TIDMARB
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 2,15 6, a 5% increase compared to the BTC mined in
2021, despite an increase in global hashrate and network
difficulty
-- Revenues of GBP4 7.4 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 GBP1.0 million ($1.2 million), down from
Adjusted EBITDA of GBP55.0 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 GBP194.2 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 GBP5 3 million ($65 million), Argo refinanced existing
equipment financing loans with a new asset-backed loan from Galaxy
for an amount of GBP28 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 GBP3 3 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 GBP63 million ($76 million), and debt, net of cash,
was GBP46 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 49 1, 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 GBP9 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 GBP10,000 ($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 oper ational 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 3
00 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
GBP'000 GBP'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
GBP'000 GBP'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 9,590 -
related to restructuring
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
Jonny Franklin-Adams
Seamus Fricker
Joint Corporate Broker
Sunila de Silva +44 207 220 0500
------------------------------
Tennyson Securities
------------------------------
Joint Corporate Broker
Peter Krens +44 207 186 9030
------------------------------
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
.
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 GBP54 million ($65 million) and refinanced existing
asset-backed loans via a new GBP29 million ($35 million),
three-year asset-backed loan with Galaxy. The transactions reduced
total indebtedness by GBP34 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 GBP47.4 million ($58.6 million) compared to
GBP74.2 million ($100.2 million) in 2021. Adjusted EBITDA was
GBP1.0 million ($1.2 million) compared to GBP55.0 million ($74.2
million) in 2021. Loss attributable to shareholders totalled
GBP199.5 million ($246.7 million). In 2022, total capital
expenditures, net of disposals, were GBP5.4 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 Year ended
December 2022 December
2021
Continuing operations Note GBP'000 GBP'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 Company (199,481) 37,340
----------------------------------------------------------- ----- ------------------------------ -----------
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 As at 31 December
2022 2021
Note GBP'000 GBP'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 As at December
2022 2021
Note GBP'000 GBP'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 GBP139.1m (2021
- loss of GBP3.6m).
GROUP STATEMENT OF CHANGES IN EQUITY
Share Share Currency Share Fair Other Accumulated Total
Capital Premium translation based Revaluation comprehensive surplus/
reserve payment Reserve income of (deficit)
reserve associates
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- -------- ------------ -------- ------------ -------------- ------------ ----------
Balance at 1
January 6,571
2022 468 139,581 33 1,905 414 - 52,838 201,810
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 Share Currency Share Fair Other Accumulated Total
Capital Premium translation based Revaluation comprehensive surplus/
reserve payment Reserve income of (deficit)
reserve associates
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Other Accumulated Total
payment reserve comprehensive surplus/
income of (deficit)
associates
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Other comprehensive Accumulated Total
payment reserve income of surplus/
associates (deficit)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Year ended
December December
2022 2021
Note GBP'000 GBP'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 10,028 -
assets
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 GBP70,764,000
and the issuance of GBP25,356,000 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 31 December
2022 2021
GBP'000 GBP'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 GBP2.1m
(2021 - GBP80.7m) as a liquid holding and as such net funds/(debt)
would be GBP(44.2m) (2021 - GBP65.4m).
COMPANY STATEMENT OF CASH FLOWS
Year ended Year ended
December December
2022 2021
Note GBP'000 GBP'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 31 December
2022 2021
GBP'000 GBP'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 nancial 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 GBP54 million and refinanced existing asset-backed
loans via a new GBP29 million, three-year asset-backed loan with
Galaxy. The transactions reduced total indebtedness by GBP34
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 GBP22
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 , 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 Effect on Effect on
USD rate profit before pre-tax equity
tax
GBP'000 GBP'000
------ ---------- --------------- ----------------
2022 +/-10% +/- 4,302 -
2021 +/-10% +/-250 +/-87
Change in Effect on Effect on
CAD rate profit before pre-tax equity
tax
------ ---------- --------------- ----------------
GBP'000 GBP'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 Effect
in basis points on profit
before
tax
GBP'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 Between Between Over 5
1 year 1 and 2 2 and 5 years
years 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 Description Effective date for
or Interpretation annual accounting
period beginning on
or after
------------------- --------------------------------------------- ---------------------
IAS 1 Amendments - Presentation and Classification TBC
of Liabilities
IFRS 16 Amendments - Lease liability in a TBC
sale and leaseback
IAS 1 Amendments - Disclosure of Accounting 1 January 2023
Policies
IAS 8 Amendments - Definition of Accounting 1 January 2023
Estimates
IAS 12 Amendments - Deferred Tax related 1 January 2023
to Assets and Liabilities arising
from a 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 31 December
2022 2021
GBP'000 GBP'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 GBP80m 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 (GBP22.2m)
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
GBP1.7m for 2022.
2022 2021
Gain on Hedging GBP'000 GBP'000
------------------------ -------- --------
Gain on Hedging 1,695 -
Total gain on hedging 1,695 -
------------------------ -------- --------
8. EXPENSES BY NATURE
2022 2021
Direct Costs GBP'000 GBP'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 GBP'000 GBP'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 GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'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 GBP588k (2021 - GBP455k).
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 continuing
operations (GBP'000) (194,321) 30,765
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 continuing
operations (GBP'000) (194,321) 30,765
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
GBP'000 GBP'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
GBP'000 GBP'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
GBP'000 GBP'000
Profit (loss) before taxation (194,592) 39,271
---------------------------------------- ---------- --------
Expected tax charge (recovery) based
on a weighted average of 25% (2021
- 25%) (UK, US and Canada) (48,648) 9,746
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 GBP34,000,000 (2021 - GBP10,476,000).
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
GBP'000 GBP'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 Ownership Voting Power Nature of
of Incorporation Interest Held (%) 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
GBP'000 GBP'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 GBP53.5m.
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
GBP53.0 million against a book value GBP97.8 million resulting in a
loss on sale for the Group of GBP44.8 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 GBP'000
the date of disposal:
-------------------------------------------------- ----------------
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 GBP'000 GBP'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
GBP000's GBP000s
------------------------------------ --------- --------
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 comprehensive income (6,571) 6,571
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 % of ownership Nature of Measurement
registered office interest relationship method
Emergent Entertainment Hill Dickinson 19.94% Refer below Equity
PLC (Previously LLP, 8th Floor
Pluto Digital The Broadgate
plc) Tower, 20 Primrose
Street, London,
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
GBP1.1m. Further to this in a second round of funding the Group
invested an additional GBP7.4m on 8 March 2021.
In addition, Argo holds 121,666,666 warrants at a price of
GBP0.12 each and 35,450,000 warrants at a price of GBP0.06 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 As at December
31, 2022 31, 2021
GBP000's GBP000'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
GBP000's GBP000'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
GBP000's GBP000'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 GBP5.5m; consisting of GBP212k 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 GBP3.4m
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 GBP1 for GBP1 basis certain deposits and other receivables
totalling GBP668k 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
GBP'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
GBP'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 Website 2022
assets Total
GBP'000 GBP'000 GBP'000 GBP'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 Website 2021
assets Total
GBP'000 GBP'000 GBP'000 GBP'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 / Fair value
Crypto asset name tokens GBP'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 Office Mining Machine Assets Leasehold Data Equipment Total
of use Equipment and Components Under Improvements centres
Assets Computer Construction
Equipment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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 Office Mining and Assets Under Leasehold Data centres Total
of use Equipment Computer Construction Improvements
Assets Equipment
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000
Share based payment 3,521
Contingent consideration to be settled in shares 8,659
Total 12,180
--------
Allocated as follows
GBP'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 GBP24 million was recorded. A 5%
change in the price per terahash has a GBP6.1 million impact on the
impact of the impairment. A 1% change in the discount rate has a of
GBP1.1 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 GBP5.8 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
GBP15million was recorded.
Loss on Sale
During the year, the Group sold chips that were previously
purchased. The proceeds on these chip sales were GBP10,029 and the
Group recorded a loss on disposal of fixed assets of GBP18,779.
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
GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'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 GBP528k. The breakdown of which can be seen below:
Group
2022 2021
GBP'000 GBP'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/ Grant Date Expiry date Exercise Number of Number of
Warrants Price options/warrants options/warrants
outstanding exercisable
2022 '000 2022 '000
15 January
Warrants 15 January 2021 2031 GBP1.25 240 240
18 January
Warrants 19 January 2021 2026 GBP0.90 110 110
Warrants 19 April 2021 19 March 2024 GBP1.35 224 224
Warrants 17 June 2021 19 March 2024 GBP1.50 22 22
Options 25 July 2018 25 July 2024 GBP0.16 1,000 1,000
Options 17 July 2019 16 July 2025 GBP0.16 537 537
4 February
Options 5 February 2020 2030 GBP0.07 4,362 4,362
2 February
Options 3 February 2021 2031 GBP0.94 159 151
Options 24 June 2021 23 June 2031 GBP1.26 1,000 500
Options 27 June 2021 26 June 2031 GBP1.35 500 250
Options 1 July 2021 30 June 2031 GBP1.16 500 250
Options 13 July 2021 12 July 2031 GBP1.00 1,000 500
22 September 22 September
Options 2021 2031 GBP1.57 4,150 1,758
23 November 23 November
Options 2021 2031 GBP1.30 500 184
17 December 16 December
Options 2021 2031 GBP0.86 675 234
Options 19 May 2022 19 May 2032 GBP0.51 3,350 861
Options 27 June 2022 27 June 2032 GBP0.34 250 42
Warrants 31 March 2022 31 March 2027 GBP0.94 60 60
Warrants 31 July 2022 31 July 2027 GBP1.00 10 10
Warrants 31 August 2022 31 August 2027 GBP1.04 10 10
31 September 31 September
Warrants 2022 2027 GBP1.12 10 10
31 October
Warrants 31 October 2022 2027 GBP1.05 10 10
31 November 31 November
Warrants 2022 2027 GBP1.02 10 10
31 December 31 December
Warrants 2022 2027 GBP1.01 10 10
18,698 11,345
Number Weighted
of options average exercise
and warrants price GBP
'000
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 Weighted
of options average exercise
and warrants price GBP
'000
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 Exercise Volatility Life Risk Marketability
share price price Free interest discount
rate %
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 As at 31 December
December 2021
2022
GBP'000 GBP'000
Ordinary share capital
Issued and fully paid
468,082,335 Ordinary Shares of GBP0.001
each 468 303
Issued in the period
9,742,831 Ordinary Shares of GBP0.001
each 10 165
Fully paid not yet issued
Ordinary Shares of GBP0.001 each - -
477,825,166 Ordinary Shares of GBP0.001
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 Represents the fair value of options and warrants
reserve granted less amounts transferred on exercise,
lapse or expiry
Currency translation Cumulative effects of translation of opening balances
reserve 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 The other comprehensive income of any associates
income of equity is recognised in this reserve
accounted associates
Accumulated surplus Cumulative net gains and losses and other transactions
with equity holders not recognised elsewhere.
25. TRADE AND OTHER PAYABLES
Group Company Group Company
2022 2022 2021 2021
GBP'000 GBP'000 GBP'000 GBP'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 GBPnil (2021: GBP7,194,000) 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 GBP8.6m 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 GBP236k.
In June 2022, the Company issued 8,147,831 Ordinary Shares to
settle GBP4m in contingent consideration. The remaining contingent
consideration of GBP4m was not earned and as a result was reversed
into profit or loss.
26. LOANS AND BORROWINGS
Non-current liabilities As at 31 December As at 31 December
2022 2021
GBP'000 GBP'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 (GBP22.2m). 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 (GBP1.0m)
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 (GBP29m). 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
GBP'000 GBP'000 GBP'000 GBP'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 Level 2 Level 3 Total
1
Assets GBP'000 GBP'000 GBP'000 GBP'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 Level 2 Level 3 Total
1
Assets GBP'000 GBP'000 GBP'000 GBP'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
(GBP2.7m) is on account. Payments of USD$438k (GBP363k) and
USD$424k (GBP352k) 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: GBP118,030
(2021 - GBP36,769) paid to POMA Enterprises Limited in respect of
fees of Matthew Shaw (Non-executive director); GBP182,759 (2021 -
GBP566,591) due to Vernon Blockchain Inc in respect of fees of
Peter Wall (CEO). Maria Perrella and Raghav Chopra (Non-executive
directors) were paid GBP121,391 and GBP105,492 as at year end
respectively.
From Argo Blockchain PLC, Alex Appleton (CFO) through Appleton
Business Advisors Limited was paid GBP378,161 (2021 - GBP308,359).
Sarah Gow was paid GBP70,399 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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END
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