BCB_GROUP_HOLDINGS_LIMITE - Accounts

The directors present the strategic report for the year ended 31 December 2022.

BCB Group Holdings Limited (the "Company") was incorporated on 16 April 2018. The company is the parent company of the BCB group of companies (collectively "BCB" or the "group"), including BCB payments Limited, BCB Prime Services Limited, BCB Prime services (Switzerland) Sarl and BCB Digital Limited being the principal trading subsidiaries.

BCB's primary activity is the provision of multi-currency payment services to corporate B2B customers operating in the digital asset industry or with a digital asset nexus. In addition, BCB provides an OTC trading service for both foreign exchange and digital assets to its corporate customers.

Instant B2B payments

BCB operates the BLINC instant settlement network, allowing its customers (business only, no consumers) to settle fiat currency transactions between each other instantly on a 24:7:365 basis. This network continues to see sustained growth, both by volume and number of transactions, with volume growth of 20.6% year on year to 31 December 2022.

Multi currency

BCB offers payments accounts in 21 fiat currencies. A key priority for the business during 2022 and 2023 has been the provision to its group entities and its customers of reliable US Dollar payment services. Early 2023 saw the closure of the two leading US banks involved in US dollar services to the digital asset industry. BCB suffered no direct loss because of these closures; however, their closure did cause disruption to the market as a whole. BCB has re-established US dollar services with alternative providers during 2023 and continues to seek to complement its existing network, both for trading and for payments, with additional high quality US dollar banking partners.

French EMI

BCB payments (Europe) has received conditional approval from the French regulator ACPR for an e-money licence ("French EMI"). This will allow BCB to provide flexible and tailored payment rails for the industry, both in the European Union and beyond. The French EMI licence will be BCB's first European Union licence and BCB plans to passport into other EEA jurisdictions to provide e-money services across the region. BCB Prime Services (Europe) has obtained a digital asset service provider (DASP) licence in France that will go live concurrently with the French EMI. A core element of BCB's strategy is to operate and maintain licences only in Tier 1 jurisdictions, with existing regulated or regulatory supervised operations in the United Kingdom and Switzerland. The French project, with ACPR and AMF oversight in France, is in line with strategic objective.

Trading automation

As BCB's customer base has grown, the need for an alternative and scalable trading channel to complement the OTC service became apparent. In early 2023, BCB launched self service trading to customers via graphical user interface (GUI) and API using the BCB Markets brand. BCB Markets now offers smart order routing at low latency with high availability, reliability and security.

Compliance build-out

BCB invested significant sums during 2022 to build out is regulatory compliance platform, giving it sufficient operational footprint to further develop its UK business and launch its French operations. As well as investing in a new transaction monitoring platform, BCB also launched a new reconciliation tool, ensuring that all customers fiat positions remain fully reconciled and safeguarded in compliance with BCB's regulatory obligations.

Bank acquisition

In December 2021, the company entered into a conditional agreement to acquire with the owners of Max Heinr. Sutor OHG (now Sutor Bank GmbH). In light of changing banking market conditions and following a period of negotiations the owners of Sutor Bank terminated the agreement in accordance with its terms in June 2023.

LAB577 acquisition

In January 2022, the Company acquired LAB577 Ltd, a software engineering venture studio. The acquisition brought world class digital assets technology and software development expertise into the group along with their know how, customers and consultant relationships and software libraries. This expertise is now deployed at the heart of BCB's technology team.

BCB considers the following key risks to be most relevant to its current operations:

Markets risks

The group services the digital asset industry through the provision of payment services and trading. The group has no material direct exposure from a balance sheet perspective to digital asset price volatility - its only digital asset holdings are short term (typically intraday) holdings in respect of spot trade settlement and it does not hold material balances of digital assets for proprietary trading purposes. The group's indirect exposure to digital asset price volatility arises from the impact on transaction and trading volumes (from which it derives revenue) where such volumes typically correlate to price volatility and digital asset market sentiment more broadly.

Customer concentration risk

Both the payments and trading businesses experience a high concentration of revenue from a small number of customers. The business strategy aims to reduce this concentration risk while continuing to prioritise servicing the customers from whom we generate the most revenue. As the digital asset market continues to recover, we would expect these concentration levels to decrease with an overall increase in activity.

Product Risk

The successful execution of the strategic plan to achieve profitability is dependant on the group's product offering remaining in demand by the target market. With the growth in the digital asset ecosystem, we envisage an increase in competitors and it is critical our offering remains relevant in this rapidly evolving ecosystem.

Dependence on key personnel and management risks

The group's business is dependant on retaining the services of a small senior management team, and the loss of a key individual could have an adverse effect on the future of the group's business. The group's future success will also depend in large part upon its ability to attract and retain highly skilled personnel. This risk is managed by offering compensation (salaries, benefits and share options) that is competitive in the current market as well as a rewarding environment in which to work.

Regulatory risk

The group operates in a rapidly evolving sector, the regulatory approach to which is not always certain and is still developing. The group seeks to comply all applicable law and regulation; however, in the event of a breach of regulatory requirements may have adverse reputational, financial, or other impacts on the group. In addition, regulatory factors may result in the withdrawal of service of our banking partners and other service providers, which could adversely affect the group's ability to trade. The board of directors consider these risks seriously and design, maintain and review the policies and processes so as to mitigate or avoid these risks.

Liquidity/solvency risk

The group has seen a decrease in financial resources since its series A raise in December 2021 driven by the digital asset market downturn. The increased losses reported in 2022 leave the group with limited financial resources. Whilst the group's budget and forecasts show the path to break even without the need for further funding, liquidity will be monitored closely by management on a daily basis.

Capital raising risk

While the group's budget excludes the need for further capital raising in the short term, the group may have insufficient capital to fund future expansion and to take advantage of new opportunities.

Cyber risk

The group trades digital assets via software and hardware which may prove to be vulnerable to data security breaches in the future. Data security breach incidents may compromise the confidentiality, integrity or availability of data such that the data is vulnerable to access or acquisition by unauthorised persons. These data security breaches may result in the unrecoverable loss of digital assets. The group's hardware and software devices may be breached and result in the loss of valuable data. Loss of the private keys required to access the digital assets may result in irrecoverable loss of access to the digital assets, which may not be covered by insurance (whether in full or part). In order to mitigate these risks, the group holds its assets with third party specialist digital asset custodians with a number of security measures in place.

BCB seeks to provide institutional grade payment, trading and settlement services to its B2B customer base, acting as the predominant supplier from Tier 1 onshore jurisdictions to the corporate and institutional participants in the global digital asset ecosystem.

BCB minimises its direct exposure to digital asset prices while supplying payment services to the ecosystem. This does not eliminate its indirect exposure to the cyclical nature of the digital asset ecosystem, but it aims to minimise it. BCB has no material direct exposure to digital asset prices due to the nature of its trading business and its risk appetite.

BCB reports its business across three segments as follows:

• BCB Payments is currently the largest segment by revenue. This segment charges customers for payment accounts and transactions. These fees are predominantly account set-up, subscription and transaction fees. During 2023 this segment includes the credit interest earned on customer cash balances.

• BCB Markets segment is the trading service that the group provides to customers as well as a small Proprietary Trading component. The customer trading includes both Fiat and Crypto pair offerings. The majority of customer trade revenue is generated from OTC trading with a GUI offering available from 2023 that is better suited to smaller trades.

• Other revenue is almost exclusively made up of consultancy revenue generated by the acquired LAB577 subsidiary.

A strong focus on compliance, KYC and risk management, as well as minimising counterparty risk has helped BCB navigate the market turbulence due to recent collapses and failures in the crypto industry.

Revenue, revenue growth, gross profit and earnings before tax are the indicators relevant to the group.

Payments segment revenue was £9,871,309 (2021: £8,173,475) representing 20.8% growth year on year. Variable transaction fees accounted for 40.5% (2021: 53.7%) while recurring revenue increased to £4,400,400 (2021: 2,611,116). The key driver of this growth was the continued onboarding of new customers offsetting a general decline in payments volume during the year.

Markets segment revenue was £3,364,533 (2021: £2,301,742) representing 46.2% growth year on year. The split between fiat and crypto revenue was 74:26 (2021: 72:28). The key driver of this growth was improvements to our OTC offering during the year.

Other revenues were £2,493,866 (2021: £289,957) representing 705% growth year on year. The key driver of this growth was the acquisition of LAB577 that continued to generate consultancy revenue post acquisition.

Gross profit was £11,755,428 (2021: £6,919,185) representing 69.9% growth year on year and a gross margin of 74.7% (2021: 64.3%). The key driver of this increase was the growing proportion of market segment and other revenues that attract a higher gross margin.

The loss before taxation was £16,663,169 (2021: £2,628,095) reflecting the significant investment in people and platforms following the series A funding round combined with lower than expected revenue growth as the digital assets markets suffered from significant adverse events that led to a loss of confidence, regulatory scrutiny and downturn in activity.

The directors remain positive about BCB's prospects for the year ahead. They believe that the group has and will continue to enhance its reputation and position in digital assets markets to deliver continued revenue growth. The group's plans include further geographical and product expansion to both de-risk its operations and consolidate its position at the centre of its chosen markets.

The directors believe they have acted in the way most likely to promote the success of the company for the benefit of its members as a whole as required by s172 of the Companies Act 2006.

The requirements of s172 are for the Directors to:

• Consider the likely consequences of any decision in the long term

• Act fairly between the members of the company

• Maintain a reputation for high standards of business conduct

• Consider the interests of the company's employees

• Foster the company's relationships with suppliers, customers and others

• Consider the impact of the company's operations on the community and the environment.

The long term interests of BCB are most influenced by operational delivery, product innovation, regulatory compliance and balancing the drive for profitability with the group’s liquidity ahead of its next funding round. As explained above, the market conditions in 2022 were challenging, resulting in a larger loss than planned. Accordingly, the directors’ focus has necessarily been on streamlining the business following significant investments in people and platforms.

Growing our customer base and maintaining strong relationships is the key focus. During the year we held customer roundtables to hear directly about their plans, product requests and any concerns. Our processes for customer complaint handling and dispute resolution were improved with the creation of a dedicated Customer Success team. The FCA’s principle of 'Treating Customers Fairly’ is now embedded in our products and processes.

Our banking partners are critical suppliers to the business. Our banking team are responsible for building and maintaining this network to ensure we continue to provide functional and reliable products while meeting safeguarding requirements.

The year saw a significant increase in headcount providing BCB with the resources to support sustainable growth along with the challenge of integrating new people rapidly. Regular Senior Leadership Team meetings allow strategic, regulatory and operational matters to be cascaded to the whole business. BCB’s Shadow Board, comprising junior members of staff elected for 6 months by their peers, provides real time feedback to management on culture, development priorities and our their perspective on our leadership.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2022.

The group's principal activities is the provision of multi currency payment services to corporate B2B customers operating in the digital asset industry.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

In accordance with the company's articles, a resolution proposing that Gravita Audit II Limited be reappointed as auditor of the group will be put at a General Meeting.

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 have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). 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 company, and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the ;

•     prepare the on the going concern basis unless it is inappropriate to presume that the group and company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and 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 group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the auditor of the company is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the auditor of the company is aware of that information.

We have audited the financial statements of BCB Group Holdings Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2022 which comprise the group profit and loss account, the group statement of comprehensive income, the group balance sheet, the company balance sheet, the group statement of changes in equity, the company statement of changes in equity, the group statement of cash flows and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

•     give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2022 and of the group's loss for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

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

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our 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 group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.

We have nothing to report in respect of the following matters in relation to which 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.

As 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, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the parent company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.

We ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations. The laws and regulations applicable to the group were identified through discussions with directors and other management. Of these laws and regulations, we focused on those that we considered may have a direct material effect on the financial statements or the operations of the company, including FCA authorised payment institution regulations, Companies Act 2006, taxation legislation, data protection, anti-bribery, anti-money-laundering, employment, environmental and health and safety legislation. The extent of compliance with these laws and regulations identified above was assessed through making enquiries of management and inspecting legal correspondence. The identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit. 

We assessed the susceptibility of the group’s financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by: 

• making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; 

• considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations; and 

• understanding the design of the company’s remuneration policies.

To address the risk of fraud through management bias and override of controls, we: 

• performed analytical procedures to identify any unusual or unexpected relationships; 

• tested journal entries to identify unusual transactions; 

• assessed whether judgements and assumptions made in determining the accounting estimates were indicative of potential bias; and 

• investigated the rationale behind significant or unusual transactions. 

In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to: 

• agreeing financial statement disclosures to underlying supporting documentation; 

• reading the minutes of meetings of those charged with governance; 

• enquiring of management as to actual and potential litigation and claims; and 

• reviewing correspondence with HMRC, relevant regulators including the FCA and the company’s legal advisors. 

There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion. 

A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Use of our report

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.

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s loss for the year was £23,447,994 (2021 - £2,290,637 loss).

BCB Group Holdings Limited is a private limited company domiciled and incorporated in England and Wales. The registered office is 5 Merchant Square, London, W2 1AS.

The group consists of BCB Group Holdings Limited and all of its subsidiaries. The principal activity of the group is included in the Strategic Report.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:

• Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;

• Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues: Interest income/expense and net gains/losses for financial instruments not measured at fair value; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income;

• Section 26 ‘Share based Payment’: Share-based payment expense charged to profit or loss, reconciliation of opening and closing number and weighted average exercise price of share options, how the fair value of options granted was measured, measurement and carrying amount of liabilities for cash-settled share-based payments, explanation of modifications to arrangements;

• Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.

In the parent company financial statements, the cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably, and is adjusted for changes in contingent consideration after the acquisition date. Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date. Investments in subsidiaries are accounted for at cost less impairment.

Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised in a business combination accounted for using the purchase method and the amounts that can be deducted or assessed for tax, considering the manner in which the carrying amount of the asset or liability is expected to be recovered or settled. The deferred tax recognised is adjusted against goodwill or negative goodwill.

The consolidated group financial statements consist of the financial statements of the parent company BCB Group Holdings Limited together with all entities controlled by the parent company (its subsidiaries).

All financial statements are made up to 31 December 2022. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the group.

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Subsidiaries are consolidated in the group’s financial statements from the date that control commences until the date that control ceases.

The financial statements are prepared on a going concern basis as the directors are satisfied that the group and company have the resources to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of these financial statements).

In making this assessment the directors have considered a wide range of information relating to present and future market conditions, revenue and profitability forecasts and cash flow projections. These projections reflect the current balance sheet, the group's funding plans, regulatory capital requirements and capital commitments.

Accordingly, at the time of approving the financial statements, the directors believe that the group and company have sufficient resources to continue their activities for the foreseeable future.

Revenue is recognised at the fair value of the consideration received or receivable for services provided in the normal course of business. The fair value of consideration considers trade discounts, settlement discounts and volume rebates, and is net of any VAT or other sales related taxes.

When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.

It is recognised when the specific criteria have been met for each of the following as described below:

Payments Segment

Set-up fees

Revenue is recognised upon provisioning client accounts in line with signed contract agreements.

Subscription and minimum fees

Recognised on a monthly basis from customers with active accounts in line with signed contract agreements.

Transaction and related fees

Revenue is earned on transactions undertaken for clients and recognised on a monthly basis in arrears.

Balance fees

Revenue is earned on certain client balances; this is recognised on a monthly basis in arrears.

Markets Segment

Foreign exchange and crypto asset trades

Revenue represents the net value of foreign exchange and crypto asset trades. Purchases of related currency and crypto assets are netted off against turnover. Revenue is recognised after receiving the client’s authorisation to undertake a trade.

Purchases of related currency and crypto assets are netted off against turnover. Revenue is recognised after receiving the client’s authorisation to undertake a trade.

Purchases of foreign currency and crypto assets are recognised when a back-to-back contract is agreed with a counterparty. The company enters into separate matched contracts with its counterparties in the majority of cases. Where trades are open at the end of a financial period, they are stated at fair value. The resulting gain or loss from the fair value movements is recorded in revenue.

Other revenues segment

Service revenue

Revenue from contracts for the provision of services is recognised by reference to the stage of completion, cost incurred and cost to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that it is probable will be recovered.

Service fees included in the price of the product are recognised as revenue over the period during which the service is performed.

Interest is recognised in profit or loss, using the effective interest rate method.

Goodwill represents the excess of the cost of acquisition of a business over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life. The group amortises goodwill over 5 years which it considers reasonable.

For the purposes of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the acquisition. Cash-generating units to which goodwill has been allocated are tested for impairment at least 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.

Amortisation is charged to administrative expense in the Consolidated Statement of Comprehensive Income.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.

Intangible fixed assets represent customer contracts acquired with LAB577 Ltd.

Amortisation is charged to administrative expense in the Consolidated Statement of Comprehensive Income.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.

In the parent company financial statements, investments in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.

A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.

Cryptocurrencies and digital assets not held for resale are initially measured at cost, and subsequently carried at fair value using prices sourced from active exchanges. Changes in fair value are recognised in profit or loss. The directors are monitoring developments in accounting practice for cryptocurrencies and digital asset, notably that stablecoins that are readily convertible into cash, may in future meet the tests to be treated as financial assets.

At each reporting period end 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 in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.

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.

Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. 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.

Inventory consists of crypto assets held for sale by the company at the balance sheet date on a 'mark-to-market’ basis. Inventories are initially recognised at fair value, normally the transaction price, and subsequently carried at fair value using prices sourced from active exchanges. Changes in fair value are recognised in profit or loss.

At each reporting date, an assessment is made for impairment. Any excess of the carrying amount of inventory over its estimated selling price less costs to complete and sell is recognised as an impairment loss in profit or loss. Reversals of impairment losses are also recognised in profit or loss.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks and other short-term liquid investments with original maturities of three months or less.

The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end 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 have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.

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

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account 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 reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Provisions are recognised when the group has a legal or constructive present obligation as a result of a past event, it is probable that the group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting end date, taking into account the risks and uncertainties surrounding the obligation. Where the effect of the time value of money is material, the amount expected to be required to settle the obligation is recognised at present value. When a provision is measured at present value, the unwinding of the discount is recognised as a finance cost in profit or loss in the period in which it arises.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using an appropriate valuation methodology. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity.

When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.

Cancellations or settlements are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.

Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss 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 leased asset are consumed.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation in the period are included in profit or loss.

In cases where subsidiaries' functional currencies are different from the functional currency of the group, the foreign currencies are translated using the following method:

• assets and liabilities in foreign currencies are translated at closing rate at the date of Consolidated Statement of Financial Position;

• income and expense in foreign currencies are translated at a weighted average rate for the relevant month where that provides a close approximation; and

• all resulting exchange differences are recognised in the Consolidated Statement of Comprehensive Income as other comprehensive income or expense.

In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions that affect the amounts reported in balance sheet and income statement. However, the nature of estimation means that actual outcomes could differ from these estimates. The critical accounting judgements, estimates and associated assumptions are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The following critical judgements and estimations had a significant effect on the amounts recognised in the financial statements:

a. Critical judgements in applying the group’s accounting policies

Going concern

As stated in note 1.4, the financial statements are prepared on a going concern basis. In making this assessment the directors have considered a wide range of information relating to the future. The group operates in fast moving digital assets markets that, during 2022, experienced adverse market and regulatory sentiment. As a series A business, the group’s success is dependent on revenue growth that is difficult to forecast with certainty, particularly in turbulent market conditions. In addition, the group and the digital assets markets have a limited track record on which to base such forecasts. Accordingly, while the decision to adopt the going concern basis is founded on realistic forecasts, these forecasts are subject to significant uncertainty and actual performance is likely to be different.

b. Key accounting estimates and assumptions

Fair value of intangible assets acquired in business combinations

On acquisition, specific intangible assets are identified and recognised separately from goodwill and then amortised over their estimated useful lives. In the case of the group these are customer contracts to which value is first attributed at the time of acquisition. The capitalisation of these assets and the related amortisation charges are based on judgments about the value and economic life of such items.

Useful economic lives

The economic lives of intangible assets are estimated at between one and five years reflecting the fast moving digital assets markets. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

Impairment

Annually, the group considers whether intangible assets and goodwill are impaired. Where an indication of impairment is identified the assessment requires an estimation of the recoverable amount of cash generating units (CGUs). The recoverable amount of CGUs is generally determined on the basis of value-in-use calculations, discounting future cash flows using an appropriate discount rate. Cash flow projections are based on financial budgets and plans extrapolated using estimated growth rates plus a terminal value calculated as an exit multiple based on market data and applied to the cash flow in the last year of the plans.

As indicated in a. above, the group’s success is dependent on revenue growth that is difficult to forecast with certainty, particularly in turbulent market conditions. In addition, the group and the digital assets markets have a limited track record on which to estimate future cash flows and growth rates. Accordingly, the value-in-use calculations and resultant goodwill impairment decisions are subject to significant uncertainty.

Sensitivity analysis

The recoverable amount calculated in the assessment of goodwill for impairment resulted in headroom of over £10m. However, the sensitivity of the carrying value of goodwill at the reporting date to the unobservable input assumptions to the calculation is as follows:

• A 40% reduction in the average growth rate over an assumed 5-year period to exit would reduce goodwill by £7.4m

• A 40% reduction in the 2 x revenue exit multiple would have no impact on goodwill but reduces the headroom in the impairment test to £1.2m

• A 20% increase in the 30% discount rate would have no impact on goodwill but reduces the headroom in the impairment test to £2.3m

In addition, a 40% reduction in the useful economic life from 5 to 3 years would reduce goodwill by £1.0m.

Fair value of share based payments

The inputs into the estimation of the fair value of options and growth shares granted to directors and employees are inherently uncertain. As a series A business, the enterprise value, share price volatility and time to liquidity are particularly challenging to estimate accurately. Further, the sensitivity of the calculated fair values to these inputs is significant in the context of group materiality.

Sensitivity analysis

The table below summarises the sensitivity of the share based payments expenses to the unobservable input assumptions made:

• A 20% increase/decrease in enterprise value at award would increase/decrease the expense by +£247k / -£215k

• A 20% increase/decrease in share price volatility following award would increase/decrease the expense by +£191k / -£206k

• A one year increase/decrease in the time to liquidity would increase/decrease the expense by +£99k / -£113k

The average monthly number of persons (including directors) employed by the group and company during the year was:

Their aggregate remuneration comprised:

The above remuneration and pension amounts relates to the two directors holding office during the year.

The actual (credit)/charge for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:

The standard rate of corporation tax in the UK applicable for the year was 19% (2021: 19%). Accordingly, this rate has been applied for current tax calculations. The future tax rate rose to 25% with effect from 1 April 2023. Therefore, the deferred tax calculations for the year apply 25% (2021: 19%).

The investment in LAB577 Ltd was assessed for impairment at the reporting period end since adverse market conditions and the group’s results were both indicators of potential impairment. The recoverable amounts being below the carrying amounts, an impairment loss of £7,313,108 was recognised and is charged to administrative expenses.

Details of the company's subsidiaries at 31 December 2022 are as follows:

Trade debtors includes £146,848 (2021: £7,580,793) of currency and crypto assets sales that had not been settled by counterparties at the balance sheet date. Trade debtors net of trade creditors represent the amount of recognised revenue not yet settled.

Other debtors falling due after more than one year represent a loan note issued by Max Heinr. Sutor oHG (now Sutor Bank GmbH) of €10 million. The loan note is redeemable at par by the issuer from 1 July 2027. The par value of the loan note may be adjusted (reversibly) downwards based on Sutor Bank's capital adequacy. This was not required at the year end. Interest is payable monthly at an annual rate of 7.5%.

Trade creditors includes £15,127,582 (2021: £7,679,617) of currency and crypto assets purchases that had not been settled by counterparties at the balance sheet date. Trade debtors net of trade creditors represent the amount of recognised revenue not yet settled.

The other provisions represent the best estimates by the directors of the company's exposure to penalties on a tax dispute in 2021.

The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:

The deferred tax credit to the profit and loss in the current year is recognised as a result of business combinations in the year.

A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.

The group operates share-based payment schemes for more senior employees to enable them to share in the future growth in value of the business. In the prior year, the schemes included tax advantaged and unapproved share option plans over ordinary shares. In the current year, the schemes include tax advantaged and unapproved share option plans over ordinary and ordinary 2 shares as well as a growth share plan over Z shares. All schemes related to equity instruments of the parent company.

Options are generally granted with an exercise price matching the prevailing market price of the underlying equity instrument. Options vest over three years from grant subject to continued employment by the group and expire ten years after the date of grant. Generally, options are only exercisable upon exit subject to customary exemptions. Employees are not entitled to dividends until the options are exercised.

The group is unable to directly measure the fair value of employee services received. Instead the fair value of the share options granted during the year was determined using an Options Pricing Model (OPM) to allocate the total equity value to individual ownership classes in the parent company's capital structure. The OPM used the Black-Scholes model to calculate the fair value of each equity tranche and option grant. The Black- Scholes model is internationally recognised as being appropriate to value employee share schemes similar to the group's plans.

In the prior year, the parent company levied an intra-group recharge for share-based payment expense based on the directors’ estimate of the fair allocation to each subsidiary. In the current year, the parent company levied an intra-group recharge for share-based payment expense relating to the employees of each subsidiary, the cost of which offsets the capital contribution arising.

During the year, the parent company issued 586,360 (2021: 368,483) share-based options at a weighted average exercise price of £34.31 (2021: £2.08). The obligation to settle these options lies with the parent company.

The number of shares options and the weighted average price of such shares within BCB Group Holdings Limited is as follows:

In January 2022, 215,589 Series A Preferred shares of £0.0001 were issued bringing the total series A funding to £34.4m. Also in January 2022 the company issued 338,328 Ordinary shares of £0.0001 each as part consideration for the acquisition of LAB577 Ltd, a software engineering venture studio. In June 2022, 281,578 of the warrants over Series A Preferred shares were converted into Series A Preferred shares leaving 60,000 warrants in issue.

During 2022, the company issued 542,600 Z Ordinary shares under its growth share plan as further explained in note 20 above.

In January 2021 an unsecured convertible loan of $4.55 million attracting interest at 6% per annum was issued to investors. This loan was converted into 818,662 Series A Preferred shares in December 2021. Also in December 2021 the company issued 1,165 Ordinary shares of £0.01 each for a total consideration of £67,704 followed by a 100 for 1 share split resulting in an issued ordinary share capital of 5,054,600 shares of £0.0001 each. In addition, 1,535,001 Series A Preferred shares of £0.0001 each and 341,578 warrants over Series A Preferred shares were issued for a total consideration of £30.6 million. Legal fees of £371,782 relating to the Series A Preferred shares issue have been allocated to Share Premium. The purpose of series A share issues was to finance the future expansion of the group. The series A round crystallised a contractual commitment to issue 280,000 Z ordinary arose; these shares were issued in 2022.

Other reserves is made up of a Share Warrants balance of £1,057,010 (2021: £6,017,571), Share Based Payments reserves of £1,281,608 (2021: 445,260) and legal reserves of £4,827 (2021: Nil).

On 31 January 2022 the group acquired 100% of LAB577 Ltd, a software engineering venture studio domiciled in the UK. The acquisition was accounted for using the purchase method.

The acquisition of LAB577 Ltd brings specialist financial services technology expertise to the group. Together, we are recognising the opportunities that digital assets offer to the financial services industry. The acquired software code base includes, DASL, a production-ready, robust, finance grade application that can be used for tokenisation of any type of underlying asset – a complete solution for issuance, portfolio management, trading and settlement of digital assets.

The acquisition consideration paid was £10,947,491 comprised £4,987,200 in cash plus £5,960,291 settled by the issue of 338,328 new ordinary shares.

The following table summarises the consideration paid by the group, the fair value of assets acquired and liabilities assumed at the acquisition date.

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

The remuneration of key management personnel is as follows.

The directors consider all members of BCB’s Group Executive Committee (ExCo) to be key management. This committee had an average of 7 members during 2022 (2021: 4). The aggregate compensation includes non-cash share based payments expenses of £643,491 (2021: £53,768).

The following amounts were outstanding at the reporting end date:

The parent company of the largest group of which the Company is a part is BCB Group Holdings Limited. The parent company has no single ultimate controlling party.

In December 2021, the company announced its investment into Max Heinr. Sutor oHG (now Sutor Bank GmbH) based in Hamburg, Germany. Subject to regulatory approvals, the company expected to acquire 100% of Sutor Bank GmbH for an aggregate consideration of €25 million subject to a net asset adjustment and earn-out mechanism. In June 2023, Sutor Bank GmbH terminated the acquisition agreement. The loan note issued by Sutor Bank GmbH of €10 million remains in place. Following this termination, the directors reviewed their intentions with regards the loan note, being open to purchase offers from external parties. Accordingly, it is expected that this investment will be held at fair value. Due to adverse conditions in the alternative tier 1 note market at 31 December 2023, it is likely that there will be an impairment against this note.

In January and February 2023, unsecured convertible loan notes totalling $6,775,000 attracting interest at 6% per annum were issued to investors. Further loan notes for $550,000 were issued in August 2023 on the same terms. Unless converted prior to 31 December 2023, this investment will be recognised split between its equity and liability components.

In September 2023, 40,000 Z Ordinary shares of £0.0001 each were issued at £0.52 each under the group's growth share plan.