REG - Argo Blockchain PLC - 2022 Full Year Results
28/04/2023 07:15
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RNS Number : 7907X Argo Blockchain PLC 28 April 2023
Press Release
28 April 2023
Argo Blockchain plc
("Argo" or "the Group" or "the Company")
2022 Full Year Results
Argo Blockchain plc, a global leader in cryptocurrency mining (LSE: ARB;
NASDAQ: ARBK), is pleased to announce its audited results for the year ended
31 December 2022.
Operating highlights
● Increased hashrate capacity by 55% from 1.6 EH/s at the end of
2021 to 2.5 EH/s at the end of 2022
● Energized the Helios facility in Dickens County, Texas and
commenced mining operations on 5 May 2022
● Executed an agreement with ePIC Blockchain Technologies ("ePIC"),
as amended, to purchase BlockMiner machines for use with Intel's Blockscale
ASIC chip (2,870 machines expected to be deployed in Q3 2023)
● Completed a swap agreement with Core Scientific ("Core") for S19J
Pro machines representing approximately 970 PH/s, which ended the Group's
hosting agreement with Core in place of self-mining operations at Helios
● Released the Group's 2021 Sustainability Report and maintained
climate positive status by producing no Scope 1 emissions and offsetting all
Scope 2 and Scope 3 emissions through renewable energy credits and verifiable
emissions reductions
Financial highlights
● Total number of Bitcoin or Bitcoin Equivalent ("BTC") mined during
2022 was 2,156, a 5% increase compared to the BTC mined in 2021, despite an
increase in global hashrate and network difficulty
● Revenues of £47.4 million ($58.6 million), a decrease of 36%
from 2021, driven primarily by a significant decrease in Bitcoin price and an
increase in the global hashrate and associated network difficulty level
● Adjusted EBITDA of £1.0 million ($1.2 million), down from
Adjusted EBITDA of £55.0 million ($74.2 million) in 2021
● Mining margin of 54%, down from 84% in 2021. Similar to revenue,
this decrease was largely attributable to the decrease in Bitcoin price and an
increase in network difficulty, as well as significantly higher than expected
power costs in Texas
● Net loss of £194.2 million ($240.2 million), driven primarily
by the change in fair value of digital assets, impairment of assets, and
losses associated with our divestitures
● Total number of BTC held at 31 December 2022 was 141, of which
116 were Bitcoin Equivalents
Sale of Helios & Hosting Agreement with Galaxy
● On 29 December 2022, the Group completed a series of agreements
with Galaxy Digital Holdings Ltd. (TSX: GLXY) ("Galaxy")
● As part of the agreements, Argo sold its Helios facility to Galaxy
for £53 million ($65 million), Argo refinanced existing equipment financing
loans with a new asset-backed loan from Galaxy for an amount of £28
million ($35 million), and Galaxy agreed to host Argo's mining machines at
Helios ("the Transactions")
● The Transactions improved the Group's balance sheet and liquidity
by reducing total indebtedness by £33 million ($41 million) and improving
its cash position. As of 31 December 2022, after accounting for the
Transactions, the Group's total debt was approximately £63 million ($76
million), and debt, net of cash, was £46 million ($56 million)
● Argo maintained ownership of its entire fleet of mining machines,
and Galaxy is now hosting the fleet of approximately 23,619 Bitmain S19J Pro
machines at Helios under a two-year hosting agreement
● Under the hosting agreement, Argo has access to the electricity
price that Galaxy obtains through its power purchase agreement, and Argo pays
an incremental hosting fee based on its actual electricity usage
Board and Senior Management Changes
Subsequent to 31 December 2022:
● on 30 January 2023, Chief Financial Officer and Executive Director
Alex Appleton resigned from his positions to pursue other opportunities. After
a formal recruitment process led by an executive search firm, the Board
appointed Jim MacCallum as Chief Financial Officer effective 5 April 2023
● on 8 February 2023, Sarah Gow resigned as non-executive director
of the Company for health reasons; and
● on 9 February 2023, Chief Executive Officer and Interim Chairman
Peter Wall resigned from his positions to pursue other opportunities. Matthew
Shaw became Chairman of the Board, and the Board appointed Chief Operating
Officer Seif El-Bakly, CFA, to serve as Interim CEO. The Group will provide an
update on the CEO recruitment process in due course
Q1 2023 Update (Preliminary and Unaudited)
● Total number of Bitcoin or Bitcoin Equivalent ("BTC") mined during
Q1 2023 was 491, or 5.5 BTC per day. This is a 5% increase in daily BTC
compared to the same period in 2021, and it is a 8% decrease in BTC production
compared to the prior quarter. The decrease compared to Q4 2022 is primarily
due to an increase in the network difficulty
● Generated revenues of approximately £9 million ($11 million)
with a mining margin in the range of 45% to 50%; mining margin increased from
approximately 35% in Q4 2022 due to higher Bitcoin price and lower electricity
prices in Texas
● Average direct cost per Bitcoin mined was approximately
£10,000 ($12,000)
● Average all-in costs (power costs and hosting fees) at Helios was
approximately $0.05 to $0.055 per kilowatt-hour
Outlook for 2023
Renewed Focus on Quebec
● Going forward, in the near term, Argo will be focusing on
improving operational efficiency at its Quebec facilities by optimizing its
mining fleet and utilizing excess capacity at these sites
● Both data centers have access to 99% renewable electricity
generated from hydropower at competitive prices
Deployment of ePIC BlockMiners
● The Group is expecting the delivery of 2,870 units of ePIC
"BlockMiner" machines beginning in early Q3 2023
● These new BlockMiner machines, representing an incremental 300
PH/s of hashrate capacity, will be deployed at the Group's Quebec facilities
Commenting on the results, Seif El-Bakly, Argo Blockchain Interim CEO, said,
"Having navigated challenging market conditions in both the crypto sector and
the global economy in the second half of 2022, Argo has emerged stronger and
in a much more solid financial position.
Following the build of Helios and the strategic transaction with Galaxy, we
have streamlined our operations to maximize efficiency and increase our
hashrate while maintaining our mining capacity thanks to our Hosting
Agreement. On the basis of these foundations, we continue to work diligently
on the next stage of Argo's growth and development, with the goal of
delivering long-term value to our shareholders."
*The tables below reconcile Bitcoin and Bitcoin Equivalent Mining Margin to
gross margin, the most directly comparable IFRS measure, and Adjusted EBITDA
to net income/(loss), the most directly comparable IFRS measure:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Gross profit/(loss) (34,460) 53,646
Depreciation of mining equipment 16,549 11,129
Change in fair value of digital currencies 113 (1,191)
Realised loss / (gain) on sale of digital currencies 43,526 (437)
Cryptocurrency management fees (96) (3,789)
Mining profit 25,633 59,268
Bitcoin and Bitcoin Equivalent Mining Margin 54% 84%
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Net income/(loss) (194,231) 30,765
Interest expense 18,321 2,142
Depreciation / amortisation 23,449 11,521
Income tax (credit) / expense (361) 8,506
EBITDA (152,822) 52,934
Change in fair value of digital currencies 113 (1,191)
Realised loss / (gain) on sale of digital currencies 43,526 (437)
Impairment of assets 45,143 -
Impairment of intangible assets 4,168 535
Loss on sale of subsidiary and investments 44,804 629
Loss on sale of fixed assets 18,779 -
Foreign exchange (17,250) 589
Legal and restructuring fees related to restructuring 9,590 -
Share based payment charge 4,928 1,938
Adjusted EBITDA 979 54,997
Inside Information and Forward-Looking Statements
This announcement contains inside information and includes forward-looking
statements which reflect the Company's current views, interpretations, beliefs
or expectations with respect to the Company's financial performance, business
strategy and plans and objectives of management for future operations. These
statements include forward-looking statements both with respect to the Company
and the sector and industry in which the Company operates. Statements which
include the words "remains confident", "expects", "intends", "plans",
"believes", "projects", "anticipates", "will", "targets", "aims", "may",
"would", "could", "continue", "estimate", "future", "opportunity", "potential"
or, in each case, their negatives, and similar statements of a future or
forward-looking nature identify forward-looking statements. All
forward-looking statements address matters that involve risks and
uncertainties because they relate to events that may or may not occur in the
future, including the risk that the Company may receive the benefits
contemplated by its transactions with Galaxy, the Company may be unable to
secure sufficient additional financing to meet its operating needs, and the
Company may not generate sufficient working capital to fund its operations for
the next twelve months as contemplated. Forward-looking statements are not
guarantees of future performance. Accordingly, there are or will be important
factors that could cause the Company's actual results, prospects and
performance to differ materially from those indicated in these statements. In
addition, even if the Company's actual results, prospects and performance are
consistent with the forward-looking statements contained in this document,
those results may not be indicative of results in subsequent periods. These
forward-looking statements speak only as of the date of this announcement.
Subject to any obligations under the Prospectus Regulation Rules, the Market
Abuse Regulation, the Listing Rules and the Disclosure and Transparency Rules
and except as required by the FCA, the London Stock Exchange, the City Code or
applicable law and regulations, the Company undertakes no obligation publicly
to update or review any forward-looking statement, whether as a result of new
information, future developments or otherwise. For a more complete discussion
of factors that could cause our actual results to differ from those described
in this announcement, please refer to the filings that Company makes from time
to time with the United States Securities and Exchange Commission and the
United Kingdom Financial Conduct Authority, including the section entitled
"Risk Factors" in the Company's Registration Statement on Form F-1.
For further information please contact:
Argo Blockchain
Investor Relations ir@argoblockchain.com
finnCap Ltd
Corporate Finance +44 207 220 0500
Jonny Franklin-Adams
Seamus Fricker
Joint Corporate Broker
Sunila de Silva
Tennyson Securities
Joint Corporate Broker +44 207 186 9030
Peter Krens
Tancredi Intelligent Communication
UK & Europe Media Relations
Salamander Davoudi argoblock@tancredigroup.com
Emma Valgimigli
Fabio Galloni-Roversi Monaco
Nasser Al-Sayed
About Argo:
Argo Blockchain plc is a dual-listed (LSE: ARB; NASDAQ: ARBK) blockchain
technology company focused on large-scale cryptocurrency mining. With mining
facilities in Quebec, mining operations in Texas, and offices in the US,
Canada, and the UK, Argo's global, sustainable operations are predominantly
powered by renewable energy. In 2021, Argo became the first climate positive
cryptocurrency mining company, and a signatory to the Crypto Climate Accord.
For more information, visit www.argoblockchain.com
(http://www.argoblockchain.com/) .
Chairman's Statement
2022 was a year of transformation for Argo Blockchain. In the first half of
the year, we completed the development and construction of the Helios facility
in Dickens County, Texas. We energized Helios in May 2022 and began mining
operations, and we increased our total hashrate capacity by more than 50%.
However, we faced numerous headwinds as our business model was challenged by
sharp declines in Bitcoin price, increases in the global network hashrate,
increases in energy prices, and macroeconomic and geopolitical factors. At the
end of 2022, we made the strategic decision to sell the Helios facility and
use the proceeds to reduce debt on our balance sheet. Following the
transaction, we have strengthened Argo's management team, renewed our emphasis
on financial discipline and operational excellence, and crafted a strategy to
resume our growth. With these steps, we are in a much better position to
improve our mining operations, grow the business, and weather the crypto
winter.
2022 in Review
Our main focus in 2022 was to complete the build out and energization of the
Helios facility. In Q1 2022, we raised additional financing in the form of
secured debt from NYDIG to complete construction at Helios. On 5 May 2022, we
successfully energized Helios and commenced mining operations. With 180 MW of
capacity and utilizing 100% immersion-cooling technology, the Helios facility
is one of the largest and most technologically-advanced Bitcoin mining
facilities in the United States.
In the same month, we began taking delivery of the new Bitmain Antminer S19J
Pro machines that we ordered in September 2021. We installed the new machines
in monthly batches and grew our total hashrate capacity by more than 50% from
1.6 EH/s in April 2022 to 2.5 EH/s in September 2022.
As we brought operations online at Helios, we began to transition away from
our hosted operations at facilities owned by Core Scientific ("Core"). Between
May and July 2022, we completed a machine swap with Core, whereby new-in-box
Bitmain S19J Pro machines were delivered to Helios in exchange for Core taking
over our existing fleet of Bitmain S19 machines hosted in its facilities. This
machine swap mitigated the logistical challenges and downtime associated with
unplugging and shipping the mining machines from Core's facilities to Helios.
After completion of the machine swap in July 2022, 100% of Argo's mining
machines were operating in our own facilities.
One of the attributes that made the Helios project an attractive investment
for Argo was its location in the Texas Panhandle, where more than 85% of the
installed power generation capacity comes from wind and solar. Not only is
this strategy consistent with our stated goal of using renewable sources of
energy to power our mining operations, but Texas has long been known for
having low-cost electricity due to the high percentage of renewable power on
its grid.
Several external factors, however, resulted in elevated electricity prices
during Q2 and Q3 of 2022 when we were commencing operations at Helios.
Russia's invasion of Ukraine and the subsequent sanctions on Russian petroleum
exports disrupted the energy markets. This, along with unusually low stocks of
natural gas in US storage facilities, resulted in a historic spike in the
price of natural gas. While Texas has a large amount of renewable energy
generation, it also has a significant amount of natural gas-fired generation.
The increased natural gas price also caused an increase in electricity prices,
making it cost prohibitive to sign a fixed price power purchase agreement
("PPA"). This had a negative impact on our mining performance and
profitability.
Additionally, the global network hashrate continued to increase throughout
2022 despite the material decline in Bitcoin price. The depressed price of
Bitcoin and the elevated global hashrate caused hashprice, the primary measure
of mining profitability, to reach all-time lows in Q4 2022. The low hashprice
and elevated power prices significantly reduced Argo's profitability and
ability to generate free cash flow. During Q4 2022, we evaluated several
strategic alternatives to restructure our balance sheet and improve our cash
flow.
On 28 December 2022, we announced a series of transactions with Galaxy Digital
Holdings, Ltd. ("Galaxy") that strengthened our balance sheet, improved our
liquidity position, and enabled us to continue mining operations. As part of
the transactions, we sold the Helios facility and real property in Dickens
County, Texas to Galaxy for £54 million ($65 million) and refinanced existing
asset-backed loans via a new £29 million ($35 million), three-year
asset-backed loan with Galaxy. The transactions reduced total indebtedness by
£34 million ($41 million) and allowed us to simplify our operating
structure.
Importantly, we maintained ownership of our entire fleet of more than 27,000
mining machines. Pursuant to a new two-year hosting services agreement with
Galaxy, our 23,650 Bitmain S19J Pro mining machines at Helios will remain in
operation at that facility. Under the hosting agreement, we have access to the
base power rate that Galaxy obtains through its PPA, and we pay them an
incremental hosting fee based on our actual electricity usage.
The hosting agreement with Galaxy allowed us to keep our mining machines
operating at Helios and mitigated any mining machine downtime from the sale of
the Helios facility. Furthermore, we believe that the immersion-cooling system
we developed and implemented at Helios provides for a superior operating
environment for our mining machines.
After the year end, we completed the transition of operations at Helios over
to the Galaxy team, and we have been working closely with them to optimize our
mining operations and performance.
We continue to operate both data centers that we own in Quebec, Canada. Our
Baie Comeau site is over 40,000 square feet and has 15 MW of 99% renewable
power capacity sourced from the nearby Baie Comeau hydroelectric dam. Our
Mirabel facility, located adjacent to the Mirabel airport near Montreal, has
approximately 30,000 square feet of mining space with 5 MW of 99% renewable
power capacity sourced from Hydro-Quebec. We also operate a cleaning and
repair center at Mirabel, along with servers and computing equipment for
proof-of-stake activities and other blockchain infrastructure needs.
Going forward, in the near term we will be focusing on optimization by
improving the operational efficiency of our Quebec facilities and utilizing
excess capacity at these sites. Both data centers have access to 99% renewable
electricity from hydropower at competitive power prices. Additionally, we are
expecting the delivery of 2,870 units of the ePIC Blockchain machine (known as
the "BlockMiner" machine), in early Q3 2023. These new BlockMiner machines,
representing an incremental 300 PH/s of hashrate capacity, will be deployed at
our Quebec facilities.
Financial results
Revenue in 2022 was £47.4 million ($58.6 million) compared to £74.2 million
($100.2 million) in 2021. Adjusted EBITDA was £1.0 million ($1.2 million)
compared to £55.0 million ($74.2 million) in 2021. Loss attributable to
shareholders totalled £199.5 million ($246.7 million). In 2022, total capital
expenditures, net of disposals, were £5.4 million ($6.7 million), with nearly
all going towards Helios infrastructure construction and the purchase of
mining machines.
Operating results
In line with Argo's expansion of mining operations in 2022, the Group's total
hashrate capacity increased by more than 50% from 1.6 EH/s in April 2022 to
2.5 EH/s by September 2022. The Group also has 280 Megasols of Z-cash mining
capacity on Equihash. Argo's mining margin averaged 54% for the full year
2022, which is lower than the 84% mining margin achieved in 2021. The decrease
in mining margin from 2021 was driven by the decrease in the Bitcoin price,
the increase in energy costs, and the increase in global hashrate (and
associated increase in network difficulty).
Bitcoin macro environment
The decrease in the price of Bitcoin throughout 2022 was accompanied by a
change in monetary policy by central banks and a significant drawdown across
all digital assets. In March 2022, the US Federal Reserve raised interest
rates for the first time since 2018 as it began to address rising inflation.
Assets that were considered higher risk, including high-growth technology
stocks and highly-correlated digital assets, including Bitcoin, saw outflows
as investors factored in higher forecasted interest rates and reduced market
liquidity.
In May 2022, the collapse of the Luna/UST stablecoin caused turmoil in the
crypto market into turmoil as forced liquidations continued to put downward
pressure on digital assets. Several high-profile collapses subsequently
followed, including hedge fund Three Arrows Capital, Celsius, and most
significantly FTX and Alameda Ventures. In the midst of this crypto downturn,
the price of Bitcoin reached a low of less than $16,000 in November 2022.
Despite the 77% drop in the price of Bitcoin from its all-time highs in
November 2021, the network hashrate continued to increase for the twelfth
consecutive year. Additionally, even though Bitcoin miners like Argo faced
increased network difficulty and lower profitability, they continued to
validate transactions and secure the network; in total, ~53,000 blocks were
mined in 2022, generating over ~$10 billion in aggregate revenue for Bitcoin
miners.
Commitment to Sustainability
Since inception, Argo has always maintained a strong focus on environmental
sustainability. This is why we located our mining operations in Quebec, where
they are powered by hydroelectricity, and the Texas Panhandle, where more than
85% of the installed generation capacity comes from renewable sources. Since
2021, Argo has been committed to achieving net-zero carbon emissions. The
Company has also released a full climate strategy and became the first Bitcoin
mining company to announce climate positive status. We achieved this through
our use of renewable energy to power mining operations, and by offsetting more
scope 2 and 3 greenhouse gas emissions than we emitted in both 2020 and 2021.
We are in the process of accounting for our greenhouse gas emissions for 2022.
To our knowledge, we are the first publicly traded cryptocurrency mining
company to publish a report in accordance with the Task Force on
Climate-related Financial Disclosures ("TCFD") Recommendations and Recommended
Disclosures.
Leadership changes
In February 2022, Argo expanded its board by appointing Raghav Chopra as an
independent non-executive director. In March 2022, the Company hired Seif
El-Bakly, CFA as Chief Operating Officer.
Following the end of the period, on 30 January 2023, Chief Financial Officer
and Executive Director Alex Appleton resigned from his positions to pursue
other opportunities. After a formal recruitment process led by an executive
search firm, the Board appointed Jim MacCallum as Chief Financial Officer
effective 5 April 2023.
On 9 February 2023, Chief Executive Officer and Interim Chairman Peter Wall
resigned from his positions to pursue other opportunities. Matthew Shaw became
Chairman of the Board, and the Board appointed Chief Operating Officer Seif
El-Bakly to serve as Interim CEO.
Strategic focus in 2023
With the completion of the Helios sale to Galaxy at the end of 2022 and the
leadership changes in Q1 2023, Argo is entering a new chapter in its story. As
2023 progresses, we are focused on growing our business with a strong emphasis
on operational excellence and financial discipline. Specifically, we intend
to:
· Optimize our mining operations across our Quebec facilities and the
Helios facility
· Control operating expenses and maximize cash flow
· Strengthen the balance sheet
· Explore organic and inorganic growth opportunities
On behalf of the Board, I would like to thank all of our shareholders and
stakeholders. I am excited for Argo to continue in its mission of powering the
world's most innovative and sustainable blockchain infrastructure.
Matthew Shaw
Chairman of the Board
Independent Auditor's Report
We have audited the financial statements of Argo Blockchain plc (the 'parent
company') and its subsidiaries (the "group") for the year ended 31 December
2022 which comprise the Group Statement of Comprehensive Income, the Group and
Parent Company Statements of Financial Position, the Group and Parent Company
Statements of Changes in Equity, the Group and Parent Company Statements 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 UK-adopted international accounting
standards and as regards the parent company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
In 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 2022 and of
the Group's loss for the year then ended;
· the Group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
· the parent company financial statements have been properly prepared
in accordance with UK-adopted international accounting standards 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
DIRECTORS' RESPONSIBILITIES STATEMENT
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 prepared the Group and
parent company financial statements in accordance UK-adopted international
accounting standards. 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 and
loss of the Group and Company 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-adopted international accounting
standards have been followed, subject to any material departures disclosed and
explained in the financial statements; and
● Prepare the financial statements 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 and
the Directors' Remuneration Report 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.
The directors are also responsible to make a statement that they consider the
Annual Report and financial statements taken as a whole, is fair, balanced and
understandable and provides the information necessary for the shareholders to
assess the Group's and Company's position and performance, business model and
strategy.
Website publication
The directors are responsible for ensuring the Annual Report and the financial
statements are made available on a website. Financial statements are published
on the Company's website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial statements, which may
vary from legislation in other jurisdictions. The maintenance and integrity of
the Group and Company's website is the responsibility of the directors. The
directors' responsibility also extends to the on-going integrity of the
financial statements contained therein.
Directors' responsibilities pursuant to DTR4 (Disclosure and Transparency
Rules)
The directors confirm to the best of their knowledge:
● The Group and Company financial statements have been prepared in
accordance with UK-adopted international financial reporting standards and
give a true and fair view of the assets, liabilities, financial position and
profit or and give a true and fair view of the assets, liabilities, financial
position and profit and loss of the Group and Company; and
● The Annual Report includes a fair review of the development and
performance of the business and financial position of the Group and Company
together with a description of the principal risks and uncertainties that it
faces.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended December 2022 Year ended December 2021
Continuing operations Note £'000 £'000
Revenues 7 47,363 74,204
Direct costs 8 (38,183) (22,186)
Change in fair value of digital currencies 21 (43,640) 1,628
Gross (loss)/profit (34,460) 53,646
Operating costs and expenses 8 (27,534) (8,887)
Share based payment charge 22 (4,928) (1,938)
Gain on hedging 7 1,695 -
Operating (loss)/profit 65,227 42,821
Fair value revaluation of variable consideration 25 4,038 236
Fair value (loss)/gain of investments 15 (328) 183
Loss on sale of subsidiary and investment 14 (44,804) (629)
Loss on disposal of fixed assets 19 (18,779) -
Finance costs 8 (18,321) (2,142)
Other income 7 3,012 -
Impairment of tangible fixed assets 19 (45,143) -
Impairment of intangible assets 18 (4,168) -
Equity accounted loss from associate 16 (4,872) (1,198)
(Loss)/profit before taxation (194,592) 39,271
Tax credit/(expense) 13 361 (8,506)
(Loss)/profit after taxation (194,231) 30,765
Other comprehensive income
Items which may be subsequently reclassified to profit or loss:
- Currency translation reserve 1,735 (410)
- Equity accounted OCI from associate 16 (6,571) 6,571
- Fair value gains on intangible digital assets 18 (414) 414
Total other comprehensive (loss)/income, net of tax (5,250) 6,575
Total comprehensive (loss)/income attributable to the equity holders of the (199,481) 37,340
Company
Earnings per share attributable to equity owners (pence)
Basic (loss)/earnings per share (40.98p) 7.7p
Diluted (loss)/ earnings per share (40.98p) 7.4p
The income statement has been prepared on the basis that all operations are
continuing operations.
GROUP STATEMENT OF FINANCIAL POSITION
As at 31 December 2022 As at 31 December 2021
Note £'000 £'000
ASSETS
Non-current assets
Investments at fair value through profit or loss 15 344 403
Investments accounted for using the equity method 16 2,374 13,817
Intangible fixed assets 18 1,744 5,604
Property, plant and equipment 19 63,850 111,604
Right of use assets 19 435 350
Total non-current assets 68,747 131,778
Current assets
Trade and other receivables 20 5,641 63,359
Digital assets 21 368 80,759
Cash and cash equivalents 16,662 11,803
Total current assets 22,671 155,921
Total assets 91,418 287,699
EQUITY AND LIABILITIES
Equity
Share Capital 23 478 468
Share Premium 23 143,748 139,581
Share based payment reserve 24 6,801 1,905
Fair value reserve 24 - 414
Currency translation reserve 24 1,768 33
Other comprehensive income of equity accounted associates 24 - 6,571
Accumulated surplus/(loss) 24 (141,393) 52,838
Total equity 11,402 201,810
Current liabilities
Trade and other payables 25 8,310 15,245
Contingent consideration 25 - 8,071
Loans and borrowings 25 9,624 23,391
Income tax 13 - 7,679
Deferred tax 13 2,196 286
Lease liability 4 7
Total current liabilities 20,134 54,679
Non-current liabilities
Deferred tax 13 6,586 541
Issued debt - bond 25 31,356 26,908
Loans 26 21,492 3,391
Lease liability 25 448 370
Total liabilities 59,882 85,889
Total equity and liabilities 91,418 287,699
COMPANY STATEMENT OF FINANCIAL POSITION
As at December 2022 As at December 2021
Note £'000 £'000
ASSETS
Non-current assets
Investment in subsidiaries 14 53,495 12,181
Investments at fair value through profit or loss 15 73 73
Investments accounted for using the equity method 16 2,374 13,817
Tangible fixed assets 18 1,821 -
Total non-current assets 57,763 26,071
Current assets
Trade and other receivables 20 456 8,598
Intercompany receivable, net 20 8,572 175,859
Cash and cash equivalents 115 126
Total current assets 9,143 184,583
Total assets 66,906 210,654
EQUITY AND LIABILITIES
Equity
Share Capital 23 478 468
Share Premium 23 143,748 139,581
Share based payment reserve 24 6,801 1,905
Other comprehensive income of equity accounted associates 24 - 6,571
Accumulated (loss)/surplus 24 (120,113) 18,986
Total equity 30,914 167,511
Current liabilities
Trade and other payables 25 4,636 8,164
Contingent consideration 25 - 8,071
Total current liabilities 4,636 16,235
Non-current liabilities
Loans and borrowings 26 31,356 26,908
Total liabilities 31,356 43,143
Total equity and liabilities 66,906 210,654
As permitted by s408 Companies Act 2006, the Company has not presented its own
profit and loss account and related notes. The Company's total comprehensive
loss for the year was £139.1m (2021 - loss of £3.6m).
GROUP STATEMENT OF CHANGES IN EQUITY
Share Capital Share Premium Currency translation reserve Share based payment reserve Fair Revaluation Reserve Other comprehensive income of associates Accumulated surplus/ Total
(deficit)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 468 139,581 33 1,905 414 52,838 201,810
6,571
-
Total comprehensive income for the period:
Profit for the period - - - - - - (194,231) (194,231)
Other comprehensive income - - 1,735 - (414) (6,571) - (5,250)
Total comprehensive income for the period - - 1,735 - (414) (6,571) (194,231) (199,481)
Transactions with equity owners:
Share capital issued 10 4,167 - - - - - 4,177
Share based payment charge - - - 4,928 - - - 4,928
Share options/warrants exercised - - - (32) - - - (32)
Total transactions with equity owners 10 4,167 - 4,896 - - - 9,073
Balance at 31 December 2022 478 143,748 1,768 6,801 - - (141,393) 11,402
GROUP STATEMENT OF CHANGES IN EQUITY
Share Capital Share Premium Currency translation reserve Share based payment reserve Fair Revaluation Reserve Other comprehensive income of associates Accumulated surplus/ Total
(deficit)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 304 1,540 443 75 - 21,965 24,327
-
Total comprehensive income for the period:
Profit for the period - - - - - 30,765 30,765
Other comprehensive income - - (410) - 414 6,571 - 6,575
Total comprehensive income for the period - - (410) 414 6,571 30,765 37,340
-
Transactions with equity owners:
Share capital issued 164 150,977 - - - - - 151,141
Issue costs of share capital - (12,936) - - - - - (12,936)
Share based payment charge - - - 1,938 - - - 1,938
Share options/warrants exercised - - - (108) - - 108 -
Total transactions with equity owners 164 138,041 - 1,830 - 108 140,143
-
Balance at 31 December 2021 468 139,581 33 1,905 414 6,571 52,838 201,810
COMPANY STATEMENT OF CHANGES IN EQUITY
Share Capital Share Premium Share based payment reserve Other comprehensive income of associates Accumulated surplus/ Total
(deficit)
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2022 468 139,581 1,905 6,571 18,986 167,511
Total comprehensive income for the period:
Loss for the period - - - - (139,098) (139,098)
Other comprehensive income - - - (6,571) - (6,571)
Total comprehensive income for the period - - - (6,571) (139,098) (146,830)
Transactions with equity owners:
Share capital issued 10 4,167 - - - 4,177
Share based payments charge - - 4,928 - - 4,928
Share options/warrants exercised - - - -
Total transactions with equity owners 10 4,167 4,896 - - 9,073
Balance at 31 December 2022 478 143,748 6,801 - (120,112) 30,915
Share Capital Share Premium Share based payment reserve Other comprehensive income of associates Accumulated surplus/ Total
(deficit)
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2021 304 1,540 75 - 22,429 24,348
Total comprehensive income for the period:
Loss for the period - - - - (3,551) (3,551)
Other comprehensive income - - - 6,571 - 6,571
Total comprehensive income for the period - - - 6,571 (3,551) 3,020
Transactions with equity owners:
Share capital issued 164 150,977 - - - 151,141
Issue costs of share capital - (12,936) (12,936)
Share based payments charge - - 1,938 - - 1,938
Share options/warrants exercised - - (108) - 108 -
Total transactions with equity owners 164 138,041 1,830 - 108 140,143
Balance at 31 December 2021 468 139,581 1,905 6,571 18,986 167,511
GROUP STATEMENT OF CASH FLOWS
Year ended December 2022 Year ended December 2021
Note £'000 £'000
Cash flows from operating activities
Loss/(profit) before tax (194,592) 39,271
Adjustments for:
Depreciation/Amortisation 8 23,449 11,511
Foreign exchange movements (17,250) 589
Loss on disposal of tangible assets 18,779 -
Finance cost 18,321 2,142
Loss on sale of subsidiary and investment 44,804 629
Fair value change in digital assets through profit or loss 21 43,640 (1,628)
Impairment of intangible digital assets 18 4,168 535
Impairment of property, plant and equipment 45,143 -
Investment fair value movement 15 328 (183)
Share of loss from associate 4,872 1,198
Non-cash settlement of management fees 8 - (1,561)
Revaluation of contingent consideration 26 (4,038) (236)
Derecognition of contingent consideration - (352)
Hedging gain (1,695) -
Share based payment expense 23 4,928 1,938
Working capital changes:
(Increase)/decrease in trade and other receivables 20 (15,250) (13,628)
Increase/(decrease) in trade and other payables 26 (83,021) 12,289
(Increase) in digital assets 21 36,751 (80,331)
Net cash used in operating activities (70,663) (27,817)
Investing activities
Investment at fair value through profit or loss 15 - (220)
Acquisition of subsidiaries, net of cash acquired 17 - (664)
Cash disposed of on disposal of subsidiary 19 (1,357) -
Investment in associate 16 - (7,353)
Proceeds from sale of investment 15 - 772
Purchase of tangible fixed assets 19 (87,353) (78,972)
Proceeds from disposal of tangible fixed assets 10,028 -
Purchase of digital assets 22 - (15,009)
Proceeds from sale of digital assets 22 84,225 11,308
Mining equipment prepayment - (47,426)
Net cash used in investing activities 5,543 (137,564)
Financing activities
Proceeds from new loan issuance 27 78,418 22,239
Proceeds from issue of loan in conjunction with the disposal of subsidiary 19 8,033 -
Lease payments 26 75 (7,379)
Loan repayments 26 - (1,196)
Interest paid (18,321) (122)
Proceeds from debt issue - net of issue costs 26 - 26,908
Proceeds from shares issued - net of issue costs 23 - 134,684
Net cash generated from financing activities 68,055 175,133
Net increase in cash and cash equivalents 2,935 9,752
Effect of foreign exchange on cash and cash equivalents 1,924
Cash and cash equivalents at beginning of period 11,803 2,051
Cash and cash equivalents at end of period 16,662 11,803
Material non-cash movements:
● The Group sold its Helios facility during the year, in exchange
for paying down existing debt amounting to £70,764,000 and the issuance of
£25,356,000 of the new loan. See Note 19 for additional details.
● In March 2022, the Group entered into an agreement to exchange
mining machines and terminate a hosting agreement. See Note 19 for
additional details.
Group - net debt reconciliation Year ended Year ended
31 December 2022 31 December 2021
£'000 £'000
Current loans and borrowings 26 (9,624) (23,391)
Current lease liability (4) (7)
Non-current issued debt - bonds 26 (31,356) (26,908)
Non-current loans and borrowings 26 (21,492) (3,391)
Non-current liability - lease (448) (370)
Cash and cash equivalents 16,662 11,803
Total net debt (46,262) (42,264)
The directors also consider their digital assets of £2.1m (2021 - £80.7m) as
a liquid holding and as such net funds/(debt) would be £(44.2m) (2021 -
£65.4m).
COMPANY STATEMENT OF CASH FLOWS
Year ended December 2022 Year ended December 2021
Note £'000 £'000
Cash flows from operating activities
Loss before tax (138,633) (3,551)
Adjustments for:
Share of loss from associate 4,872 1,198
Fair value adjustment on contingent consideration (4,038) -
Foreign exchange movements (6,158) (409)
Share based payment expense 4,928 1,938
Loss on disposal of investment in subsidiary 104,252
Impairment of assets 15,120
Working capital changes:
(Increase)/decrease in trade and other receivables 20 8,142 (8,411)
Increase/(decrease) in trade and other payables 25 (3,328) 7,741
Net cash used in operating activities (14,843) (1,494)
Investing activities
Purchase of investments - (7,353)
(Increase)/decrease in loan to subsidiary 14,832 (154,075)
Net cash (used in(/generated from investing activities 14,832 (161,428)
Financing activities
Proceeds from debt issue - net of issue costs - 26,908
Proceeds from shares issued - net of issue costs - 134,684
Net cash generated from financing activities - 161,592
Net (decrease)/increase in cash and cash equivalents (11) (1,330)
Cash and cash equivalents at beginning of period 126 1,456
Cash and cash equivalents at end of period 115 126
Year ended Year ended
Company - net debt reconciliation 31 December 2022 31 December 2021
£'000 £'000
Non-current loans and borrowings 26 (31,356) (26,908)
Cash and cash equivalents 115 126
Total net (debt) / asset (31,241) (26,782)
NOTES TO THE FINANCIAL STATEMENTS
1. COMPANY INFORMATION
Argo Blockchain PLC ("the Company") is a public company, limited by shares,
and incorporated in England and Wales. The registered office is Eastcastle
House, 27-28 Eastcastle Street, London, W1W 8DH. The Company was incorporated
on 5 December 2017 as GoSun Blockchain Limited and changed its name to Argo
Blockchain Limited on 21 December 2017. Also on 21 December 2017, the Company
re-registered as a public company, Argo Blockchain plc. Argo Blockchain plc
acquired a 100% subsidiary, Argo Innovation Labs Inc. (together "the Group"),
incorporated in Canada, on 12 January 2018.
On 4 March 2021 the Group acquired 100% of the share capital of DPN LLC and
was merged into new US entity Argo Innovation Facilities (US) Inc (also 100%
owned by Argo Blockchain plc).
On 11 May 2021 the Group acquired 100% of the share capital of 9377-2556
Quebec Inc and 9366-5230 Quebec Inc. These are held by Argo Innovation Labs
Inc. (Canada).
On 22 November 2022, the Group formed Argo Operating US LLC and Argo Holdings
US Inc.
On 21 December 2022, Argo Innovation Facilities (US) Inc became Galaxy Power
LLC. On 28 December 2022, the Group sold Galaxy Power LLC.
The principal activity of the Group is that of Bitcoin mining.
The ordinary shares of the Company are listed under the trading symbol ARB on
the London Stock Exchange. The American Depositary Receipts of the Company are
listed under the trading symbol ARBK on Nasdaq. The Company bond is listed on
the Nasdaq Global Select Market under the trading symbol ARBKL.
The financial statements cover the year ended 31 December 2022.
2. BASIS OF PREPARATION
The financial statements have been prepared in accordance with UK-adopted
international accounting standards and with the requirements of the Companies
Act 2006. The financial statements have been prepared under the historical
cost convention, except for the measurement to fair value certain financial
and digital assets and financial instruments as described in the accounting
policies below.
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 thousand GBP. Argo Innovations Labs Inc., 9377-2556
Quebec Inc, and 9366-5230 Quebec Inc.'s functional currency is Canadian
Dollars; Argo Operating US LLC and Argo Holdings US Inc.'s functional currency
is United States Dollars; all entries from these entities are presented in the
Group's presentational currency of Sterling. Where the subsidiaries functional
currency is different from the parent, the assets and liabilities presented
are translated at the closing rate as at the Statement of Financial Position
date. Income and expenses are translated at average exchange rates (unless
this average is not a reasonable approximation of the cumulative effect of the
rates prevailing on the transaction dates, in which case income and expenses
are translated at the rate on the dates of the transactions).
Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from these
estimates. The significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation uncertainty are
disclosed in Note 6.
3. ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below.
Going Concern
The preparation of consolidated financial statements requires an assessment
on the validity of the going concern assumption. 2022 was a challenging year
for Bitcoin miners: the depressed price of Bitcoin and the elevated global
hashrate caused hashprice, the primary measure of mining profitability, to
reach all-time lows in Q4 2022. In addition, global events resulted in
disruption to fossil fuel energy markets which resulted in a significant
increase in electricity prices. The low hashprice and elevated power prices
significantly reduced Argo's profitability and its ability to generate free
cash flow. During Q4 2022, the Group evaluated several strategic alternatives
to restructure our balance sheet and improve our cash flow.
On 28 December 2022, the Group announced a series of transactions with Galaxy
Digital Holdings, Ltd. ("Galaxy") that improved the Group's liquidity position
and enabled the Group to continue its mining operations. As part of the
transactions, Argo sold the Helios facility and real property in Dickens
County, Texas to Galaxy for £54 million and refinanced existing asset-backed
loans via a new £29 million, three-year asset-backed loan with Galaxy. The
transactions reduced total indebtedness by £34 million and allowed Argo to
simplify its operating structure.
While the Galaxy transactions strengthened the Group's balance sheet, material
uncertainties exist that may cast significant doubt regarding the Group's
ability to continue as a going concern and meet its liabilities as they come
due. The significant uncertainties are:
1) The Group's debt service obligations of approximately
£22 million to 30 June 2024. Please see the net debt tables under the Group
and Company cash flow statements for further information of the Group's
exposure to liabilities and net position at the year end.
2) The Group's exposure to Bitcoin prices, power prices,
and hashprice, each of which have shown volatility over recent years and have
a significant impact on the Group's future profitability. The Group may have
difficulty meeting its liabilities if there are significant declines to the
hashprice assumption or significant increases to the power price, particularly
where there is a combination of both factors. The Directors' assessment of
going concern includes a forecast drawn up to 30 June 2024 using the Group's
estimate of the forecasted hashprice. Power costs are now also partially fixed
per kilowatt hour as Galaxy has hedged the majority of the power obligations
at Helios and, as per the hosting agreement in place, the Group has access to
this power. Anticipated power costs based on this arrangement are reflected in
the forecast prepared.
Offsetting these potential risks to the Group's cash flow are the Group's
current cash balance, the Group's ability to generate additional funds by
issuing equity for cash proceeds and selling certain non-core Group assets.
Based on information from Management, as well as independent advisors, the
directors have considered the period to 30 June 2024, as a reasonable time
period given the variable outlook of cryptocurrencies and the Bitcoin halving
due in April 2024. Based on the above considerations, the Board believes it is
appropriate to adopt the going concern basis in the preparation of the
Financial Statements. However, the Board notes that the significant debt
service requirements and the volatile economic environment, indicate the
existence of material uncertainties that may cast significant doubt regarding
the applicability of the going concern assumption and the auditors have made
reference to this in their audit report.
Revenue and Other Income Recognition
Mined income: The Group recognised revenue during the period in relation to
mined crypto. The Group enters into contracts with the mining pool. The
performance obligation is identified to be the delivery of crypto into the
Group's wallet once an algorithm has been solved. The transaction price is the
fair value of crypto mined, being the fair value per the prevailing market
rate for that crypto currency on the transaction date, and this is allocated
to the number of crypto mined. These criteria for performance obligation are
assessed to have occurred once the crypto has been received in the Group's
wallet. Mining earnings are made up of the baseline block reward and
transaction fees of between 5% to 10%, however, these are bundled together in
the daily deposits from mining and therefore are not capable of being analysed
separately.
Management fees: The Group recognised management fees on the services provided
to third parties for management of mining machines on their behalf, ensuring
the machines are optimised and mining as efficiently as possible. The
performance obligation is identified as the services are performed, and thus
revenue is recorded over time.
Other Income: The Group receives credits and or coupons for the purchase and
use of "Application-Specific Integrated Circuits ("ASICs") on a periodic basis
for Bitcoin Mining. These credits are provided to the Group after it purchases
ASICs based on the variance between the price paid by the Group versus the
reduction in ASIC prices. The credits are transferable. The Group elects to
sells the credits at the market rate to willing buyers upon receipt of the
credits. Other income is recognised at the date the sale is completed.
Derivative Contracts - Hedging: In 2022, the Group used derivatives contracts
in connection with some of its lending activities and its treasury management.
Derivative contracts are susceptible to additional risks that can result in a
loss of all or part of the investment. The Group's derivative activities and
exposure to derivative contracts are subject to interest rate risk, credit
risk, foreign exchange risk, and macroeconomic risks. In addition, Argo is
also subject to additional counterparty risks due to its potential inability
of its counterparties to meet the terms of their contracts. The Group
participates in both Future and Forward contracts as well as option contracts.
Some of these derivatives are listed on exchange whereas some of these are
traded over the counter.
Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the
Group has control. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases.
The Group re-assesses 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. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
The Group consists of Argo Blockchain plc and its wholly owned subsidiaries
Argo Innovation Labs Inc, Argo Operating US LLC, Argo Holdings US Inc.,
9366-5230 and 9377-2556.
In the parent company financial statements, investments in subsidiaries, joint
ventures and associates are accounted for at cost less impairment.
The consolidated financial statements incorporate those of Argo Blockchain plc
and all of its subsidiaries (i.e., entities that the Group controls through
its power to govern the financial and operating policies so as to obtain
economic benefits). Subsidiaries acquired during the year are consolidated
using the purchase method. Their results are incorporated from the date that
control passes. On the basis that Argo Innovation Labs Limited was dormant
during the year and is immaterial to the Group, it was not included in these
consolidated financial statements.
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.
Business Combinations
The Group applies the acquisition method to account for business combinations.
The consideration transferred for the acquisition of a subsidiary is the fair
values of the assets transferred, the liabilities incurred to the former
owners of the acquire and the equity interests issued by the Group. The
consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date. The Group recognises any non-controlling interest in the acquiree on an
acquisition-by-acquisition basis, either at fair value or at the
non-controlling interest's proportionate share of the recognised amounts of
acquiree's identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date
carrying value of the acquirer's previously held equity interest in the
acquiree is re-measured to fair value at the acquisition date; any gains or
losses arising from such re-measurement are recognised in profit or loss.
Contingent consideration is classified either as equity or as a financial
liability. Amounts classified as a financial liability are subsequently
remeasured to fair value, with changes in fair value recognised in profit or
loss.
Associates
Associates are all entities over which the Group has significant influence but
not control, generally accompanying a shareholding of between 20% and 50% of
the voting rights. Investments in associates are accounted for using the
equity method of accounting. Under the equity method, the investment is
initially recognised at cost, and the carrying amount is increased or
decreased to recognise the investor's share of the profit or loss of the
investee after the date of acquisition. The Group's investment in associates
includes goodwill identified on acquisition.
If the ownership interest in an associate is reduced but significant influence
is retained, only a proportionate share of the amounts previously recognised
in other comprehensive income is reclassified to profit or loss where
appropriate.
The Group's share of post-acquisition profit or loss is recognised in the
income statement, and its share of post-acquisition movements in other
comprehensive income is recognised in other comprehensive income with a
corresponding adjustment to the carrying amount of the investment. When the
Group's share of losses in an associate equal or exceeds its interest in the
associate, including any other unsecured receivables, the Group does not
recognise further losses, unless it has incurred legal or constructive
obligations or made payments on behalf of the associate.
The Group determines at each reporting date whether there is any objective
evidence that the investment in the associate is impaired. If this is the
case, the Group calculates the amount of impairment as the difference between
the recoverable amount of the associate and its carrying value and recognises
the amount adjacent to 'share of profit/(loss) of associates in the income
statement.
Gains and losses resulting from upstream and downstream transactions between
the Group and its associate are recognised in the Group's financial statements
only to the extent of unrelated investor's interests in the associates.
Unrealised losses are eliminated unless the transaction provides evidence of
an impairment of the asset transferred. Accounting policies of associates have
been changed where necessary to ensure consistency with the policies adopted
by the Group.
Dilution gains and losses arising in investments in associates are recognised
in the income statement.
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the CEO or
equivalent. The directors consider that the Group has only one significant
reporting segment being crypto mining which is fully earned by a Canadian and
USA subsidiary for the financial year ended 31 December 2022.
Loans and issued debt
Loans and issued debt are recognised initially at fair value, net of
transaction costs incurred. Loans and issued debt are subsequently carried at
amortised cost; any difference between the proceeds and the redemption value
is recognised in the income statement over the period of the borrowings, using
the effective interest method. Loans and issued debt are removed from the
statement of financial position when the obligation specified in the contract
is discharged, cancelled or expired. Loans and borrowings and issued debt are
classified as current liabilities unless the Group has an unconditional right
to defer settlement of a liability for at least 12 months after the end of the
reporting period.
Intangible assets
Intangible fixed assets comprise of the Group's website and digital assets
that were not mined by the Group and are held by Argo Labs (our internal team)
as investments. The Group's website is recognised at cost and are subsequently
measured at cost less accumulated amortisation and accumulated impairment
losses. Amortisation is recorded within administration expenses. Digital
assets recorded under IAS 38 have an indefinite useful life initially measured
at cost, and subsequently measured at fair value.
Argo's primary business is focused on cryptocurrency mining. Argo Labs is an
in-house innovation arm focused on identifying opportunities within the
disruptive and innovative sectors of the broader cryptocurrency ecosystem.
Argo Labs uses a portion of Argo's crypto assets to deploy into various
blockchain projects.
Increases in the carrying amount arising on revaluation of digital assets are
credited to other comprehensive income and shown as other reserves in
shareholders' equity. Decreases that offset previous increases of the same
asset are charged in other comprehensive income and debited against the fair
value reserve directly in equity; all other decreases are charged to the
income statement.
The fair value of intangible cryptocurrencies on hand at the end of the
reporting period is calculated as the quantity of cryptocurrencies on hand
multiplied by price quoted on www.coingecko.com (http://www.coingecko.com) ,
one of the leading crypto websites, as at the reporting date.
Costs relating to the development of website are capitalised once all the
development phase recognition criteria of IAS 38 "Intangible Assets" are met.
Amortisation is charged on a straight-line basis over the estimated useful
life of 5 years. The useful life represents management's view of the expected
period over which the Group will receive benefits from the Website, as well as
anticipation of future events which may impact their useful life, such as
changes in technology.
Goodwill is initially measured at cost (being the excess of the consideration
transferred and the amount recognised for non-controlling interests and any
previous interest held of the net identifiable assets acquires and liabilities
assumed). If the fair value of the net assets acquired is in excess of the
aggregate consideration transferred, the difference is recognised in profit or
loss.
If the business combination is achieved in stages, the acquisition date
carrying value of the acquirer's previously held equity interest in the
acquiree is remeasured to fair value at the acquisition date. Any gains or
losses arising from such remeasurement are recognised in profit or loss.
Tangible fixed assets
Tangible fixed assets comprise of right of use assets, office equipment,
mining and computer equipment, data centres, leasehold improvements, and
electrical equipment.
Right of use assets are measured at cost, less any accumulated depreciation
and impairment losses, and adjust for any remeasurement of lease liabilities.
The cost of the right of use assets includes the amount of lease liabilities
recognised, initial direct costs incurred, and lease payments made at or
before the commencement date less any lease incentives received. Right of use
assets are depreciated on a straight-line basis over the shorter of the lease
term and the estimated useful lives of the assets.
Office equipment assets are measured at cost, less any accumulated
depreciation and impairment losses. Office equipment is depreciated over 3
years on a straight-line basis.
Tangible fixed assets are initially measured at cost and subsequently measured
at cost or valuation, net of amortisation and any impairment losses. Cost
includes the original purchase price of the asset and any costs attributable
to bringing the asset to its working condition for its intended use. An item
of property, plant and equipment is recognised as an asset if it is probable
that future economic benefits associated with the asset will flow to the
entity, and the cost of the asset can be measured reliably.
Data centres: Depreciation on the data centres is recognised so as to write
off the cost or valuation of assets less their residual values over their
estimated useful lives of 25 years on a straight-line basis from when they are
brought into use. Depreciation is recorded in the Income Statement within
general administrative expenses once the asset is brought into use. Any land
component is not depreciated.
Mining and computer equipment and leasehold improvements: Depreciation is
recognised so as to write off the cost or valuation of assets less their
residual values over their estimated useful lives. It is 3 to 4 years in the
case of mining and computer equipment and 5 years in the case of the leasehold
improvements, on a straight-line basis. Depreciation is recorded in the
Statement of Comprehensive Income within direct costs.
Electrical equipment: Depreciation is recognised on a straight-line basis to
write off the cost less their residual values over their estimated useful
lives of 3 years.
Management assesses the useful lives based on historical experience with
similar assets as well as anticipation of future events which may impact their
useful life.
Impairment of non-financial assets
At each reporting period end date, the Group reviews the carrying amounts of
its non-financial 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 Group and Company estimates
the recoverable amount of the cash-generating unit to which the asset belongs.
Digital assets
Digital assets consist of mined bitcoin, and do not qualify for recognition as
cash and cash equivalents or financial assets and have an active market which
provides pricing information on an ongoing basis.
The Group has assessed that it acts in a capacity as a commodity broker-trader
as defined in IAS 2, Inventories, in characterising its holding of Digital
assets as inventory. If assets held by commodity broker-traders are
principally acquired for the purpose of selling in the near future and
generating a profit from fluctuations in price or broker-traders' margin, such
assets are accounted for as inventory, and changes in fair value (less costs
to sell) are recognised in profit or loss. Digital assets are initially
measured at fair value. Subsequently, digital assets are measured at fair
value with gains and losses recognised directly in profit or loss.
Digital assets are included in current assets as management intends to dispose
of them within 12 months of the end of the reporting period. Digital assets
are cryptocurrencies mined by the Group. Cryptocurrencies not mined by the
Group are recorded as Intangible Assets (see note 18).
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and demand
deposits with banks and other financial institutions, that are readily
convertible into known amounts of cash, and which are subject to an
insignificant risk of changes in value. The Group considers the credit risk on
cash and cash equivalents to be limited because the counterparties are banks
with high credit ratings assigned by international credit rating agencies.
Financial instruments
Financial assets: Financial assets are recognised in the Statement of
Financial Position when the Group becomes party to the contractual provisions
of the instrument. Financial assets are classified into specified categories.
The classification depends on the nature and purpose of the financial assets
and is determined at the time of recognition. Financial assets are
subsequently measured at amortised cost, fair value through OCI, or fair value
through profit and loss.
The classification of financial assets at initial recognition that are debt
instruments depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them. The Group
initially measures a financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss, transaction costs.
In order for a financial asset to be classified and measured at amortised
cost, it needs to give rise to cash flows that are 'solely payments of
principal and interest (SPPI)' on the principal amount outstanding. This
assessment is referred to as the SPPI test and is performed at an instrument
level.
The Group's business model for managing financial assets refers to how it
manages its financial assets in order to generate cash flows. The business
model determines whether cash flows will result from collecting contractual
cash flows, selling the financial assets, or both.
Subsequent measurement: For purposes of subsequent measurement, financial
assets are classified in four categories:
● Financial assets at amortised cost
● Financial assets at fair value through OCI with recycling of
cumulative gains and losses (debt instruments)
● Financial assets designated at fair value through OCI with no
recycling of cumulative gains and losses upon derecognition (equity
instruments)
● Financial assets at fair value through profit or loss
Equity Instruments: The Group subsequently measures all equity investments at
fair value. Dividends from such investments continue to be recognised in
profit or loss as other income when the Group's right to receive payments is
established. Changes in the fair value of financial assets at FVPL are
recognised in other gains/(losses) in the statement of profit or loss as
applicable.
Financial assets at amortised cost (debt instruments): This category is the
most relevant to the Group. The Group measures financial assets at amortised
cost if both of the following conditions are met:
● The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual cash flows;
and
● The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured using the
effective interest rate (EIR) method and are subject to impairment. Interest
received is recognised as part of finance income in the statement of profit or
loss and other comprehensive income. Gains and losses are recognised in profit
or loss when the asset is derecognised, modified or impaired. The Group's
financial assets at amortised cost include other receivables and cash and cash
equivalents.
Derecognition: A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised (i.e., removed from the Group's consolidated Balance sheet) when:
● The rights to receive cash flows from the asset have expired; or
● The Group has transferred its rights to receive cash flows from
the asset or has assumed an obligation to pay the received cash flows in full
without material delay to a third party under a 'pass-through' arrangement;
and either (a) the Group has transferred substantially all the risks and
rewards of the asset, or (b) the Group has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred
control of the asset
When the Group has transferred its rights to receive cash flows from an asset
or has entered into a pass-through arrangement, it evaluates if, and to what
extent, it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the Group continues to
recognise the transferred asset to the extent of its continuing involvement.
In that case, the Group also recognises an associated liability. The
transferred asset and the associated liability are measured on a basis that
reflects the rights and obligations that the Group has retained.
Impairment of financial assets: The Group recognises an allowance for expected
credit losses (ECLs) for all debt instruments not held at fair value through
profit or loss. ECLs are based on the difference between the contractual cash
flows due in accordance with the contract and all the cash flows that the
Group expects to receive, discounted at an approximation of the original EIR.
The expected cash flows will include cash flows from the sale of collateral
held or other credit enhancements that are integral to the contractual terms.
The Group recognises an allowance for ECLs for all debt instruments not held
at fair value through profit or loss. ECLs are based on the difference between
the contractual cash flows due in accordance with the contract and all the
cash flows that the Group expects to receive, discounted at an approximation
of the original EIR. For credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs are
provided for credit losses that result from default events that are possible
within the next 12-months (a 12-month ECL). For those credit exposures for
which there has been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit losses expected over the
remaining life of the exposure, irrespective of the timing of the default (a
lifetime ECL).
For the years ended 31 December 2022 and 2021 the Group has not recognised any
ECLs.
For other receivables due in less than 12 months, the Group applies the
simplified approach in calculating ECLs, as permitted by IFRS 9. Therefore,
the Group does not track changes in credit risk, but instead, recognises a
loss allowance based on the financial asset's lifetime ECL at each reporting
date.
The Group considers a financial asset in default when contractual payments are
90 days past due. However, in certain cases, the Group may also consider a
financial asset to be in default when internal or external information
indicates that the Group is unlikely to receive the outstanding contractual
amounts in full before taking into account any credit enhancements held by the
Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows and usually occurs when
past due for more than one year and not subject to enforcement activity.
At each reporting date, the Group assesses whether financial assets carried at
amortised cost are credit impaired. A financial asset is credit-impaired when
one or more events that have a detrimental impact on the estimated future cash
flows of the financial asset have occurred. The Company has an Intercompany
loan due from its 100% Canadian subsidiary for which there is no formal
agreement including payment date and therefore it cannot be considered to be
in breach of an agreement and accordingly the loan is not subject to
adjustments and is maintained at its book value in the financial statements.
Financial liabilities: Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value through profit or loss,
loans and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. All financial liabilities
are recognised initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable transaction costs. The
Group's financial liabilities include trade and other payables and loans.
Subsequent measurement: The measurement of financial liabilities depends on
their classification, as described below:
Loans and trade and other payables: After initial recognition,
interest-bearing loans and borrowings and trade and other payables are
subsequently measured at amortised cost using the EIR method. Gains and losses
are recognised in the statement of profit or loss and other comprehensive
income when the liabilities are derecognised, as well as through the EIR
amortisation process.
Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR
amortisation is included as finance costs in the statement of profit or loss
and other comprehensive income. This category generally applies to trade and
other payables.
Derecognition: A financial liability is derecognised when the associated
obligation is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability
are substantially modified, such an exchange or modification is treated as the
derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognised in
profit or loss or other comprehensive income.
Equity instruments: Equity instruments issued by the Group are recorded at the
proceeds received, net of transaction costs. Dividends payable on equity
instruments are recognised as liabilities once they are no longer at the
discretion of the Group. Incremental costs directly attributable to the issue
of new shares or options are shown in equity as a deduction, net of tax, from
the proceeds.
Leases
At inception of a contract, the Group assesses whether a contract is, or
contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Group uses the definition of a
lease in IFRS 16.
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying
asset or to restore the underlying asset or the site on which it is located,
less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the end of the lease term, unless the
lease transfers ownership of the underlying asset to the Group by the end of
the lease term or the cost of the right-of-use asset reflects that the Group
will exercise a purchase option. In that case the right-of-use asset will be
depreciated over the useful life of the underlying asset, which is determined
on the same basis as those of property and equipment. In addition, the
right-of-use asset is periodically reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the Group's incremental borrowing rate. Generally, the Group uses
its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest
rates from various external financing sources and makes certain adjustments to
reflect the terms of the lease and type of the asset leased. The lease
liability is measured at amortised cost using the effective interest method.
It is remeasured when there is a change in future lease payments.
When the lease liability is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use asset or is recorded in
profit or loss if the carrying amount of the right-of-use asset has been
reduced to zero.
Taxation
The tax expense represents the sum of tax currently payable or receivable and
deferred tax.
Current tax: The tax currently payable or receivable is based on taxable
profit or loss for the year. Taxable profit or loss differs from net profit or
loss 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 reporting end date.
Deferred tax: Deferred 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. Deferred income tax assets
are recognised on deductible temporary differences arising from investments in
subsidiaries, associates and joint arrangements only to the extent that it is
probable the temporary difference will reverse in the future and there is
sufficient taxable profit available against which the temporary difference can
be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting end
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.
Deferred tax is charged or credited to the income statement, except when it
relates to items charged or credited directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax assets and liabilities
are offset when the Company has a legally enforceable right to offset current
tax assets and liabilities and the deferred tax assets and liabilities relate
to taxes levied by the same tax authority.
Employee benefits
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
non-current assets.
The cost of any unused holiday entitlement is recognised in the period in
which the employee's services are received.
Termination benefits are recognised immediately as an expense when the Company
is demonstrably committed to terminate the employment of an employee or to
provide termination benefits.
The Group does not have any pension schemes.
Share-based payments
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
the Black-Scholes model. 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 condition 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.
As a result of the increase in share price and the impact of the estimation of
share-based payments the Group has now recognised an expense for the
outstanding share options and warrants.
Foreign exchange
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 determined in
foreign currencies are retranslated at the rates prevailing on the reporting
end date - Gains and losses arising on translation are included in the income
statement for the period. At each reporting end date, non-monetary assets and
liabilities that are determined in foreign currencies are retranslated at the
rates prevailing on the opening balance sheet date. Gains and losses arising
on translation of subsidiary undertakings are included in other comprehensive
income and contained within the foreign currency translation reserve.
Earnings per share
Basic earnings per share is calculated by dividing:
● the profit attributable to owners of the Company, excluding any
costs of servicing equity other than ordinary shares;
● by the weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in ordinary shares
issued during the year and excluding treasury shares.
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account:
● the after-income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares; and
● the weighted average number of additional ordinary shares that
would have been outstanding, assuming the conversion of all dilutive potential
ordinary shares.
4. FINANCIAL RISK FACTORS
The Group's activities expose it to a variety of financial risks: market risk,
credit risk and liquidity risk. The Group's overall risk management programme
seeks to minimise potential adverse effects on the Group's financial
performance. Risk management is undertaken by the Board of Directors.
Market Risk
The Group is dependent on the state of the cryptocurrency market, sentiments
of crypto assets as a whole, as well as general economic conditions and their
effect on exchange rates, interest rates and inflation rates. During the year
the Group sold its digital assets held at 31 December 2021 at a significant
loss. The Group now sells its Bitcoin production as it is mined to reduce the
impact of Bitcoin prices.
The Group is also subject to market fluctuations in foreign exchange rates.
The subsidiary (Argo Innovation Labs Inc.) is based in Canada, and transacts
in CAD$, USD$ and GBP. 9377-2556 Quebec Inc. and 9366-5230 Quebec Inc. are
based in Canada and transact in CAD. Argo Innovations Facilities (US) Inc.,
Argo Holdings US Inc. and Argo Operating US LLC are located in the United
States of America and transacts in USD. The Group bond is denominated in USD.
Cryptocurrency is primarily convertible into fiat through USD currency pairs
and through USD denominated stable coins and is the primary method for the
Group for conversion into cash. The Group maintains bank accounts in all
applicable currency denominations.
Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonable possible
change in USD and CAD exchange rates, with all other variables held constant.
The impact on the Group's profit before tax is due to changes in the fair
value of monetary assets and liabilities.
Change in USD rate Effect on profit before tax Effect on pre-tax equity
£'000 £'000
2022 +/-10% +/- 4,302 -
2021 +/-10% +/-250 +/-87
Change in CAD rate Effect on profit before tax Effect on pre-tax equity
£'000 £'000
2022 +/-10% +/- 1,471 -
2021 +/-10% +/-1,611 +/-3,208
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonable possible
change in interest rates on the portion of the loans and borrowings affected.
With other variables held constant, the impact on the Group's profit before
tax is affected through the impact on floating rate borrowings, as follows.
Increase/decrease in basis points Effect on profit before tax
£'000
2022 +/-180 +/-522
2021 0% +/-0
Credit risk
Credit risk arises from cash and cash equivalents as well as any outstanding
receivables. Management does not expect any losses from non-performance of
these receivables. The amount of exposure to any individual counter party is
subject to a limit, which is assessed by the Board.
The Group considers the credit risk on cash and cash equivalents to be limited
because the counterparties are banks with high credit ratings assigned by
international credit rating agencies. However, the banking sector is not
currently favourable toward crypto based businesses in all of the
jurisdictions that the Group operates and as such the Group has opened
accounts with a number of Tier 2 banks in order to mitigate the risk of an
account being deactivated or closed by the bank. Management continues to
assess various opportunities to partner with FDIC-insured banks and or
financial institutions.
The Company considers the intercompany loan to its subsidiary (Argo Innovation
Labs Inc.) to be fully recoverable based on review of projected cash flows and
acceptance of regular payments directly to the Company's creditors.
The carrying amount of financial assets recorded in the financial statements
represent the Group's and Company's maximum exposure to credit risk. The Group
and Company do not hold any collateral or other credit enhancements to cover
this credit risk.
Liquidity risk
Liquidity risk arises from the Group's management of working capital. It is
the risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due.
Management updates cashflow projections on a regular basis and closely
monitors the cryptocurrency market on a daily basis. Accordingly, the Group's
controls over expenditure are carefully managed, in order to maintain its cash
reserves. The Treasury committee meets on a weekly basis to make decisions
around future cashflows and working capital requirements. Decisions may
include considering debt/equity options alongside selling Bitcoin.
The table below analyses the Group's non-derivative financial liabilities and
net-settled derivative financial liabilities into relevant maturity groupings,
based on the remaining period at the Statement of Financial Position to the
contractual maturity date. Derivative financial liabilities are included in
the analysis if their contractual maturities are essential for an
understanding of the timing of the cash flows. The amounts disclosed in the
table are the contractual undiscounted cash flows.
The Group complied with all covenants during the year and through the
reporting date.
Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years
At 31 December 2022
Loans 9,624 11,314 10,178 -
Lease liabilities 4 8 12 424
Issued debt - bonds - - 31,356 -
At December 2021
Loans 23,901 2,188 693 -
Lease liabilities 21 42 63 251
Issued debt - bonds - - 26,908 -
Capital risk management
The Group's objectives when managing capital is to safeguard the Group's
ability to continue as a going concern, in order to provide returns for
shareholders and benefits for other stakeholders, and to maintain an optimal
capital structure. In order to maintain or adjust the capital structure, the
Group may adjust the amount of dividends paid to shareholders, return capital
to shareholders or issue new shares.
The Group carefully monitors its EBITDA vs. debt, net assets vs. debt and
market capitalisation vs. debt ratios. Please see the net debt tables below
the cashflows and note 27 showing the fair value hierarchy of liabilities.
5. ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS
The Group has adopted all recognition, measurement and disclosure requirements
of IFRS, including any new and revised standards and Interpretations of IFRS,
in effect for annual periods commencing on or after 1 January 2022. The
adoption of these standards and amendments did not have any material impact on
the financial result or position of the Group.
At the date of authorisation of these financial statements, the following
Standards and Interpretation, which have not yet been applied in these
financial statements, were in issue but not yet effective:
Standard or Interpretation Description Effective date for annual accounting period beginning on or after
IAS 1 Amendments - Presentation and Classification of Liabilities TBC
IFRS 16 Amendments - Lease liability in a sale and leaseback TBC
IAS 1 Amendments - Disclosure of Accounting Policies 1 January 2023
IAS 8 Amendments - Definition of Accounting Estimates 1 January 2023
IAS 12 Amendments - Deferred Tax related to Assets and Liabilities arising from a 1 January 2023
Single Transaction
IAS 17 Amendments - Insurance Contracts 1 January 2023
The Group has not early adopted any of the above standards and intends to
adopt them when they become effective.
6. KEY JUDGEMENTS AND ESTIMATES
In the application of the Group's accounting policies, the directors are
required to make judgements, estimates and assumptions about the carrying
amount 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 where the revision affects only that period, or in the
period of the revision and future periods where the revision affects both
current and future periods.
The estimates and assumptions which have a significant risk of causing a
material adjustment to the carrying amount of assets and liabilities are
outlined below.
Valuation of tangible and intangible fixed assets - Notes 18 and 19
The directors considered whether any impairments were required on the value of
the property, plant and equipment. In doing so they made use of forecasts of
revenues and expenditure prepared by the Group and came to the conclusion that
impairment of those assets were required based on current forecasts. Key
assumptions include Bitcoin production, hashprice and the discount rate.
The assets held within Argo Labs are classified as intangible assets. Any
impairment of these assets is reflected in the income statement and any
increases in fair value are reflected in the fair value reserve. Argo Labs is
an in-house innovation arm focused on identifying opportunities within the
disruptive and innovative sectors of the broader cryptocurrency ecosystem.
Argo Labs uses a portion of Argo's crypto assets to deploy into various
blockchain projects.
Valuation of investments in subsidiaries and amounts due from group companies
- Note 20
The Board considered amounts due from group companies and whether any further
impairments were required on their carrying value. When considering these
amounts they made use of forecasts of the profitability of the subsidiary and
of their revenues and expenditure and concluded that impairment of those
assets was unnecessary based on current forecasts and performance during the
first part of 2023.
The forecasts to support this were built using our existing internal models
showing positive cash contribution and profitability of the subsidiaries and
their future value to the Group as a whole. Both pre and post year end these
models continue to show that the contribution to the Group is at least the
carrying value of these investments and as such no impairment has been
recognised.
Share-based payments - Note 22
During the year (and in previous years) share based payments were made based
on the fees due to certain individuals for services to be performed by them in
the future. In calculating these payments, where possible the Directors
consulted with professional advisers to establish the market rate for these
services. In addition to this, the Company has also issued warrants and
options to Directors, consultants and employees which have been valued in
accordance with the Black Scholes model. Significant estimation and judgement
is required by the directors when using the Black Scholes method. Further
details of these estimates are available in note 22.
Investments accounted for using the equity method - Note 16
The Group holds significant influence over certain entities that are accounted
for under the equity method of accounting. The shareholdings and nature of
relationship details are in Note 16. The equity accounted loss has been
calculated based on the latest management accounts made available by the
investee company, which were unaudited.
Contingent liabilities - Notes 13 and 28
The Group is subject to tax liabilities as assessed by the tax authorities in
the jurisdictions in which it operates. The Group has recorded its tax
liabilities based on the information which it has available, as described in
Note 13. However, a tax authority could challenge our allocation of income and
transfer pricing, or assert that we are subject to a tax in a jurisdiction
where we believe we have not established a taxable connection. If successful,
these challenges could increase our expected tax liability in one or more
jurisdictions. The Group is also subject to a class action lawsuit as
described in Note 28 and no accrual has been made as there is no basis to
estimate any liability.
7. REVENUES
Year ended Year ended
31 December 2022 31 December 2021
£'000 £'000
Crypto currency mining - worldwide 47,267 70,325
Crypto currency management fees - United States 96 3,879
Total revenue 47,363 74,204
Due to the nature of Cryptocurrency mining, it is not possible to provide a
geographical split of the revenue stream.
Cryptocurrency mining revenues are recognised at a point in time.
Cryptocurrency management fees are services recognised over time.
Other Income
Argo held 2,441 Bitcoin (fair valued at £80m as at 31 December 2021) on its
balance Sheet at the beginning of 2022. The Group used up to 1,504 Bitcoins as
collateral with Galaxy Digital LP for a short-term payable on demand loan of
USD$30 million (£22.2m) taken out on December 23, 2021. To protect its
Bitcoin holdings used as collateral for the loan and reduce overall exposure,
Argo took positions in the markets which resulted in a net hedge gain of
£1.7m for 2022.
2022 2021
Gain on Hedging £'000 £'000
Gain on Hedging 1,695 -
Total gain on hedging 1,695 -
8. EXPENSES BY NATURE
2022 2021
Direct Costs £'000 £'000
Depreciation of mining hardware 16,549 11,129
Hosting and other costs 21,634 11,057
Total direct costs 38,183 22,186
2022 2021
Administrative expenses £'000 £'000
Legal, professional, and regulatory fees 12,763 1,533
Salary and other employee related costs 9,610 2,662
Depreciation and amortisation 6,900 382
Insurance 6,027 1,408
Indirect taxes 3,684 -
Freight, postage & delivery 1,314 -
Consulting fees 828 684
Repairs and maintenance 863 692
Office general expenses 840 424
Travel 678 128
Public relations and associated activities 519 699
Impairment of intangible assets - 535
Hedging costs - 326
Carbon credits - 252
Audit fees 310 239
Bank charges 240 247
Capital loss 116 -
Research costs 91 -
Write off of variable contingent consideration - (352)
Settlement re Crypto mining management fees - (1,561)
Foreign exchange gain (loss) (17,250) 589
Total operating costs and administrative expenses 27,534 8,887
2022 2021
Finance Costs £'000 £'000
Interest on loans, including associated prepayment penalties 18,321 2,142
Total finance costs 18,321 2,142
9. AUDITOR'S REMUNERATION
2022 2021
£'000 £'000
In relation to statutory audit services 251 170
Other audit assurance services 59 52
Total auditor's remuneration 310 222
10. EMPLOYEES
The average monthly number of persons (including directors) employed by the
Group during the period was:
2022 2021
Number Number
Directors and employees 82 26
Their aggregate remuneration comprised:
2022 2021
£'000 £'000
Wages and salaries 8,934 2,286
Social security costs 646 199
Pension costs 30 25
Share based payments 4,928 1,392
14,538 3,902
The average monthly number of persons (including directors) employed by the
Company during the period was:
2022 2021
Number Number
Directors and employees 6 4
Their aggregate remuneration comprised:
2022 2021
£'000 £'000
Wages and salaries 1,072 406
Social security costs 44 8
Pension costs 12 1
Share based payments 4,928 330
6,056 745
11. DIRECTOR'S REMUNERATION
2022 2021
£'000 £'000
Director's remuneration for qualifying services 1,285 856
Senior management loss of office - 132
Share based payments 1,522 431
Total remuneration for directors and key management 2,807 1,419
The amounts above are remunerated through both salaries (of which, some are
included in 10) and through service companies (as disclosed in note 29).
Further details of Directors' remuneration are available in the Remuneration
report. The highest paid director during the year earned £588k (2021 -
£455k).
12. EARNINGS PER SHARE
The basic earnings per share is calculated by dividing the profit/(loss)
attributable to equity shareholders by the weighted average number of shares
in issue.
The Group and Company has in issue 18,698,304 warrants and options at 31
December 2022 (2021: - 17,688,897).
2022 2021
Net profit/(loss) for the period attributable to ordinary equity holders from (194,321) 30,765
continuing operations (£'000)
Weighted average number of ordinary shares in issue ('000) 473,930 397,513
Basic earnings (loss) per share for continuing operations (pence) (40.98) 7.7
Net profit/(loss) for the period attributable to ordinary equity holders for (194,321) 30,765
continuing operations (£'000)
Diluted number of ordinary shares in issue ('000) 473,930 415,201
Diluted earnings (loss) per share for continuing operations (pence) (40.98) 7.4
The diluted loss per Ordinary Share is calculated by adjusting the weighted
average number of Ordinary Shares outstanding to consider the impact of
options, warrants and other dilutive securities. As the effect of potential
dilutive Ordinary Shares in the current year would be anti-dilutive, they are
not included in the above calculation of dilutive earnings per Ordinary Share
for 2022.
13. TAXATION
Current tax: 2022 2021
£'000 £'000
Current tax on (loss)/profit for the year (8,316) 7,679
Adjustments in respect of prior periods - -
Total current tax (8,316) 7,679
Deferred tax: 2022 2021
£'000 £'000
Origination and reversal of temporary differences 7,955 827
Total deferred tax liability 7,955 827
Total tax (credit)/charge (361) 8,506
No deferred tax has been recognised on the losses brought forward and carried
interest on the UK, Canada and US losses given the uncertainty on the
generation of future profits.
Income tax expense
The tax on the Group's profit before tax differs from the theoretical amount
that would arise using the weighted average tax rate applicable to profits of
the consolidated entities as follows:
2022 2021
£'000 £'000
Profit (loss) before taxation (194,592) 39,271
(48,648) 9,746
Expected tax charge (recovery) based on a weighted average of 25% (2021 - 25%)
(UK, US and Canada)
Effect of expenses not deductible in determining taxable profit 26,406 1,779
Capital allowances in excess of depreciation 6,848 (3,770)
Other tax adjustments 205 (137)
Other timing differences - (385)
Origination and reversal of temporary differences (827) 827
Unutilised tax losses carried forward 15,655 445
Taxation charge in the financial statements (361) 8,506
Total tax (credit)/charge (361) 8,506
No deferred tax has been recognised on the losses brought forward and carried
interest on the UK, Canada and US losses given the uncertainty on the
generation of future profits.
Income tax expense
The tax on the Group's profit before tax differs from the theoretical amount
that would arise using the weighted average tax rate applicable to profits of
the consolidated entities as follows:
2022 2021
£'000 £'000
Profit (loss) before taxation (194,592) 39,271
(48,648) 9,746
Expected tax charge (recovery) based on a weighted average of 25% (2021 - 25%)
(UK, US and Canada)
Effect of expenses not deductible in determining taxable profit 26,406 1,779
Capital allowances in excess of depreciation 6,848 (3,770)
Other tax adjustments 205 (137)
Other timing differences - (385)
Origination and reversal of temporary differences (827) 827
Unutilised tax losses carried forward 15,655 445
Taxation charge in the financial statements (361) 8,506
The Group has tax losses available to be carried forward and used against
trading profits arising in future periods of approximately £34,000,000 (2021
- £10,476,000).
The weighted average applicable tax rate was 25% (2021: 25%).
The movement in deferred income tax assets and liabilities during the year,
without taking into consideration the offsetting of balances within the same
tax jurisdiction, is as follows:
Deferred tax liabilities 2022 2021
£'000 £'000
Digital assets (286) 286
Gain on fair value of property acquired (see note 17) 442 442
Share of other comprehensive income of associates - 99
Property, plant and equipment 8,626 -
Total deferred tax 8,782 827
Current portion 2,196 286
Non-current 6,586 541
A tax authority may disagree with tax positions that we have taken, which
could result in increased tax liabilities. For example, Her Majesty's Revenue
& Customs ("HMRC"), the IRS or another tax authority could challenge our
allocation of income by tax jurisdiction and the amounts paid between our
affiliated companies pursuant to our intercompany arrangements and transfer
pricing policies, including amounts paid with respect to our intellectual
property development. Similarly, a tax authority could assert that we are
subject to tax in a jurisdiction where we believe we have not established a
taxable connection and such an assertion, if successful, could increase our
expected tax liability in one or more jurisdictions.
14. INVESTMENT IN SUBSIDIARIES AND LOSS ON SALE OF SUBSIDIARY
Company
Details of the Company's subsidiaries at 31 December 2022 and 31 December 2021
are as follows:
Name of Undertaking Country of Incorporation Ownership Interest (%) Voting Power Held (%) Nature of Business
Argo Innovation Labs Inc. Canada 100% 100% ***
Argo Innovation Labs Limited UK 100% 100% Dormant
Argo Innovation Facilities (US) Inc. USA 100% 100% *
9377-2556 Quebec Inc. Canada 100% 100% **
9366-5230 Quebec Inc. Canada 100% 100% **
Argo Holdings US Inc. USA 100% 100% ****
Argo Operating US LLC USA 100% 100% *
* The provision of cryptocurrency mining services
** The provision of cryptocurrency mining sites
*** Converted from the provision of cryptocurrency mining services to cost
centre in 2022
**** Holding company
Investment in subsidiaries 2022 2021
£'000 £'000
At 1 January 12,181 -
Additions 53,494 12,181
Disposals (12,181) -
At 31 December 53,494 12,181
The cost of the investment above is in respect of the DPN LLC acquisition
further detail can be found in note 19.
9377-2556 Quebec Inc. and 9366-5230 Quebec Inc. are the GPU.One subsidiaries
acquired on 11 May 2021 with registered addresses of 8 avenue William Dobell,
Baie-Comeau, Quebec G4Z 1T7 and 10205 Irene Vachon, Mirabel, Quebec J7N 3E3
respectively. More information on this acquisition can be found in note 17.
Argo Holdings US Inc. was incorporated on November 22, 2022, with a registered
office of 1209 Orange Street, Wilmington, Delaware, USA, 19801. The Company
contributed shares in Argo Innovation Facilities (US) valued at £53.5m.
Argo Operations US LLC was formed on November 22, 2022, with a registered
office of 1209 Orange Street, Wilmington, Delaware, USA, 19801.
Argo Innovation Facilities (US) Inc was incorporated on 25 February 2021 with
a registered address of 2028 East Ben White Blvd. Austin, TX 78740. This
entity held the Helios facility and real property in Dickens County, Texas. On
21 December 2022, Argo Innovation Facilities (US) Inc. was converted to Galaxy
Power LLC. Galaxy Power LLC was sold on 28 December 2022 pursuant to an equity
purchase agreement. The proceeds received for the sale were £53.0 million
against a book value £97.8 million resulting in a loss on sale for the Group
of £44.8 million.
The effects of the disposal of Galaxy Power LLC on the cash flows of the Group
were:
Group at 28 December 2022
Carrying amounts of assets and liabilities as at the date of disposal: £'000
Cash and bank balances 1,357
Property, plant and equipment 104,888
Trade and other debtors 297
Total assets 106,542
Trade and other creditors 9,764
Total liabilities 9,764
Net assets disposed of 96,778
Cash inflows arising from disposal:
Proceeds used to paydown existing debt 70,654
Issuance of new loan (25,356)
Proceeds received in cash for new loans 6,676
Total Proceeds 51,974
Net assets disposed of (as above) 96,778
Loss on disposal (44,804)
15. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Non-current 2022 2021
Group £'000 £'000
At 1 January 403 1,393
Foreign exchange movement 20 -
Additions 249 219
Fair value through profit or loss (328) 183
Disposals - (1,392)
At 31 December 344 403
16. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
2022 2021
£000's £000s
Opening balance 13,817 -
Acquired during the period - 8,444
Share of loss (4,872) (1,198)
Share of fair value (losses)/gains on intangible assets through other (6,571) 6,571
comprehensive income
Closing balance 2,374 13,817
Set out below are the associates of the Group as at 31 December 2022, which,
in the opinion of the Directors, significant influence is held. The associate
as listed below has share capital consisting solely of ordinary shares, which
are held directly by the Group. The country of incorporation or registration
is also their principal place of business.
Nature of investment in associates:
Name of entity Address of the registered office % of ownership interest Nature of relationship Measurement method
Emergent Entertainment PLC (Previously Pluto Digital plc) Hill Dickinson LLP, 8th Floor The Broadgate Tower, 20 Primrose Street, London, 19.94% Refer below Equity
United Kingdom, EC2A 2EW
On 3 February 2021 Argo invested in Pluto Digital PLC ("Pluto"), a crypto
venture capital and technology company. The investment was satisfied with
75,000 Polkadot with a fair value at that date of £1.1m. Further to this in a
second round of funding the Group invested an additional £7.4m on 8 March
2021.
In addition, Argo holds 121,666,666 warrants at a price of £0.12 each and
35,450,000 warrants at a price of £0.06 each. If Pluto was fully diluted
Argo's ownership would be 33.26% as at 31 December 2022 including the exercise
of the share warrants.
The warrants expired unexercised in February and March 2023.
In October 2022, Pluto merged with Maze Theory to become Emergent
Entertainment PLC ("Emergent").
Argo owns 19.94% (2021 - 24.65%) of the total share capital and voting rights
of the business. The Group retains the right to appoint a board member from
Argo on Emergent's board based on its current ownership percentage.
Emergent Entertainment PLC is a next-generation entertainment company that
brings storytellers and their audiences closer together by harnessing new
technologies including virtual reality, augmented reality, artificial
intelligence and blockchain.
Emergent Entertainment is a private company and there is no quoted market
price available for its shares.
There are no contingent liabilities relating to the Group's interest in the
associates.
The audited financial information for the period ended 30 September 2021,
together with the unaudited management accounts for the period from 1 October
2021 to 31 December 2022, have been made available by Emergent to the Group
and the figures in the above represent Argo's share of the loss for the period
and movements in the fair value of the net assets (net of deferred tax).
Summarised financial information for associates
Set out below is the preliminary, unaudited financial information for Emergent
Entertainment PLC which is accounted for using the equity method.
Summarised Statement of Financial Position
Current As at December 31, 2022 As at December 31, 2021
£000's £000's
Cash and cash equivalents 2,964 1,759
Other current assets (excluding cash) 3,650 335
Total current assets 6,614 2,094
Trade payables 280 88
Other current liabilities 74 1,494
Total current liabilities 354 1,582
Non-current
Tangible fixed assets 106 49
Investments and other non-current assets 11,596 56,000
Total non-current assets 11,702 56,049
Financial liabilities 4,809 2,807
Total non-current liabilities 4,809 2,807
Net assets 13,153 53,754
Summarised Statement of Comprehensive Income, Emergent Entertainment PLC
2022 January 12 to December 31, 2021
£000's £000's
Revenue 352 -
Cost of sales (224) -
Gross profit (128) -
Operating costs (12,088) 7,652
Revaluation loss - digital assets (12,810) (2,394)
Loss from operations (24,770) 5,258
Non-operating costs (209) -
Income tax expense (recovery) (2,579) 575
Post-tax loss (23,400) 4,867
Other comprehensive income (26,991) 26,991
Total comprehensive income (loss) (49,391) 21,824
The information above reflects the amounts presented in the financial
statements of the associate (and not Argo Blockchain Plc's share of those
amounts) adjusted for differences in accounting policies between the Group and
the associate.
Reconciliation of summarised financial information
2022 2021
£000's £000's
Summarised financial information (as adjusted)
Net assets, opening 56,052 -
Acquired during the period - 34,228
Profit/(loss) for the period (22,400) (4,867)
Other comprehensive income (26,991) 26,691
Closing net assets 6,661 56,052
Interest in associates (2022: 19.94%; 2021: 24.65%)* 2,374 13,818
Goodwill - -
Carrying value 2,374 13,818
*The percentage share of the associate profit or loss for the year was
calculated and recorded on a month by month basis, based on the movements in
the percentage ownership, from the unaudited management accounts.
17. BUSINESS COMBINATION
GPU.One subsidiaries acquired from GPU.One Holding Inc.
On 11 May 2021, the Group acquired 100% of the share capital of GPU.One
9377-2556 Quebec Inc. and GPU.One 9366-5230 Quebec Inc. from its shareholder
GPU.One Holding Inc. for a total consideration of £5.5m; consisting of £212k
being satisfied in cash and the balance satisfied by the cancellation of
certain prepayments and deposits previously paid by Argo to the vendor. Each
of these acquired entities owned and operated a data centre within which Argo
was the lead tenant.
The acquisition was performed to enable the Group to obtain control of its
hosting facility and power costs across its facilities in Canada. From
acquisition on 11 May 2021 to 31 December 2021 the GPU.One subsidiaries loss
amounted to £3.4m which is fully consolidated. No revenue has been generated
from these entities since acquisition, however both entities have provided
hosting services to Argo Innovation Labs Inc. Both GPU.One entities were
dormant up until the date of acquisition, when the relevant assets and
liabilities acquired were transferred by GPU.One Holding Inc. to these
entities immediately prior to acquisition. There is no difference between the
amount consolidated within profit and loss and the amount which would have
been consolidated if the acquisition happened on 1 January 2021.
The consideration was negotiated on an arm's length basis and primarily on the
basis of the valuation of the land and buildings being acquired. The directors
attribute the consideration as fair value of the land and buildings with no
goodwill being recognised as currently Argo does not anticipate hosting any
third parties at these sites in the medium term.
The fair values of the acquisition date assets and liabilities, together with
any separately identifiable intangible assets, have been provisionally
determined at 30 September 2021 because the acquisition was completed late in
the period. The Group is currently obtaining the information necessary to
finalise its valuation.
On a £1 for £1 basis certain deposits and other receivables totalling £668k
were acquired. The directors consider these amounts fully recoverable and as
such these receivables have not been impaired. Liabilities assumed are
incorporated at their cost.
The following table summarises the consideration paid for the GPU.One
subsidiaries and the fair value of assets acquired and liabilities assumed at
the acquisition date:
Consideration
£'000
Cash 213
Payment for deposits 668
Cancellation of prepayment and deposits 4,656
Total consideration 5,537
Recognised amounts of identifiable assets acquired, and liabilities assumed
£'000
Cash and cash equivalents 4
Property, plant and equipment (Note 11) 10,779
Trade and other receivables 387
Trade and other payables (326)
Property mortgages (5,010)
Lease liability (377)
Goodwill 80
Total 5,537
Fair value of assets acquired was assessed in line with independent valuations
provided by CBRE of the sites. Given the continued demand for power sites and
data centres in North America the Directors consider the valuations to be
prudent, however they are still in line with the fair value and consideration
paid for the entities, primarily (as discussed above) for Argo to gain access
to the low cost of power and direct control of management of the miners at
those sites. No acquisition costs have been recognised in the above
calculations.
18. INTANGIBLE FIXED ASSETS
Group Goodwill Digital assets Website 2022
Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2022 80 5,303 671 6,054
Additions - 1,728 - 1,728
Disposals - (2,058) - (2,058)
At 31 December 2022 80 4,973 671 5,724
Amortisation and impairment
At 1 January 2022 - 121 450 571
Foreign exchange movement (1,321) (18) (1,339)
Fair value movement 4,601 - 4,601
Amortisation charged during the period - - 147 147
At 31 December 2022 - 3,309 579 3,888
Balance at 31 December 2022 80 1,572 92 1,744
Group Goodwill Digital assets Website 2021
Total
£'000 £'000 £'000 £'000
Cost
At 1 January 2021 - - 671 671
Additions 80 18,216 - 18,296
Disposals - (12,792) - (12,792)
At 31 December 2021 80 5,424 671 6,175
Amortisation and impairment
At 1 January 2021 - - 303 303
Foreign exchange movement - - 9 9
Impairment - 535 - 535
Fair value gain (414) - (414)
Amortisation charged during the period - - 138 138
At 31 December 2021 0 121 450 571
Balance at 31 December 2021 80 5,303 221 5,604
Digital assets are cryptocurrencies not mined by the Group. The Group held
crypto assets during the year, which are recorded at cost on the day of
acquisition. Movements in fair value between acquisition (date mined) and
disposal (date sold), and the movement in fair value in crypto assets held at
the year end, impairment of the intangible assets and any increase in fair
value are recorded in the fair value reserve.
The digital assets held below are held in Argo Labs (a division of the Group)
as discussed above. The assets are all held in secure custodian wallets
controlled by the Group team and not by individuals within the Argo Labs team.
The assets detailed below are all accessible and liquid in nature.
As at 31 December 2022 Coins / tokens Fair value
Crypto asset name £'000
Token deals - 771
Ethereum - ETH 518 519
Polkadot - DOT 32,964 118
Alternative coins - 164
As at 31 December 2022 1,572
19. TANGIBLE FIXED ASSETS
Group Right of use Assets Office Equipment Mining and Computer Equipment Machine Components Assets Under Construction Leasehold Data centres Equipment Total
Improvements
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2022 358 49 58,499 - 61,306 85 10,466 - 130,763
Foreign exchange movement - cost 17 2,744 - 7,287 4 560 - 10,612
Additions 75 - 117,246 17,364 - 7 0 86 134,779
Transfers to another class - cost - - -- - (68,593) - 68,593 - -
Disposals - (2) (60,809) - - (68,593) - (129,404)
At 31 December 2022 450 47 117,680 17,364 - 96 11,026 86 146,749
Depreciation and impairment
At 1 January 2022 8 - 18,507 - - 65 229 - 18,809
Foreign exchange movement - - 868 - - 3 11 - 882
Depreciation charged during the period 7 14 16,549 - - 19 6,846 12 23,448
Impairment in asset - - 29,797 15,121 - - 225 - 45,143
Disposals - - - - - - (5,817) - (5,817)
At 31 December 2022 15 14 65,721 15,121 87 1,494 12 82,464
Carrying amount
At 1 January 2022 350 49 39,992 - 61,306 20 10,237 - 111,954
At 31 December 2022 435 33 51,959 2,244 - 9 9,532 74 64,285
Group Right of use Assets Office Equipment Mining and Computer Equipment Assets Under Construction Leasehold Data centres Total
Improvements
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 January 2021 7,379 - 17,865 - 85 - 25,329
Foreign exchange movement - - (62) - - - (62)
Acquisition through business combination 358 - - 12,180 - 10,466 23,004
Additions - 49 33,317 49,126 - - 82,492
Transfer to another class (7,379) - 7,379 - - - -
At 31 December 2021 358 49 58,499 61,306 85 10,466 130,763
Depreciation and impairment
At 1 January 2021 - - 7,443 - 48 - 7,491
Foreign exchange movement - - (65) - - - (65)
Depreciation charged during the period 3,281 - 7,856 - 17 229 11,383
Transfer to another class (3,273) - 3,273 - - - -
At 31 December 2021 8 - 18,507 - 65 229 18,810
Carrying amount
At 1 January 2021 7,379 - 10,422 - - - 17,833
At 31 December 2021 350 49 39,992 61,306 20 10,237 111,954
All property, plant and equipment is owned by the subsidiary, Argo Innovation
Labs Inc. During the year, the lease for the right of use assets was settle by
purchasing the mining equipment. Book balances were transferred to mining and
computer equipment.
Acquisition of DPN LLC
On 8 March 2021 the Group completed the acquisition of DPN LLC to acquire 160
acres (with option to purchase a further 157 acres) of land in West Texas for
the construction of a 200MW mining facility for completion mid-2022.
The acquisition of DPN LLC, effectively comprising the land acquisition in
West Texas, has been treated as an asset acquisition in the financial
statements. The consideration for the acquisition was an initial price of GBP
3.6m, satisfied by the issue and allotment to the shareholders of DPN LLC of
3,497,817 new ordinary shares in Argo, with up to a further 8.6m of shares
payable if certain contractual milestones related to the facility are
fulfilled.
Initial issue and allotment of GBP 3.6m has been recognised based on estimated
fair value of assets received at acquisition in line with IFRS 2 Share based
payments. Contingent consideration balance of this business combination has
been subsequently measured at fair value with changes recognised in profit and
loss in line with IFRS 9. Fair value of assets acquired was assessed in line
with independent valuations of site by CBRE as well as external financial due
diligence and financial modelling. Financial models used historical power
purchase assumptions for the area and the Company's internal hash rate and
Bitcoin pricing assumptions to help the Company evaluate the financial
benefits of developing a Bitcoin mining operation on the land. Work performed
by DPN LLC from August 2019, when it purchased the land, to March 2021, when
it sold the land to the Company, to prepare for a Bitcoin mining operation
added to the value of the land for that purpose.
Consideration at 8 March 2021
£'000
Share based payment 3,521
Contingent consideration to be settled in shares 8,659
Total 12,180
Allocated as follows
£'000
Tangible fixed assets (Asset under construction) 12,180
Total 12,180
Property, Plant and Equipment Impairments and Loss on Sale of Subsidiary
The Group has a single line of business, crypto mining. As such, the Group has
one cash generating unit (CGU). At each reporting date, the Group assesses
whether there is an indication that an asset may be impaired. If an indication
exists, the Group estimates an asset's recoverable amount. An asset's
recoverable amount is the higher of an asset's or CGU's fair value less costs
of disposal and its value in use. When the carrying value of an asset or CGU
exceed its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount.
In assessing fair value of Mining and Computer Equipment, the Group used
readily available price per terahash less a 15% discount for used equipment.
In assessing value in use, the discounted estimated future cash flows over the
useful life of the mining machines using a pre-tax discount rate of 23.28%. As
a result of the analysis, an impairment of £24 million was recorded. A 5%
change in the price per terahash has a £6.1 million impact on the impact of
the impairment. A 1% change in the discount rate has a of £1.1 million impact
on the impairment.
In assessing the recoverable amount of the CGU, the Group calculated the
discounted cash flows of the CGU using a terminal growth rate of 3%. The
pre-tax discount rate used was 23%. As a result of this analysis, an
impairment of £5.8 million was recorded which has been attributed to Mining
and Computer Equipment.
Impairment of Chips
In assessing the fair value of machine components, the Group used readily
available chip set prices and management's estimate of other components in the
chip sets to determine the value of chips on hand. As a result of this
analysis, an impairment of £15million was recorded.
Loss on Sale
During the year, the Group sold chips that were previously purchased. The
proceeds on these chip sales were £10,029 and the Group recorded a loss on
disposal of fixed assets of £18,779.
Mining Machine Swap
In March 2022, the Group entered into an agreement to exchange mining machines
and terminate a hosting agreement. With the completion of Helios, the Group no
longer required third party hosting services. The agreement provided the
hosting provider with ownership of the Group's machines at their facilities in
exchange for new mining machines for our Helios facility. The hash rate
between the two groups of mining machines was similar. This transaction lacks
commercial substance, therefore, IFRS 16 requires the mining machines acquired
be recorded at the book value of the mining machines transferred to the
hosting service provider.
20. TRADE AND OTHER RECEIVABLES / INTERCOMPANY
Group Company Group Company
2022 2022 2021 2021
£'000 £'000 £'000 £'000
Trade and other receivables - - 13,194 8,008
Mining equipment prepayments 4,958 456 47,426 -
Other taxation and social security 683 - 2,739 590
Total trade and other receivables 5,641 456 63,359 8,598
Mining equipment prepayments consist of payments made and due on mining
equipment due to arrive in 2023.
Other taxation and social security consist of purchase tax recoverable in
Canada. GST and QST debtors are greater than 90 days as at 31 December 2022.
COMPANY - INTERCOMPANY
Company Company
2022 2021
£'000 £'000
Amounts due from group companies, net 8,572 175,859
Funds advanced to group companies were used for operating expenses, settle
debt and purchase tangible and intangible assets. There are no terms of
repayment. The amounts due are non-interest bearing. The decrease in 2022 is
as a result of the debts from Argo Innovation Facilities (US) which were
converted to shares to be issued prior to the sale.
21. DIGITAL ASSETS
The Group mined crypto assets during the period, which are recorded at fair
value on the day of acquisition. Movements in fair value between acquisition
(date mined) and disposal (date sold), and the movement in fair value in
crypto assets held at the year end, are recorded in profit or loss.
All of the Group's holding in crypto currencies other than Bitcoin are now
classified as intangible assets.
At the period end, the Group held Bitcoin representing a fair value of £528k.
The breakdown of which can be seen below:
Group
2022 2021
£'000 £'000
At 1 January 80,759 4,637
Additions
Crypto assets purchased and received 207 16,569
Crypto assets mined 47,267 70,325
Total additions 47,474 86,894
Disposals
Transferred to/from intangible assets 330 (5,424)
Crypto assets sold (84,555) (6,976)
Total disposals (84,225) (12,400)
Fair value movements
Gain/(loss) on crypto asset sales (43,526) 437
Movements on crypto assets held at the year end (114) 1,191
Total fair value movements (43,640) 1,628
At 31 December 368 80,759
Carrying value of digital assets pledged as collateral - 49,759
As at 31 December 2022, digital assets comprised 141 Bitcoin equivalents
(2021: 2,441 Bitcoin).
22. SHARE OPTIONS AND WARRANTS
The following options and warrants over Ordinary Shares have been granted by
the Company and are outstanding:
Options/ Warrants Grant Date Expiry date Exercise Price Number of options/warrants outstanding 2022 '000 Number of options/warrants exercisable 2022 '000
Warrants 15 January 2021 15 January 2031 £1.25 240 240
Warrants 19 January 2021 18 January 2026 £0.90 110 110
Warrants 19 April 2021 19 March 2024 £1.35 224 224
Warrants 17 June 2021 19 March 2024 £1.50 22 22
Options 25 July 2018 25 July 2024 £0.16 1,000 1,000
Options 17 July 2019 16 July 2025 £0.16 537 537
Options 5 February 2020 4 February 2030 £0.07 4,362 4,362
Options 3 February 2021 2 February 2031 £0.94 159 151
Options 24 June 2021 23 June 2031 £1.26 1,000 500
Options 27 June 2021 26 June 2031 £1.35 500 250
Options 1 July 2021 30 June 2031 £1.16 500 250
Options 13 July 2021 12 July 2031 £1.00 1,000 500
Options 22 September 2021 22 September 2031 £1.57 4,150 1,758
Options 23 November 2021 23 November 2031 £1.30 500 184
Options 17 December 2021 16 December 2031 £0.86 675 234
Options 19 May 2022 19 May 2032 £0.51 3,350 861
Options 27 June 2022 27 June 2032 £0.34 250 42
Warrants 31 March 2022 31 March 2027 £0.94 60 60
Warrants 31 July 2022 31 July 2027 £1.00 10 10
Warrants 31 August 2022 31 August 2027 £1.04 10 10
Warrants 31 September 2022 31 September 2027 £1.12 10 10
Warrants 31 October 2022 31 October 2027 £1.05 10 10
Warrants 31 November 2022 31 November 2027 £1.02 10 10
Warrants 31 December 2022 31 December 2027 £1.01 10 10
18,698 11,345
Number of options and warrants '000 Weighted average exercise price £
At 1 January 2022 17,689 0.81
Granted 5,220 0.50
Exercised (1,593) 0.07
Lapsed (2,618) 0.89
Outstanding at 31 December 2022 18,698 0.68
Exercisable at 31 December 2022 11,345 0.61
Number of options and warrants '000 Weighted average exercise price £
At 1 January 2021 42,202 0.13
Granted 10,698 1.63
Exercised (34,351) 0.12
Lapsed (860) 0.95
Outstanding at 31 December 2021 17,689 0.81
Exercisable at 31 December 2021 7,596 0.26
The weighted average remaining contractual life of options and warrants as at
31 December 2022 is 93 months (2021 -102 months). If the exercisable shares
had been exercised on 31 December 2022 this would have represented 61% (2021 -
2%) of the enlarged share capital.
At the grant date, the fair value of the options and warrants prior to the
listing date was the net asset value and post listing determined using the
Black-Scholes option pricing model. Volatility was calculated based on data
from comparable listed technology start-up companies, with an appropriate
discount applied due to being an unlisted entity at grant date. Risk free
interest has been based on UK Government Gilt rates for an equivalent term.
Grant date Grant date share price Exercise price Volatility Life Risk Free interest rate % Marketability discount
25 July 2018 0.08 0.16 40% 6 years 0.01 75%
17 July 2019 0.09 0.16 40% 6 years 0.01 90%
5 February 2020 0.07 0.07 40% 6 years 0.01 0%
3 February 2021 0.94 0.94 112% 10 years 0.01 0%
24 June 2021 1.26 1.26 112% 10 years 0.01 0%
27 June 2021 1.35 1.35 112% 10 years 0.01 0%
1 July 2021 1.23 1.16 112% 10 years 0.01 0%
13 July 2021 1.00 1.00 112% 10 years 0.01 0%
22 September 2021 1.57 1.57 112% 10 years 0.01 0%
23 November 2021 1.30 1.30 112% 10 years 0.01 0%
17 December 2021 0.86 0.86 112% 10 years 0.01 0%
19 May 2022 0.51 0.51 112% 10 years 0.01 0%
27 June 2022 0.34 0.34 112% 10 years 0.01 0%
23. ORDINARY SHARES
As at 31 December As at 31 December 2021
2022
£'000 £'000
Ordinary share capital
Issued and fully paid
468,082,335 Ordinary Shares of £0.001 each 468 303
Issued in the period
9,742,831 Ordinary Shares of £0.001 each 10 165
Fully paid not yet issued
Ordinary Shares of £0.001 each - -
477,825,166 Ordinary Shares of £0.001 each 478 468
Share premium
At beginning of the period 139,581 1,540
Cancelled during the period - -
Issued in the period 4,167 150,977
Issue costs - (12,936)
Fully paid not yet issued - -
At the end of period 143,748 139,581
24. RESERVES
The following describes the nature and purpose of each reserve:
Reserve Description
Ordinary Shares Represents the nominal value of equity shares
Share Premium Amount subscribed for share capital in excess of nominal value
Share based payment reserve Represents the fair value of options and warrants granted less amounts
transferred on exercise, lapse or expiry
Currency translation reserve Cumulative effects of translation of opening balances on non-monetary assets
between subsidiaries functional currencies (Canadian dollars and US Dollars)
and Group presentational currency (Sterling).
Fair value reserve Cumulative net gains on the fair value of intangible assets
Other comprehensive income of equity accounted associates The other comprehensive income of any associates is recognised in this reserve
Accumulated surplus Cumulative net gains and losses and other transactions with equity holders not
recognised elsewhere.
25. TRADE AND OTHER PAYABLES
Group Company Group 2021 Company 2021
2022 2022
£'000 £'000 £'000 £'000
Trade payables 2,754 1,791 10,259 8,023
Accruals and other payables 5,042 2,845 4,986 141
Other taxation and social security 515 - - -
Total trade and other creditors 8,311 4,636 15,245 8,164
Within trade payables is £nil (2021: £7,194,000) for amounts due for mining
equipment not yet received. The directors consider that the carrying value of
trade and other payables is equal to their fair value.
Contingent consideration
As part of the acquisition of DPN LLC up to a further £8.6m of shares were
payable if certain contractual milestones related to the facility were
fulfilled (see note 19).
The amount payable as contingent consideration was payable in shares and as
such is revalued as at the balance sheet date and any gain or loss is
recognised in profit or loss, which for the year ended 31 December 2021
amounted to £236k.
In June 2022, the Company issued 8,147,831 Ordinary Shares to settle £4m in
contingent consideration. The remaining contingent consideration of £4m was
not earned and as a result was reversed into profit or loss.
26. LOANS AND BORROWINGS
Non-current liabilities As at 31 December 2022 As at 31 December 2021
£'000 £'000
Issued debt - bond (a) 31,356 6,908
Galaxy loan (b) 19,183 -
Mortgages - Quebec facilities (c) 2,309 3,391
Lease liability 448 370
Total 53,296 30,669
Current liabilities
Galaxy loan (b) 8,819 22,239
Mortgages- Quebec facilities (c) 805 1,152
Lease liability 4 7
Total 9,628 23,398
(a) Unsecured Bonds:
In November 2021, the Group issued an unsecured 5-year bond with an interest
rate of 8.75%. The bonds mature on 30 November 2026. The bonds may be redeemed
for cash in whole or in part at any time at the Group's option (i) on or after
30 November 2023 and prior to 30 November 2024, at a price equal to 102% of
their principal amount, plus accrued and unpaid interest to, but excluding,
the date of redemption, (ii) on or after 30 November 30 and prior to 30
November 2025, at a price equal to 101% of their principal amount, plus
accrued and unpaid interest to, but excluding, the date of redemption, and
(iii) on or after November 30, 2025 and prior to maturity, at a price equal to
100% of their principal amount, plus accrued and unpaid interest to, but
excluding, the date of redemption. The Group may redeem the bonds, in whole,
but not in part, at any time at its option, at a redemption price equal to
100.5% of the principal amount plus accrued and unpaid interest to, but not
including, the date of redemption, upon the occurrence of certain change of
control events. The bonds are listed on the Nasdaq Global Select Market under
the symbol ARBKL.
(b) Galaxy and related loans
On 23 December 2021 the Group entered into a loan agreement with Galaxy
Digital LP for a loan of USD$30 million (£22.2m). The proceeds of the loan
were used, in conjunction with funds raised previously, to continue the
build-out the Texas data centre, Helios. The short-term loan was a Bitcoin
collateralised loan with an interest rate of 8% per annum. This loan was
repaid during the 2022 as part of the Galaxy transaction.
In March 2022, the Group entered into loan agreements with NYDIG ABL LLC for
loans in the amounts of USD$26.7 million for the purchase of mining machines
and Helios infrastructure, respectively. The loan was repaid during the year
as part of the Galaxy transaction.
In May 2022, the Group entered into a loan agreement with Liberty Commercial
Finance for a loan of USD$1.2 million (£1.0m) to purchase equipment. The loan
is repayable over a period of 36 months with an interest rate of 11.9%. In
June 2022, the loan was assigned to North Mill Equipment Finance LLC ("New
Mill"). The loan was repaid during the year as part of the Galaxy transaction.
In December 2022, the Group sold Galaxy Power LLC (see note 14) and entered
into a loan agreement with Galaxy Digital LLC for USD$35 million (£29m).
Proceeds were used to pay off the Galaxy Digital LP, New Mill and NYDIG loans
and working capital. The Galaxy Digital LLC loan is payable based on an
amortization schedule over 32 months with an interest rate of the secured
overnight financing rate by the Federal Reserve Bank of New York plus 11%. The
loan is secured by the Group's property, plant and equipment.
(c) Mortgages - Quebec Facilities
The mortgages are secured against the two buildings at Mirabal and Baie-Comeau
and are repayable over periods from 3 months to 48 months at interest rates
between 6.95% and 9.45% respectively.
27. FINANCIAL INSTRUMENTS
Group Company Group Company
2022 2022 2021 2021
£'000 £'000 £'000 £'000
Carrying amount of financial assets
Measured at amortised cost
- Mining equipment prepayments 4,958 456 47,426 -
- Trade and other receivables - - 13,194 183,867
- Cash and cash equivalents 16,662 115 11,803 126
Measured at fair value through profit or loss 344 73 403
73
Total carrying amount of financial assets 21,964 644 72,826 184,066
Carrying amount of financial liabilities
Measured at amortised cost
- Trade and other payables 8,311 3,675 10,259 8,163
- Short term loans 9,624 - 23,391 -
- Long term loans 21,492 - 3,391 -
- Issued debt - bonds 31,356 31,356 26,908 26,908
- Lease liabilities 452 - 377 -
Measured at fair value
- Fair value of contingent consideration - - 8,071 8,071
Total carrying amount of financial liabilities 71,235 35,031 72,397 43,142
Fair Value Estimation
Fair value measurements are disclosed according to the following fair value
measurement hierarchy:
- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1)
- Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices),
or indirectly (that is, derived from prices) (Level 2)
- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (Level 3). This is the
case for unlisted equity securities.
The following table presents the Group's assets and liabilities that are
measured at fair value at 31 December 2022 and 31 December 2021.
Level 1 Level 2 Level 3 Total
Assets £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
- Equity holdings 21 - 73 94
- Digital assets - 368 - 368
Total at 31 December 2022 21 368 73 462
Liabilities
Financial liabilities at fair value through profit or loss
- Deferred contingent consideration - - - -
Total at 31 December 2022 - - - -
Level 1 Level 2 Level 3 Total
Assets £'000 £'000 £'000 £'000
Financial assets at fair value through profit or loss
- Equity holdings 329 - 73 402
- Digital assets - 80,759 - 80,759
Total at 31 December 2021 329 80,759 73 81,161
Liabilities
Financial liabilities at fair value through profit or loss
- Deferred contingent consideration - - 8,071 8,071
Total at 31 December 2021 - - 8,071 8,071
All financial assets are in listed and unlisted securities and digital assets.
There were no transfers between levels during the period.
The Group recognises the fair value of financial assets at fair value through
profit or loss relating to unlisted investments at the cost of investment
unless:
- There has been a specific change in the circumstances which, in
the Group's opinion, has permanently impaired the value of the financial
asset. The asset will be written down to the impaired value;
- There has been a significant change in the performance of the
investee compared with budgets, plans or milestones;
- There has been a change in expectation that the investee's
technical product milestones will be achieved or a change in the economic
environment in which the investee operates;
- There has been an equity transaction, subsequent to the Group's
investment, which crystallises a valuation for the financial asset which is
different to the valuation at which the Group invested. The asset's value will
be adjusted to reflect this revised valuation; or
- An independently prepared valuation report exists for the
investee within close proximity to the reporting date.
- The deferred consideration has been fair valued to the yearend
date as the amount is to be paid in Argo shares.
28. COMMITMENTS AND CONTINGENCIES
The Group's material contractual commitments relate to the hosting services
agreement with Galaxy Digital Qualified Opportunity Zone Business LLC, which
provides hosting, power and support services at the Helios facility. Whilst
management do not envisage terminating agreements in the immediate future, it
is impracticable to determine monthly commitments due to large fluctuations in
power usage and variations on foreign exchange rates, and as such a commitment
over the contract life has not been determined. The agreement is for services
with no identifiable assets, therefore, there is no right of use asset
associated with the agreement.
The Group has entered into an agreement for the purchase of mining machines to
be delivered in 2023. A deposit of USD$3.3M (£2.7m) is on account. Payments
of USD$438k (£363k) and USD$424k (£352k) will be made prior to delivery of
the machines.
As the Company disclosed on February 8, 2023, it is currently subject to a
class action lawsuit. The case, Murphy vs Argo Blockchain plc et al, was
filed in the Eastern District of New York on 26 January 2023. The Company
refutes all of the allegations and believes that this class action lawsuit is
without merit. The Company is vigorously defending itself against the
action. We are not currently subject to any other material pending legal
proceedings or claims.
29. RELATED PARTY TRANSACTIONS
Key management compensation
Key management includes Directors (executive and non-executive) and senior
management. The compensation paid to related parties in respect of key
management for employee services during the period was made from Argo
Innovation Labs Inc., amounting to: £118,030 (2021 - £36,769) paid to POMA
Enterprises Limited in respect of fees of Matthew Shaw (Non-executive
director); £182,759 (2021 - £566,591) due to Vernon Blockchain Inc in
respect of fees of Peter Wall (CEO). Maria Perrella and Raghav Chopra
(Non-executive directors) were paid £121,391 and £105,492 as at year end
respectively.
From Argo Blockchain PLC, Alex Appleton (CFO) through Appleton Business
Advisors Limited was paid £378,161 (2021 - £308,359). Sarah Gow was paid
£70,399 as at year end.
30. CONTROLLING PARTY
There is no controlling party of the Group.
31. POST BALANCE SHEET EVENTS
In January 2023, Alex Appleton resigned from his position as Chief Financial
Officer, Executive Director and Secretary of the Group.
In February 2023, Peter Wall resigned from his position as Chief Executive
Officer and Interim Chairman, Sarah Gow resigned from her position as
non-executive director on the Board.
In April 2023, Jim MacCallum was appointed Chief Financial Officer of the
Group.
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