BNN Resources Regulatory News (BNN)

22 March 2016

DJI Holdings plc 

("DJI" or the "Company")

DJI's Qingdao Baifa joint venture launches first approved mobile lottery app with Shandong Sports Lottery

Major milestone in DJI's recovery from China's online lottery sales suspension, supported by Premier League football relationships

DJI Holdings plc (AIM: DJI, "the Group", "DJI"), a licensed promotion solutions and service provider of Chinese sports and welfare lottery products to third party retailers and direct to consumers, is pleased to announce a major expansion of its key partnership in Shandong with the launch of mobile sales across one of China's largest lottery markets.  

Qingdao Baifa Network Science Technology Service Co Ltd (Qingdao Baifa), DJI's 50% held joint venture, will collaborate with Shandong Sports Lottery, the lottery authority for Shandong Province, to promote the first Ministry of Finance approved mobile lottery sales app throughout the province. DJI will be responsible for developing and executing the marketing strategy for Qingdao Baifa and Shandong Sports Lottery.

The launch follows the successful implementation of DJI's trials of Sports Lottery products via mobile phones in Shandong's Qingdao City announced in October 2015. It marks a major development and revenue opportunity for DJI while online sales of lottery products remain suspended in China.

Shandong, with 15 million lottery players, is a key market for DJI. The province has the second highest sports lottery sales in China, an 11% market share totalling approximately RMB 15.89bn (£1.75bn) in 2014, with mobile sales comprising 40% and rising. Its Gross Domestic Product is the third highest in China and mobile phone penetration is close to 90%.

The Shandong Sports Lottery has one of only three mobile lottery apps approved by the Ministry of Finance. It is the only mobile app authorised to sell Big Lotto (China's most popular Sports Lottery draw game and the equivalent of the main Saturday night draw in other countries) and Jingcai (football betting), the fastest growing lottery game in China. The rapidly growing popularity of football in China was the main driver of the near doubling of online Sports Lottery revenues in Shandong in 2014 to approximately RMB 6.5bn (£715m). That trend continued into the first two months of 2015, prior to the online sales suspension.

DJI's contribution of a unique promotion strategy for the mobile app, through its access to leading football clubs and other sporting relationships, is expected to be an important

element of growing sales. Qingdao Baifa will utilise DJI's exclusive Chinese lottery partnerships with both Arsenal and Manchester City football clubs to promote and support the "Shandong mobile online app" with unique tailored content and 'money can't buy' special prizes such as signed merchandise, trips to football clubs and meeting the players in person. The 2014 soccer World Cup significantly enhanced lottery sales across China during 2014 and the Euro 2016 tournament in June this year is expected to be an important revenue-enhancing event for the lottery industry.

Qingdao Baifa is expected to generate significant revenues for its partners in 2016. The official app's total sales ran at approximately RMB 40m (£4.4m) a month during restricted trials in late 2014 and early 2015. Average Revenue per User (ARPU) was approximately RMB 400 (£44). The trials were limited in numbers and reach within the province, with players recruited in physical stores. These consumers are, historically, lower value lottery players. However, the JV intends to accelerate recruitment of higher-spending, white-collar users by offering incentives to new Sports Lottery registrants and collaborating with promotional partners China Mobile (62 million users in Shandong Province), China Unicom (32 million users) and China UnionPay, the country's only bankcard operator.

DJI will contribute to Qingdao Baifa's marketing costs and will provide technology support, while developing the JV's promotion strategy and lending operational assistance in its implementation. Qingdao Baifa's financial controls will be managed by DJI.

Update re China lottery industry

Online sales of lottery products remain suspended in China pending the publication of new regulations by central government lottery authorities and the Ministry of Finance. The lottery industry maintains its firm expectation that the central government will lift the suspension and, in due course, vigorously promote this public welfare project. Recent investment in lottery operations by major Chinese corporations, not least the purchase of a controlling stake in AG Tech, the Hong Kong listed lottery operator and technology business, by Alibaba and Ant Financial, indicates the confidence of sector operators in the opportunity for growth in the lottery market in China.

The Board of DJI remains hopeful but patient as it awaits the return of a better regulated lottery landscape. In the meantime, the Company's strategy continues to focus on working with channel partners, government and provincial lottery centres to identify new revenue streams using its robust, secure, flexible and scalable technology and regulatory platform. DJI is in discussions with a number of significant partners and provinces in China and the Company looks forward to announcing these in the near future.

Commenting on the exciting development for DJI in Shandong, Chief Executive Darren Mercer said:

"This is a major milestone for DJI in using its rich experience of channel marketing and English Premier League club resources to promote the Chinese lottery since the suspension of online sales 12 months ago. The opportunity to launch the only officially approved mobile lottery app in China's second largest provincial lottery market is expected to make a substantially material impact on group revenues in the current financial year. The prospect of marketing a product that will allow millions of lottery players to take part online through their mobile phones is enormously exciting. We look forward to leveraging our exclusive football agreements and Qingdao Baifa's rights to market through third parties to dramatically expand the promotion channels for Shandong's sports lottery games."

ENDS

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Notes to Editors

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

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

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

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

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

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

Beyond the Group's lottery activities, DJI has a joint venture with the Heilongjiang Provincial Sports Bureau (HSB) to provide support services to all of HSB's commercial activities. These include football and winter sports in the province, including China's largest ski resort, Tabuli.

The HSB joint venture includes, for the first time in a Chinese province, a Business-to-Business (B2B) online booking system for sports, based on DJI's technology. The JV agreed terms with three of China's largest online portals to sell and promote this B2B system from 1 November 2015.