Overall Group Non-IFRS Revenues* Increased 10% YoY to HK$136 Mln | OSL Digital Asset Non-IFRS Revenues* Up 25% YoY to HK$105 Mln
Click here for the 1H2022 Interim Results Infographic Hong Kong – 25 August 2022 – BC Technology Group (BC Group), Asia’s leading listed (stock code: 863 HK) digital asset and fintech company and parent company of the SFC-licensed OSL digital asset platform, today reported its results for the six months ended 30 June 2022.
Results Summary
Overall Group non-IFRS revenues increased 10% YoY to HK$136 million
OSL digital asset platform non-IFRS revenues increased 25% YoY to HK$105 million
OSL digital asset platform volume increased 79% YoY to HK$214 billion
Service fees from OSL SaaS increased 332% YoY to HK$15 million
SaaS trading volume increased 134% YoY to HK$11 billion
Group selling and distribution expenses decreased 65% YoY to HK$22 million
Management Commentary
BC Group CEO Hugh Madden said: “While the first half of 2022 was punctuated by material weakness in the macro economy and black swan events in digital asset markets, OSL saw important new business wins and revenue and volume growth in its core business lines.
Global regulatory clarity and infrastructure investment in the digital assets sector also continued to accelerate in tandem with technology and product innovation during the Period. This regulatory evolution and ecosystem growth points to long-term tailwinds that will create significant step changes and efficiencies in the market. In this environment, OSL remains well-positioned as the platform of choice for institutions adopting digital assets.”
BC Group CFO Davin Wu said: “OSL made significant progress in new business wins and recurring revenue clients across business lines. Notably OSL Digital Securities, the Group’s Hong Kong SFC-licensed entity, on 9 June announced that it was appointed to provide exclusive virtual asset dealing services for Interactive Brokers in Hong Kong. Our Software-as-a-Service (SaaS) offering also experienced rapid growth, which saw revenues increase more than three times compared to the previous period, and new major clients signed across the globe. With a robust pipeline of new business opportunities, the SaaS and brokerage business are expected to continue to grow at pace in 2H 2022 and beyond.”
Financial Performance
The OSL digital asset platform continued to see revenue growth in 1H 2022, with a 25% YoY increase in non-IFRS revenues to HK$105 million (1H 2021: HK$84 million), and overall Group non-IFRS revenues also increased 10% YoY to HK$136 million (1H 2021: HK$123 million).
During the period, the crypto industry experienced the beginning of a crypto winter resulting from black swan events including the failure of the Terra/Luna ecosystem and subsequent insolvencies of several firms that were heavily exposed to various lending protocols. OSL was not impacted by the events due to its regulatory-first mindset, and had no exposure to impacted coins (LUNA/UST/sETH/etc.)
The OSL SaaS business saw significant growth in 1H 2022, with revenues up 332% YoY to HK$15 million (1H 2021: HK$4 million). OSL Prime Brokerage revenues, the combined revenues from OTC and iRFQ trading and digital assets lending, increased 9% YoY to HK$82 million (1H 2021: HK$75 million). OSL Exchange revenues were HK$5 million for 1H 2022 (1H 2021: HK$3 million) and revenue for custody and other services was up 20% YoY to HK$3 million (1H 2021: HK$2 million).
OSL overall digital asset platform volumes were up by 79% YoY to HK$214 billion (1H 2021: HK$120 billion). SaaS trading volume increased 134% YoY to HK$11 billion in 1H 2022 (1H 2021: HK$5 billion) while brokerage trading volumes, the combined volumes from OTC and iRFQ trading, were up 87% YoY in 1H 2022 to HK$169 billion (1H 2021: HK$91 billion). Exchange trading volumes were up 40% YoY to HK$34 billion in 1H 2022 (1H 2021: HK$24 billion).
Group selling and distribution expenses decreased 65% YoY to HK$22 million (1H 2021: HK$62 million), and Group net loss for the Period was HK$315 million (1H 2021: HK$158 million).
Outlook
The Group has a strong balance sheet and in 1H 2022 continued to enhance its leadership in the regional and global digital asset market by increasing digital asset platform revenues and volumes and by signing several material contracts for its core prime brokerage and SaaS businesses.
This resulted in the continued growth in the new business pipeline for OSL, particularly for the SaaS business unit, as well as an increased focus on targeted products and services. These trends are expected to continue in 2H 2022.
OSL SaaS revenues were up more than three times in 1H 2022 compared to the previous period, and new major clients were signed across the globe. The SaaS business is expected to continue to grow at pace in 2H 2022 and beyond.
“OSL Markets”, representing the combined service capabilities of OSL Prime Brokerage, Exchange and Custody, also have positive prospects, with several new market makers coming onto the exchange venue in 2Q and 3Q, increasing liquidity and trading volumes at a time when many digital asset exchanges were experiencing low volumes globally. OSL Prime Brokerage continued to be the partner of choice for digital asset hedge funds, asset managers and ETFs in 1H 2022 and this is also expected to continue throughout the year and beyond. OSL Prime Brokerage and Exchange have a deep pipeline of prospective new customers globally and are expected to sign additional clients and liquidity providers throughout the Year.
Also in the post period, the Group saw significant new business wins and product milestones. On 26 July OSL Digital Securities became the first SFC-licensed digital asset broker to sell security tokens to professional investors in a Hong Kong security token offering (STO).
The STO distribution by OSL represents a ‘proof-of-concept’ for innovative new ways of investing in regulated digital assets, and opens the door to a new market for the issuance and distribution of tokenized securities through licensed intermediaries in Hong Kong.
The Hong Kong Monetary Authority (HKMA) and the SFC issued a joint circular on 28 January 2022, which for the first time formally permitted registered institutions and licensed corporations to provide digital asset investment services by partnering only with SFC-licensed virtual asset trading platforms.
Combining the proof-of-concept STO primary distribution with the network effect OSL is building under the HKMA/SFC joint circular, OSL has demonstrated its ability to play a central role leading bookbuilds and acting as an intermediary for licensed partner brokers and banks on future STO issuances and other digital asset transactions.
On 28 July Zodia Markets, the Group’s partnership with Standard Chartered’s SC Ventures in the UK and EU, announced that it had received cryptoasset registration from the UK Financial Conduct Authority (FCA) and officially launched its institutional crypto exchange and brokerage in the UK and the EU.
Zodia Markets’ registration marks the first time a crypto trading business backed by a leading international bank has been listed by the FCA on the UK’s Financial Services Register.
The above partnerships and growth and new business in SaaS utilize recurring revenue models that have potential to drive non-linear growth for the Group once fully operational. The ramp up process for several recurring revenue relationships are expected to be fully online by the end of 3Q 2022.
Furthermore, there is expected to be a significant reduction in costs in 2H 2022 following the completion of a firm wide organizational realignment exercise at the end of 2Q 2022. The initiative focused on creating business efficiencies. Focus will be placed moving forward on targeted marketing and sales with the aim of increased client acquisition across the business units to further drive revenue and platform volume.
The Group will also selectively add new trading products, services and features to its trading platform to meet market and customer needs.
*Adjusted non-IFRS income excluding net loss/gain of digital assets held by the Group used in facilitation of prime brokerage business and fair value changes is an additional financial measure, which is not required by, or presented in accordance with, the IFRS. The adjusted non-IFRS financial measure is useful for understanding and assessing underlying business and operating performance. The presentation of this adjusted non-IFRS financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with IFRS.