entities to be contractually controlled entities. At 31 December 2016, the Group had control over the following subsidiaries through these agreements:

CompanyCountry of registrationor incorporation Principal Activity

Proportion of ownership interest %

Proportion of voting power held %

Beijing Hulian Xincai Culture Development Co., Limited

China Payment fulfilment services and technology development

100.00 100.00

Beijing New Net Science & Technology Development Co., Limited


100.00 100.00

Beijing Lucky Lottery Science & Technology Development Co., Ltd.


75.00 75.00

Chongqing Chuangyang Science & Technology Co., Limited


100.00 100.00

Shanghai Xinguan Systems Engineering Co., Limited China Payment fulfilment services and technology development

80.00 80.00

Beijing Hulian YiCai Technology Development Co., Limited


100.00 100.00

Harbin Tengcai Science & Technology Co., Limited China Payment fulfilment services and technology development

80.00 80.00

The table below shows details of non-wholly owned subsidiaries or contractually controlled entities of the Group that have material non-controlling interests:

Profit/(loss) allocated to non-controlling interest

Accumulated non-controlling interest

2016 2015 2016 2015

Company

Beijing Lucky Lottery Science & Technology Development Co., Ltd. (73) (52) (426) (310)

Shanghai Xinguan Systems Engineering Co., Limited (61) (9) 383 397

Harbin Tengcai Science & Technology Co., Limited (14) (21) (3) 13

Beijing New Net Science & Technology Development Co., Limited — — 59 52

Beijing Hulian Xincai Culture Development Co., Limited — — 117 104

(148) (82) 130 256

BNN TECHNOLOGY





18. Investment in associatesAll associates are accounted for using the equity method of accounting.

Associate 1: On 7 July 2014 Beijing New Net Science and Technology Development Limited (“NewNet”), a company within the Group, entered into an agreement with Xinhautong Software Development (Beijing) Co., Limited, to develop and promote new lottery products. As part of the agreement, a new company was formed, Beijing Xinhaucai Technology Co., Limited (“Xinhuacai”), of which NewNet owns 49%. During the year Xinhuacai entered into an agreement with a Hua Shu Digital, Hangzhou Shu Tou and Hangzhou Shi Cai, to develop the digital business and related services revenue stream and as part of that agreement, Xinhuacai invested into Xinhua Shi Cai Science and Technology Co Ltd (“Xinhua Shi Cai”) of which Xinhuacai owns 45%. During 2015, Xinhuacai entered into an agreement with Beijing Shen Cai and Sheng Shi Hua Shuo, to develop an online lottery game, as part of that agreement, Xinhuacai invested into Xinhua Shen Cai Science and Technology Co Ltd (Xinhua Shen Cai) of which Xinhuacai owns 45%.

2016 2015

ASSOCIATE 1:

Summarised financial information in respect of Xinhuacai is set out below:

Investments 1,317 —

Non-current assets 111 267

Current assets 1,530 2,924


Total liabilities (81) (48)

Net assets 2,877 3,143

Total revenue — —

Loss and other comprehensive loss for the year (1,194) (1,706)

Group’s share of net assets of associates 49% 49%

Associate 2: In December 2015, Harbin TengCai Science & Technology Development Co., Ltd (“TengCai”), a newly formed company which is majority owned (80%) by NewNet, entered into an agreement with HeiLongJiang sports bureau, to develop and promote new lottery products and sports facility bookings. As part of the agreement, a new company was formed, HeiLongJiang LongTi Technology Co, Ltd (“LongTi”), of which TengCai owns 40%.

2016 2015

ASSOCIATE 2:

Summarised financial information in respect of LongTi is set out below:

Non-current assets 122 43

Current assets 2,741 1,504


Total liabilities (57) (17)

Net assets 2,806 1,530

Total revenue 69 8

Loss and other comprehensive loss for the year (282) (29)


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18. Investment in associates (continued)Associate 3: On 6 August 2015 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%. In October 2016 the Group decided to dispose of it interests in BaiFa as it was felt that its ownership no longer fitted in with the Group’s overall strategy. The associate was disposed of for £nil proceeds and a loss on disposal of £181 thousands was recognised.

2016 2015

ASSOCIATE 3:

Summarised financial information in respect of BaiFa is set out below:

Non-current assets — —

Current assets — 24

Total assets — 24

Total liabilities — (9)

Net assets — 15

Total revenue 25 —

Loss and other comprehensive loss for the year (228) —


Reconciliation of the above summarised financial information to the carrying amounts in the Group financial statements is shown below:

2016 2015

Proportion of the Group’s ownership interest in associate 1 (49%) 1,410 1,540

Goodwill 3,269 2,598

Total associate 1 (49%) 4,679 4,138

Proportion of the Group’s ownership interest in associate 2 (40%) 1,122 612

Goodwill 521 416

Total associate 2 (40%) 1,643 1,028

Proportion of the Group’s ownership interest in associate 3 (50%) — 7

Goodwill — 45

Total associate 3 (50%) — 52

Total proportion of the Group’s ownership interest in associates 2,532 2,159

Total Goodwill 3,790 3,059

Total associates 6,322 5,218

Group’s share of loss of associates:

Associate 1 585 836

Associate 2 113 12

Associate 3 114 —

812 848

BNN TECHNOLOGY





19. Other investments

2016 2015

Other investments 2,342 —

Other investments relates to the Company investments in Xinhuatong Network Co., Ltd, a privately owned company. These shares are not held for trading and are recognised at historic cost because fair value cannot be reliably determined.

20. Inventories

2016 2015

Finished goods 5 19

21. Trade and other receivablesNote to the Consolidated Balance Sheet

2016 2015

Current

Trade receivables 94 23

Unpaid share capital 473 11

Amounts owed by related parties (note 31) 761 61

Restricted cash deposits (note 23) 6,611 —

Other receivables 1,865 1,084

VAT receivable 1,429 980

Prepayments 3,534 2,290

14,767 4,449

Non-current

Restricted cash deposits (note 23) 7,600 —

7,600 —

Note to the Parent Company Balance Sheet

2016 2015

Amounts owed by subsidiary undertakings 53,691 45,344

Unpaid share capital 473 11

Prepayments and other debtors 352 13

VAT receivable 98 106

54,614 45,474

Non-current

Loan to subsidiaries 15,350 —

15,350 —

Trade and other receivablesTrade and other receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost. The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. There are no customers who represent more than 5% of the total balance of trade receivables.

The Group does not hold any collateral or other credit enhancements over any of its trade receivables nor, with the exception of the secured bank facility described further in note 23, does it have a legal right of offset against any amounts owed by the Group to the counterparty.

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22. Trade and other payablesNote to the Consolidated Balance Sheet

2016 2015

Current

Trade creditors 198 538

Amounts owed to related parties (note 31) 163 686

Accruals 1,013 2,144

Income tax payable 53 48

Other taxes and social security 361 27

Contingent consideration 837 850

Other payables 2,637 1,333

5,262 5,626

Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for purchases is 64 days (2015: 50 days). For most suppliers, no interest is charged on the trade payables. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.


2016 2015

Current

Accruals 868 1,924

Other payables 326 294

1,194 2,218

23. BorrowingsNote to the Consolidated Balance Sheet

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 (note 31) 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


2016 2015

Unsecured borrowing at amortised cost:


Amount due for settlement after 12 months 7,709 5,978

BNN TECHNOLOGY





23. Borrowings (continued)

Sterling Renminbi Total

Analysis of borrowings by currency:

December 31, 2016

Bank loans — 11,555 11,555

Loans from related parties (note 31) — 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 loansOn 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, as disclosed in note 21.

At December 31, 2016 the Company had drawn-down RMB 99,200 thousand (c. £11,555 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 notesOn 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 £6,000 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 including accrued interest had a carrying value of £8,403 thousand and a loss of £2,449 thousand arose on cancellation related to the difference between the amortised cost of the previous loan notes and the estimated fair value of the new notes.

The New Notes (£6,000 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 £2,403 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.

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23. Borrowings (continued)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 of their estimated fair value of £7,868 thousand and £2,984 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.

24. Deferred taxAt the balance sheet date, the Group has unused tax losses of £46,714 thousand (2015: £32,104 thousand) available for offset against future profits. No deferred tax assets have been recognised as it is not considered probable that there will be future taxable profits available. Losses may be carried forward indefinitely.

Unrecognised deferred tax assets are as follows:

2016 2015

Tax losses 9,864 6,849

Accelerated tax depreciation 8 9

Other 14 652

9,886 7,510

Deferred tax assets and liabilities are offset only where the group has a legally enforceable right to do so and where the assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity or another entity within the group.

Finance Act No. 2 2015, which was substantively enacted on 26 October 2015, includes provisions to reduce the corporation tax to 19% with effect from 1 April 2017 and 18% with effect from 1 April 2020. In addition, the Finance Bill 2016 was substantively enacted on 6 September 2016 which introduced a further reduction in the main rate of corporation tax from 18% to 17% from 1 April 2020. Accordingly these rates have been applied when calculating deferred tax assets and liabilities as at 31 December 2016.

There is no expiry date on timing differences, unused tax losses or tax credits.

BNN TECHNOLOGY





25. Share capital

2016 2015

Authorised, issued and fully paid

205,272,707 ordinary shares of 10p each (2015: 144,306,820) 20,527 14,431

The Company has one class of ordinary shares which carry no right to fixed income.

During the year, the Company issued 61,894,327 ordinary shares of 10p each for cash consideration of £51,153,367 giving rise to a share premium of £42,613,415, which is net of £2,350,519 share placing costs. Furthermore, during the year, the Company issued 1,392,860 ordinary shares of 10p each for which proceeds of £487,500 were received in the prior year giving rise to a share premium of £348,214.

In May 2016 2,321,300 ordinary shares were returned to the Company as part of the Woying discontinued operation (see note 13).

Included in the 61,894,327 ordinary shares issued during the year were 652,616 new ordinary shares of 10p were issued to North Square Blue Oak Ltd on 27 September 2016 on the exercise of 652,616 share warrants with an exercise price of 100p.

At December 31, 2016, the Company had 4,500,000 warrants in issue with an exercise price at 35p each which expire in March 2018, 655,892 warrants in issue with an exercise price of 35p each which expire in October 2018 and 652,616 warrants in issue with an exercise price of 100p each which expire in July 2019.

26. ReservesConsolidated

Share premium

EBT reserve

Accumulated deficit

Non-controlling

interests

Balance at 1 January 2015 19,433 (575) (17,473) 686

Loss for the year — — (11,366) (82)

Exchange differences — — 160 (4)

Premium arising on issue of share capital 3,513 — 178 —

Expense of issue of equity (514) — — —

Credit to equity for equity-settled share based payments — — 455 —

Disposals — — (2,382) (344)

Proceeds from shares not yet issued — — 488 —

As 31 December 2015 22,432 (575) (29,940) 256

Loss for the year — — (18,062) (148)

Exchange differences — — (1,428) 22

Premium arising on issue of share capital 45,313 — (488) —

Expense of issue of equity (2,351) — — —

Credit to equity for equity-settled share based payments — — 129 —

Cancellation of shares — — 232 —

Equity component of convertible debt — — 4,204 —

As at 31 December 2016 65,394 (575) (45,353) 130

Included within the accumulated deficit in 2015 is an amount of £454,750 that represents the share warrant valuation granted to D Mercer and White & Company Limited.

The EBT reserve represents the cost of shares in BNN Technology PLC which are held by the Group’s Employee Benefit Trust to satisfy options and other awards to the Group’s employees. The number of ordinary shares held by the Employee Benefit Trust at 31 December 2016 was 1,215,234 (2015: 1,215,234).

The cancellation of shares relates to the Woying discontinued operations. See note 13 for further details.

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26. Reserves (continued)At 31 December, 2016 the conversion price in respect of the convertible loan notes became fixed at 115 pence per share, and accordingly the conversion option (which was initially accounted for as an embedded derivative) now met, the definition of equity under IAS 39. The Company has determined the absence of a variable pricing feature from 31 December 2016 represents a change in the contractual terms applicable to the convertible loan note and the classification of the option feature has been modified to equity and the fair value of the embedded derivative at 31 December 2016 reclassified to the accumulated deficit in equity.

Restricted assetsUnder PRC laws and regulations, the Company’s subsidiaries and contractually controlled entities may only pay dividends out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with IFRS may differ from those reflected in the statutory financial statements of the Company’s subsidiaries and contractually controlled entities.

In accordance with PRC laws and regulations, WFOE, as a wholly foreign-owned enterprise in the PRC is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. At its discretion, it may allocate a further portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide a statutory surplus fund at least equal to 10% of its accumulated after-tax profits each year until the aggregate amount of such a fund reaches 50% of its registered capital. A domestic enterprise is also required to provide a discretionary surplus fund, at the discretion of the board of directors, from the net profits reported in the enterprise’s PRC statutory financial statements. The aforementioned reserve funds can only be used for specific purposes and are not distributable as cash dividends.

As a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax profits to be set aside prior to payment of dividends as a general reserve fund or statutory surplus fund, the Group’s PRC subsidiaries and contractually controlled entities are restricted in their ability to transfer net assets to the Company. At December 31, 2016 statutory surplus funds, which cannot be distributed by the Company’s contractually controlled entities and their subsidiaries, were £116 thousand, (2015: £88 thousand).

Parent Company

Share premium

EBT reserve

Accumulated deficit

Balance at 1 January 2015 19,433 (575) 7,948

Loss for the year — — (3,504)

Premium arising on issue of share capital 3,513 — 178

Expense of issue of equity (514) — —

Credit to equity for equity-settled share based payments — — 455

Disposals — — (2,111)

Equity component of convertible debt — — 488

As 31 December 2015 22,432 (575) 3,454

Loss for the year — — (6,870)

Premium arising on issue of share capital 45,313 — (488)

Expense of issue of equity (2,351) — —

Credit to equity for equity-settled share based payments — — 129

Cancellation of shares — — 232

Equity component of convertible debt — — 4,204

As at 31 December 2016 65,394 (575) 661

The cancellation of shares relates to the Woying discontinued operations. See note 13 for further details.

BNN TECHNOLOGY





27. 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 associates 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 (described in note 23), fair value movement of the embedded derivative on the convertible loan notes (described in note 23), employee share based payments (described in note 30) and interest accruals.

2016 2015


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.

Parent Company

2016 2015


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28. Operating lease arrangements

2016 2015

Lease payments under operating leases recognised as an expense in the year: 964 848

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

2016 2015

Within one year 832 1,113

In the second to fifth years inclusive 536 704

1,368 1,817

Operating lease payments represent rentals payable by the Group for certain of its office properties. Leases are negotiated for an average term of 5 years.

29. Financial instrumentsCapital risk managementThe Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group is primarily equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 25 and 26. The Group is not subject to any externally imposed capital requirements.

The Group’s board reviews the capital structure on a periodic basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. Due to the stage of the Group’s operations, the business is equity funded through a combination of equity and convertible loan notes.

Categories of financial instruments

2016 2015

Financial assets:


Restricted cash deposits 14,211 —

Loans and receivables 3,193 1,179

Other investments 2,342 —

Financial liabilities:


Amortised cost (including trade payables) 2,998 2,557

Secured loans 11,555 —

Loans from related parties 410 —

Contingent consideration 837 850

Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The maximum credit risk is the carrying amount of the instrument.

Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. On-going credit evaluation is performed on the financial condition of financial statements receivable and, where appropriate, credit guarantee insurance cover is purchased.

Apart from The Bank of China (who holds the majority of the Group’s cash), the Group does not have any significant credit risk exposure to any single counterparty or any Group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk to any other counterparty did not exceed five per cent of gross monetary assets at any time during the year. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

BNN TECHNOLOGY





29. Financial instruments (continued)Financial risk management objectivesThe Group’s Board reviews the financial risks relating to the operations of the Group. These risks include foreign currency risk, credit risk, liquidity risk and cash flow interest rate risk.

The Group’s major subsidiaries are based in China and principally trade in Chinese Yuan Renminbi (“RMB”). Foreign currency transactions (with the exception of inter-Company funding) are limited and therefore the Group’s exchange rate exposures are limited.

Liquidity risk managementUltimate responsibility for liquidity risk management rests with the board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. The Group has no undrawn borrowing facilities at its disposal. With the exception of the Convertible Loan Notes disclosed in note 23 and the secured borrowings disclosed in note 23, all financial assets and liabilities are due within one year.

Fair value measurementsThe information set out below provides information about how the Group determines fair values of various financial assets and financial liabilities.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis

Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular, the valuation technique(s) and inputs used).

Financial assets/ financial liabilities Fair value as at

Fair value hierarchy

Valuation technique(s) and key input(s)

Significant unobservable input(s)

Relationship of unobservable inputs to fair value

December 31, 2016

December 31, 2015

1) Contingent consideration in a business combination

Liability of £837 thousand

Liability of £850 thousand

Level 3 Discounted cash flow method was used to capture the present value of the Group arising from the contingent consideration.

Discount rate of 12.4 per cent determined using a Capital Asset Pricing Model.

The higher the discount rate, the lower the fair value.If the discount rate was 1 per cent higher/lower while all other variables were held constant, the carrying amount would decrease/increase by £5 thousand (2015: decrease/increase by £5 thousand).

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29. Financial instruments (continued)Reconciliation of Level 3 fair value measurements of financial liabilities

FVTPL

Contingent consideration

Embedded derivative Total

Balance at January 1, 2015 8,350 — 8,350

Total gains or losses:

– in profit or loss 107 — 107

– in other comprehensive income 281 — 281

Payments (1,167) — (1,167)

Disposal (note 13) (6,721) — (6,721)

Balance at January 1, 2016 850 — 850

Total gains or losses:

– in profit or loss (107) 806 699

– in other comprehensive income 94 — 94

Issuances — 3,398 3,398

Reclassification to equity — (4,204) (4,204)

Balance at December 31, 2016 837 — 837

30. Share based paymentsEquity-settled share option schemeThe Company has a share option scheme for certain employees of the Group. Options are exercisable at a price equal to the estimated fair value of the Company’s shares at the date of grant. The vesting period is between one and three years. If the options remain unexercised after a period of ten years from the date of grant the options expire. Options are forfeited if the employee leaves the Group before the options vest.

2016 2015

Number of share options

Weighted average

exercise priceNumber of

share options

Weighted average

exercise price

Outstanding at beginning of year — — — —

Granted during the year 980,000 0.100 — —

Forfeited during the year — — — —

Outstanding at end of the year 980,000 0.100 — —

Exercisable at end of the year — — — —

The Group recognised total expenses of £129 thousand in relation to employee share option scheme (2015: £nil).

The options outstanding at 31 December 2016 had a weighted average remaining contracted life of 1.72 years. In 2016, options were granted to employees of the Company. The aggregate of the estimated fair value of the options granted is £1,153 thousand. The inputs into the Black-Scholes model are as follows:

Employee share scheme

Weighted average share price £1.41

Weighted average exercise price £0.10

Expected volatility 88.80%

Expected life 1-3 years

Risk-free rate 1.50%

Expected dividend yield 0.00%

BNN TECHNOLOGY





30. Share based payments (continued)WarrantsIn conjunction with the issue of shares in the prior year (see note 25) the Company issued 654 thousand warrants to the Company’s Broker and to its Nominated Advisor at an exercise price of 35 pence, these have a remaining contractual life of 4.7 years. In addition the Company granted 4,000 thousand warrants to the Company’s CEO D Mercer and 500 thousand warrants to an external consultant White & Co. Ltd. on 10 December 2015 which are exercisable at any time up to 9 December 2018 at an exercise price of 35 pence, and have a remaining contractual life of 3 years.

Details of the share options and warrants outstanding during the year are as follows:

2016 2015

Number of share warrants

Weighted average

exercise priceNumber of

share warrants

Weighted average

exercise price

Outstanding at beginning of year 6,459,124 0.481 2,933,482 0.957

Granted during the year — — 5,153,892 0.432

Exercised during the year (652,616) 1.000 — —

Forfeited during the year — — (1,628 ,250) 0.922

Outstanding at end of the year 5,806,508 0.423 6,459,124 0.481

Exercisable at end of the year 5,806,508 0.423 6,459,124 0.481

During the prior year 1,628,250 share options granted in 2014 to the Group’s previous CFO Rodney Davis were forfeited as a result of him leaving the Company.

Additionally, in 2015 the Group recognised total expenses of £455 thousand in respect of the warrants above and £156 thousand in respect of the settlement agreement as disclosed in note 9. Furthermore, the fair value of the Broker and Nominated Advisor warrants of £179 thousand was recognised as a deduction from the share premium arising on the share issue in the prior year.

The aggregate estimated fair value of the warrants granted to D Mercer and to White & Co. Ltd is £455 thousand and for the warrants issued to the Broker and Nominated Advisor is £l79 thousand. The inputs into the Black-Scholes model for those warrants granted during 2015 are as follows:

D Mercer/White & Co.

Broker/ Nominated

Advisor

Weighted average share price £ 0.30 £ 0.48

Weighted average exercise price £ 0.35 £ 0.35

Expected volatility 58.40 % 56.20

Expected life 3 years 5 years

Risk-free rate 0.81% 1.19

Expected dividend yield 0.00% 0.00%

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous year. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

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31. Related party transactionsConsolidatedBalances and transactions and its subsidiaries, which are related parties have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its associates are disclosed below.

Trading transactionsDuring the year, the Group made the following payments to related parties:

2016 2015

Wei Qi (a Director of Beijing New Science & Technology Development Co. Limited) Fees of: — 154

Xinhuatong Software Development (Beijing) Co. Ltd: RMB 20,000,000 in 2016 2,226 243

Heilongjiang LongTi: Stage investment RMB 10,000,000 (2015: RMB 10,000,000) 1,113 —

QingDao Shandong BaiFa Network Technology Co. Ltd: Stage investment RMB 500,000 — 52

GLMC Consultancy Ltd (company owned by Grant Mercer, the brother of Darren Mercer) 182 —

Peover Inns Ltd (company owned by Darren Mercer) 20 —

Xinhua Shicai: RMB 9,000,000 1,002 1,035

Hulian Xincai Information Technology Co. Ltd: RMB 2,900,000 323 —

Loans to related parties

Maximum outstanding during year 2016 2015

Loans by related parties (included in creditors)

W Yulan — —

Xinhuatong Software Development (Beijing) Co. Ltd — 686

Hulian Xincai Hangzhou Sport Culture Communication Ltd. 163 —

163 686

Loans by related parties (including borrowings)

Xinhuatong Software Development (Beijing) Co. Ltd 410 —

410 —

Loans to related parties (included in debtors)

D Mercer* 438 438 61

Hulian Xincai Information Technology Co. Ltd: RMB 2,900,000 323 323 —

761 761 61

* The year on year increase is largely driven by a tax bill and the full directors loan balance will be cleared by 30th June 2017.

The loans included in the company’s debtors are repayable on demand and are not subject to interest charges. The aggregated amount of repayments made in the year were £nil.

Remuneration of key management personnelThe remuneration of Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

2016 2015

Short-term employee benefits 1,540 680

Total short term employee benefits 1,540 680

BNN TECHNOLOGY





31. Related party transactions (continued)Remuneration disclosed above include the following amounts paid to the highest paid Director.

2016 2015

D Mercer

Remuneration for qualifying services 502 40

Amounts payable to third parties in respect of Directors’ services 64 255

Other 14 7

Total short term employee benefits 580 302

Parent CompanyTrading transactions

Inter-company balances

31 Dec 2015 movements 31 Dec 2016

Brookfield Interactive (Asia) Limited 27,936 220 28,156

Brookfield Interactive Systems Limited 15,928 4,292 20,220

Beijing New Net Science & Technology Development Co., Limited 1,480 3,835 5,315

Xinhuacai Trading Hong Kong Limited — 15,350 15,350

Total Balances 45,344 23,697 69,041

Movements on inter-company balances were to fund the working capital and investment requirements made by Group companies.

Directors’ emoluments

Name of DirectorFees/Basic

salaryBenefits in

kindAnnual

bonuses 2016 total 2015 total

Executive

Darren Mercer 386 14 180 580 302

Wei Qi 268 51 250 569 —

Scott Kennedy 97 7 — 104 —

Rodney Davis — — — — 190

Non-executive

Robert Lerwill 46 — — 46 50

Lord Mancroft 150 4 20 174 66

Simon Prior Palmer — — — — 72

Dong Jinhua 67 — — 67 —

Aggregate Emoluments 1,014 76 450 1,540 680

Directors’ share optionsDetails of options for Directors who served during the year are as follows:

Name of Director 31 Dec 2015 Granted Cancelled 31 Dec 2016Exercise Price

(p)

Date from which

exercisable Expiry date

Darren Mercer 4,000 — — 4,000 35 10-Dec-15 09-Dec-18

The shares of the Company are widely held and no one party has a majority shareholding. The Company is therefore under the control of the Board of Directors. The largest and smallest Group of which the Company is a member and for which Group financial statements are drawn up is the Group headed by this Company.

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32. Subsequent events1. Conversion of convertible loan notesThe Company announced on 26 January 2017 that it had exercised its conversion rights in respect of the full outstanding balance of £2,403,288 New Interest Notes (as described in note 23).

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.

2. Placing of £25 millionThe Company announced on 13 April 2017 the successful completion of the proposed placing, raising gross proceeds of £25 million. A total of 31,250,000 new ordinary shares of par value £0.10 each in the Company have been conditionally placed at a price of 80 pence per Placing Share. The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares, including the right to receive all dividends or other distributions made, paid or declared in respect of such shares after the date of issue of the Placing Shares.

The Placing Shares are to be issued in two tranches, the second of which is conditional, inter alia, on the approval of BNN shareholders. A first tranche of 15,625,000 new Ordinary Shares will be issued and admitted to trading on AIM on 21 April 2017, raising gross proceeds of approximately £12.5 million. A second tranche of 15,625,000 new Ordinary Shares will be issued and admitted to trading on or around 15 May 2017, raising gross proceeds of approximately £12.5 million, subject to, inter alia, the receipt of shareholder approval of the necessary resolutions to enable the issue of the Second Placing Shares.

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