GROUP STATEMENT OF CASH FLOWS

		Year ended December 2022	Year ended December 2021
	Note	£'000	£'000
Cash flows from operating activities
Loss/(profit) before tax		(194,592)	39,271
Adjustments for:
Depreciation/Amortisation	8	23,449	11,511
Foreign exchange movements		(17,250)	589
Loss on disposal of tangible assets		18,779	-
Finance cost		18,321	2,142
Loss on sale of subsidiary and investment		44,804	629
Fair value change in digital assets through profit or loss	21	43,640	(1,628)
Impairment of intangible digital assets	18	4,168	535
Impairment of property, plant and equipment		45,143	-
Investment fair value movement	15	328	(183)
Share of loss from associate		4,872	1,198
Non-cash settlement of management fees	8	-	(1,561)
Revaluation of contingent consideration	26	(4,038)	(236)
Derecognition of contingent consideration		-	(352)
Hedging gain		(1,695)	-
Share based payment expense	23	4,928	1,938
Working capital changes:
(Increase)/decrease in trade and other receivables	20	(15,250)	(13,628)
Increase/(decrease) in trade and other payables	26	(83,021)	12,289
(Increase) in digital assets	21	36,751	(80,331)
Net cash used in operating activities		(70,663)	(27,817)
Investing activities
Investment at fair value through profit or loss	15	-	(220)
Acquisition of subsidiaries, net of cash acquired	17	-	(664)
Cash disposed of on disposal of subsidiary	19	(1,357)	-
Investment in associate	16	-	(7,353)
Proceeds from sale of investment	15	-	772
Purchase of tangible fixed assets	19	(87,353)	(78,972)
Proceeds from disposal of tangible fixed assets		10,028	-
Purchase of digital assets	22	-	(15,009)
Proceeds from sale of digital assets	22	84,225	11,308
Mining equipment prepayment		-	(47,426)
Net cash used in investing activities		5,543	(137,564)
Financing activities
Proceeds from new loan issuance	27	78,418	22,239
Proceeds from issue of loan in conjunction with the disposal of subsidiary	19	8,033	-
Lease payments	26	75	(7,379)
Loan repayments	26	-	(1,196)
Interest paid		(18,321)	(122)
Proceeds from debt issue - net of issue costs	26	-	26,908
Proceeds from shares issued - net of issue costs	23	-	134,684
Net cash generated from financing activities		68,055	175,133
Net increase in cash and cash equivalents		2,935	9,752
Effect of foreign exchange on cash and cash equivalents		1,924
Cash and cash equivalents at beginning of period		11,803	2,051
Cash and cash equivalents at end of period		16,662	11,803

Material non-cash movements:

●     The Group sold its Helios facility during the year, in exchange for paying down existing debt amounting to £70,764,000 and the issuance of £25,356,000 of the new loan. See Note 19 for additional details.

●     In March 2022, the Group entered into an agreement to exchange mining machines and terminate a hosting agreement.  See Note 19 for additional details.

 

 

Group - net debt reconciliation		Year ended 31 December 2022	Year ended 31 December 2021
		£'000	£'000
Current loans and borrowings	26	(9,624)	(23,391)
Current lease liability		(4)	(7)
Non-current issued debt - bonds	26	(31,356)	(26,908)
Non-current loans and borrowings	26	(21,492)	(3,391)
Non-current liability - lease		(448)	(370)
Cash and cash equivalents		16,662	11,803
Total net debt		(46,262)	(42,264)

The directors also consider their digital assets of £2.1m (2021 - £80.7m) as a liquid holding and as such net funds/(debt) would be £(44.2m) (2021 - £65.4m).

 

 

COMPANY STATEMENT OF CASH FLOWS

		Year ended December 2022	Year ended December 2021
	Note	£'000	£'000
Cash flows from operating activities
Loss before tax		(138,633)	(3,551)
Adjustments for:
Share of loss from associate		4,872	1,198
Fair value adjustment on contingent consideration		(4,038)	-
Foreign exchange movements		(6,158)	(409)
Share based payment expense		4,928	1,938
Loss on disposal of investment in subsidiary		104,252
Impairment of assets		15,120
Working capital changes:
(Increase)/decrease in trade and other receivables	20	8,142	(8,411)
Increase/(decrease) in trade and other payables	25	(3,328)	7,741
Net cash used in operating activities		(14,843)	(1,494)
Investing activities
Purchase of investments		-	(7,353)
(Increase)/decrease in loan to subsidiary		14,832	(154,075)
Net cash (used in(/generated from investing activities		14,832	(161,428)
Financing activities
Proceeds from debt issue - net of issue costs		-	26,908
Proceeds from shares issued - net of issue costs		-	134,684
Net cash generated from financing activities		-	161,592
Net (decrease)/increase in cash and cash equivalents		(11)	(1,330)
Cash and cash equivalents at beginning of period		126	1,456
Cash and cash equivalents at end of period		115	126
Company - net debt reconciliation		Year ended 31 December 2022	Year ended 31 December 2021
		£'000	£'000
Non-current loans and borrowings	26	(31,356)	(26,908)
Cash and cash equivalents		115	126
Total net (debt) / asset		(31,241)	(26,782)

 

 

NOTES TO THE FINANCIAL STATEMENTS

 

1.         COMPANY INFORMATION

 

Argo Blockchain PLC ("the Company") is a public company, limited by shares, and incorporated in England and Wales. The registered office is Eastcastle House, 27-28 Eastcastle Street, London, W1W 8DH. The Company was incorporated on 5 December 2017 as GoSun Blockchain Limited and changed its name to Argo Blockchain Limited on 21 December 2017. Also on 21 December 2017, the Company re-registered as a public company, Argo Blockchain plc. Argo Blockchain plc acquired a 100% subsidiary, Argo Innovation Labs Inc. (together "the Group"), incorporated in Canada, on 12 January 2018. 

 

On 4 March 2021 the Group acquired 100% of the share capital of DPN LLC and was merged into new US entity Argo Innovation Facilities (US) Inc (also 100% owned by Argo Blockchain plc).

 

On 11 May 2021 the Group acquired 100% of the share capital of 9377-2556 Quebec Inc and 9366-5230 Quebec Inc. These are held by Argo Innovation Labs Inc. (Canada).

 

On 22 November 2022, the Group formed Argo Operating US LLC and Argo Holdings US Inc.

 

On 21 December 2022, Argo Innovation Facilities (US) Inc became Galaxy Power LLC. On 28 December 2022, the Group sold Galaxy Power LLC.

 

The principal activity of the Group is that of Bitcoin mining.

 

The ordinary shares of the Company are listed under the trading symbol ARB on the London Stock Exchange. The American Depositary Receipts of the Company are listed under the trading symbol ARBK on Nasdaq. The Company bond is listed on the Nasdaq Global Select Market under the trading symbol ARBKL.

 

The financial statements cover the year ended 31 December 2022.

 

2.         BASIS OF PREPARATION

 

The financial statements have been prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006. The financial statements have been prepared under the historical cost convention, except for the measurement to fair value certain financial and digital assets and financial instruments as described in the accounting policies below.

 

The financial statements are prepared in sterling, which is the functional currency of the Company. Monetary amounts in these financial statements are rounded to the nearest thousand GBP. Argo Innovations Labs Inc., 9377-2556 Quebec Inc, and 9366-5230 Quebec Inc.'s functional currency is Canadian Dollars; Argo Operating US LLC and Argo Holdings US Inc.'s functional currency is United States Dollars; all entries from these entities are presented in the Group's presentational currency of Sterling. Where the subsidiaries functional currency is different from the parent, the assets and liabilities presented are translated at the closing rate as at the Statement of Financial Position date. Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions).

 

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty are disclosed in Note 6.

 

3.         ACCOUNTING POLICIES

 

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.

Going Concern

The preparation of consolidated financial statements requires an assessment on the validity of the going concern assumption. 2022 was a challenging year for Bitcoin miners: the depressed price of Bitcoin and the elevated global hashrate caused hashprice, the primary measure of mining profitability, to reach all-time lows in Q4 2022. In addition, global events resulted in disruption to fossil fuel energy markets which resulted in a significant increase in electricity prices. The low hashprice and elevated power prices significantly reduced Argo's profitability and its ability to generate free cash flow. During Q4 2022, the Group evaluated several strategic alternatives to restructure our balance sheet and improve our cash flow.

On 28 December 2022, the Group announced a series of transactions with Galaxy Digital Holdings, Ltd. ("Galaxy") that improved the Group's liquidity position and enabled the Group to continue its mining operations. As part of the transactions, Argo sold the Helios facility and real property in Dickens County, Texas to Galaxy for £54 million and refinanced existing asset-backed loans via a new £29 million, three-year asset-backed loan with Galaxy. The transactions reduced total indebtedness by £34 million and allowed Argo to simplify its operating structure.

While the Galaxy transactions strengthened the Group's balance sheet, material uncertainties exist that may cast significant doubt regarding the Group's ability to continue as a going concern and meet its liabilities as they come due. The significant uncertainties are:

1)            The Group's debt service obligations of approximately £22 million to 30 June 2024. Please see the net debt tables under the Group and Company cash flow statements for further information of the Group's exposure to liabilities and net position at the year end.

2)            The Group's exposure to Bitcoin prices, power prices, and hashprice, each of which have shown volatility over recent years and have a significant impact on the Group's future profitability. The Group may have difficulty meeting its liabilities if there are significant declines to the hashprice assumption or significant increases to the power price, particularly where there is a combination of both factors. The Directors' assessment of going concern includes a forecast drawn up to 30 June 2024 using the Group's estimate of the forecasted hashprice. Power costs are now also partially fixed per kilowatt hour as Galaxy has hedged the majority of the power obligations at Helios and, as per the hosting agreement in place, the Group has access to this power. Anticipated power costs based on this arrangement are reflected in the forecast prepared.

Offsetting these potential risks to the Group's cash flow are the Group's current cash balance, the Group's ability to generate additional funds by issuing equity for cash proceeds and selling certain non-core Group assets.

Based on information from Management, as well as independent advisors, the directors have considered the period to 30 June 2024, as a reasonable time period given the variable outlook of cryptocurrencies and the Bitcoin halving due in April 2024. Based on the above considerations, the Board believes it is appropriate to adopt the going concern basis in the preparation of the Financial Statements. However, the Board notes that the significant debt service requirements and the volatile economic environment, indicate the existence of material uncertainties that may cast significant doubt regarding the applicability of the going concern assumption and the auditors have made reference to this in their audit report.

Revenue and Other Income Recognition

Mined income: The Group recognised revenue during the period in relation to mined crypto. The Group enters into contracts with the mining pool. The performance obligation is identified to be the delivery of crypto into the Group's wallet once an algorithm has been solved. The transaction price is the fair value of crypto mined, being the fair value per the prevailing market rate for that crypto currency on the transaction date, and this is allocated to the number of crypto mined. These criteria for performance obligation are assessed to have occurred once the crypto has been received in the Group's wallet. Mining earnings are made up of the baseline block reward and transaction fees of between 5% to 10%, however, these are bundled together in the daily deposits from mining and therefore are not capable of being analysed separately.

Management fees: The Group recognised management fees on the services provided to third parties for management of mining machines on their behalf, ensuring the machines are optimised and mining as efficiently as possible. The performance obligation is identified as the services are performed, and thus revenue is recorded over time.

Other Income: The Group receives credits and or coupons for the purchase and use of "Application-Specific Integrated Circuits ("ASICs") on a periodic basis for Bitcoin Mining. These credits are provided to the Group after it purchases ASICs based on the variance between the price paid by the Group versus the reduction in ASIC prices. The credits are transferable. The Group elects to sells the credits at the market rate to willing buyers upon receipt of the credits. Other income is recognised at the date the sale is completed.

Derivative Contracts - Hedging: In 2022, the Group used derivatives contracts in connection with some of its lending activities and its treasury management. Derivative contracts are susceptible to additional risks that can result in a loss of all or part of the investment. The Group's derivative activities and exposure to derivative contracts are subject to interest rate risk, credit risk, foreign exchange risk, and macroeconomic risks. In addition, Argo is also subject to additional counterparty risks due to its potential inability of its counterparties to meet the terms of their contracts. The Group participates in both Future and Forward contracts as well as option contracts. Some of these derivatives are listed on exchange whereas some of these are traded over the counter.

Basis of consolidation

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

The Group consists of Argo Blockchain plc and its wholly owned subsidiaries Argo Innovation Labs Inc, Argo Operating US LLC, Argo Holdings US Inc., 9366-5230 and 9377-2556.

In the parent company financial statements, investments in subsidiaries, joint ventures and associates are accounted for at cost less impairment.

The consolidated financial statements incorporate those of Argo Blockchain plc and all of its subsidiaries (i.e., entities that the Group controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes. On the basis that Argo Innovation Labs Limited was dormant during the year and is immaterial to the Group, it was not included in these consolidated financial statements.

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

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.

Business Combinations

The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquire and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Contingent consideration is classified either as equity or as a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss.

Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The Group's investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

The Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group's share of losses in an associate equal or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit/(loss) of associates in the income statement.

Gains and losses resulting from upstream and downstream transactions between the Group and its associate are recognised in the Group's financial statements only to the extent of unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

Dilution gains and losses arising in investments in associates are recognised in the income statement.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO or equivalent. The directors consider that the Group has only one significant reporting segment being crypto mining which is fully earned by a Canadian and USA subsidiary for the financial year ended 31 December 2022.

Loans and issued debt

Loans and issued debt are recognised initially at fair value, net of transaction costs incurred. Loans and issued debt are subsequently carried at amortised cost; any difference between the proceeds and the redemption value is recognised in the income statement over the period of the borrowings, using the effective interest method. Loans and issued debt are removed from the statement of financial position when the obligation specified in the contract is discharged, cancelled or expired. Loans and borrowings and issued debt are classified as current liabilities unless the Group has an unconditional right to defer settlement of a liability for at least 12 months after the end of the reporting period.

Intangible assets

Intangible fixed assets comprise of the Group's website and digital assets that were not mined by the Group and are held by Argo Labs (our internal team) as investments. The Group's website is recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recorded within administration expenses. Digital assets recorded under IAS 38 have an indefinite useful life initially measured at cost, and subsequently measured at fair value.

Argo's primary business is focused on cryptocurrency mining. Argo Labs is an in-house innovation arm focused on identifying opportunities within the disruptive and innovative sectors of the broader cryptocurrency ecosystem. Argo Labs uses a portion of Argo's crypto assets to deploy into various blockchain projects.

Increases in the carrying amount arising on revaluation of digital assets are credited to other comprehensive income and shown as other reserves in shareholders' equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against the fair value reserve directly in equity; all other decreases are charged to the income statement.

The fair value of intangible cryptocurrencies on hand at the end of the reporting period is calculated as the quantity of cryptocurrencies on hand multiplied by price quoted on www.coingecko.com, one of the leading crypto websites, as at the reporting date.

Costs relating to the development of website are capitalised once all the development phase recognition criteria of IAS 38 "Intangible Assets" are met. Amortisation is charged on a straight-line basis over the estimated useful life of 5 years. The useful life represents management's view of the expected period over which the Group will receive benefits from the Website, as well as anticipation of future events which may impact their useful life, such as changes in technology.

Goodwill is initially measured at cost (being the excess of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held of the net identifiable assets acquires and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the difference is recognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss.

Tangible fixed assets

Tangible fixed assets comprise of right of use assets, office equipment, mining and computer equipment, data centres, leasehold improvements, and electrical equipment.

Right of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjust for any remeasurement of lease liabilities. The cost of the right of use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right of use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

Office equipment assets are measured at cost, less any accumulated depreciation and impairment losses. Office equipment is depreciated over 3 years on a straight-line basis.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of amortisation and any impairment losses. Cost includes the original purchase price of the asset and any costs attributable to bringing the asset to its working condition for its intended use. An item of property, plant and equipment is recognised as an asset if it is probable that future economic benefits associated with the asset will flow to the entity, and the cost of the asset can be measured reliably.

Data centres: Depreciation on the data centres is recognised so as to write off the cost or valuation of assets less their residual values over their estimated useful lives of 25 years on a straight-line basis from when they are brought into use. Depreciation is recorded in the Income Statement within general administrative expenses once the asset is brought into use. Any land component is not depreciated.

Mining and computer equipment and leasehold improvements: Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their estimated useful lives. It is 3 to 4 years in the case of mining and computer equipment and 5 years in the case of the leasehold improvements, on a straight-line basis. Depreciation is recorded in the Statement of Comprehensive Income within direct costs.

Electrical equipment: Depreciation is recognised on a straight-line basis to write off the cost less their residual values over their estimated useful lives of 3 years.

Management assesses the useful lives based on historical experience with similar assets as well as anticipation of future events which may impact their useful life.

Impairment of non-financial assets

At each reporting period end date, the Group reviews the carrying amounts of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group and Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Digital assets

Digital assets consist of mined bitcoin, and do not qualify for recognition as cash and cash equivalents or financial assets and have an active market which provides pricing information on an ongoing basis.

The Group has assessed that it acts in a capacity as a commodity broker-trader as defined in IAS 2, Inventories, in characterising its holding of Digital assets as inventory. If assets held by commodity broker-traders are principally acquired for the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders' margin, such assets are accounted for as inventory, and changes in fair value (less costs to sell) are recognised in profit or loss. Digital assets are initially measured at fair value. Subsequently, digital assets are measured at fair value with gains and losses recognised directly in profit or loss.

Digital assets are included in current assets as management intends to dispose of them within 12 months of the end of the reporting period. Digital assets are cryptocurrencies mined by the Group. Cryptocurrencies not mined by the Group are recorded as Intangible Assets (see note 18).

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and demand deposits with banks and other financial institutions, that are readily convertible into known amounts of cash, and which are subject to an insignificant risk of changes in value. The Group considers the credit risk on cash and cash equivalents to be limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.

Financial instruments

Financial assets: Financial assets are recognised in the Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument. Financial assets are classified into specified categories. The classification depends on the nature and purpose of the financial assets and is determined at the time of recognition. Financial assets are subsequently measured at amortised cost, fair value through OCI, or fair value through profit and loss.

The classification of financial assets at initial recognition that are debt instruments depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them. The Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs.

In order for a financial asset to be classified and measured at amortised cost, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.

Subsequent measurement: For purposes of subsequent measurement, financial assets are classified in four categories:

●     Financial assets at amortised cost

●     Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)

●     Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)

●     Financial assets at fair value through profit or loss

Equity Instruments: The Group subsequently measures all equity investments at fair value. Dividends from such investments continue to be recognised in profit or loss as other income when the Group's right to receive payments is established. Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the statement of profit or loss as applicable.

Financial assets at amortised cost (debt instruments): This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met:

●     The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

●     The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Interest received is recognised as part of finance income in the statement of profit or loss and other comprehensive income. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group's financial assets at amortised cost include other receivables and cash and cash equivalents.

Derecognition: A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group's consolidated Balance sheet) when:

●     The rights to receive cash flows from the asset have expired; or

●     The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Impairment of financial assets: The Group recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

The Group recognises an allowance for ECLs for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original EIR. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For the years ended 31 December 2022 and 2021 the Group has not recognised any ECLs.

For other receivables due in less than 12 months, the Group applies the simplified approach in calculating ECLs, as permitted by IFRS 9. Therefore, the Group does not track changes in credit risk, but instead, recognises a loss allowance based on the financial asset's lifetime ECL at each reporting date.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows and usually occurs when past due for more than one year and not subject to enforcement activity.

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. The Company has an Intercompany loan due from its 100% Canadian subsidiary for which there is no formal agreement including payment date and therefore it cannot be considered to be in breach of an agreement and accordingly the loan is not subject to adjustments and is maintained at its book value in the financial statements.

Financial liabilities: Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group's financial liabilities include trade and other payables and loans.

Subsequent measurement: The measurement of financial liabilities depends on their classification, as described below:

Loans and trade and other payables: After initial recognition, interest-bearing loans and borrowings and trade and other payables are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in the statement of profit or loss and other comprehensive income when the liabilities are derecognised, as well as through the EIR amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss and other comprehensive income. This category generally applies to trade and other payables.

Derecognition: A financial liability is derecognised when the associated obligation is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss or other comprehensive income.

Equity instruments: Equity instruments issued by the Group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the Group. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Leases

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

Taxation

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

Current tax: The tax currently payable or receivable is based on taxable profit or loss for the year. Taxable profit or loss differs from net profit or loss as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax: Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred income tax assets are recognised on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the Company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

Employee benefits

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of non-current assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee's services are received.

Termination benefits are recognised immediately as an expense when the Company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

The Group does not have any pension schemes.

Share-based payments

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

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

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

As a result of the increase in share price and the impact of the estimation of share-based payments the Group has now recognised an expense for the outstanding share options and warrants.

Foreign exchange

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are determined in foreign currencies are retranslated at the rates prevailing on the reporting end date - Gains and losses arising on translation are included in the income statement for the period. At each reporting end date, non-monetary assets and liabilities that are determined in foreign currencies are retranslated at the rates prevailing on the opening balance sheet date. Gains and losses arising on translation of subsidiary undertakings are included in other comprehensive income and contained within the foreign currency translation reserve.

Earnings per share

Basic earnings per share is calculated by dividing:

●     the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares;

●     by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares.

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:

●     the after-income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and

●     the weighted average number of additional ordinary shares that would have been outstanding, assuming the conversion of all dilutive potential ordinary shares.

 

4.         FINANCIAL RISK FACTORS

 

The Group's activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Group's overall risk management programme seeks to minimise potential adverse effects on the Group's financial performance. Risk management is undertaken by the Board of Directors.

Market Risk

The Group is dependent on the state of the cryptocurrency market, sentiments of crypto assets as a whole, as well as general economic conditions and their effect on exchange rates, interest rates and inflation rates. During the year the Group sold its digital assets held at 31 December 2021 at a significant loss. The Group now sells its Bitcoin production as it is mined to reduce the impact of Bitcoin prices.

The Group is also subject to market fluctuations in foreign exchange rates. The subsidiary (Argo Innovation Labs Inc.) is based in Canada, and transacts in CAD$, USD$ and GBP. 9377-2556 Quebec Inc. and 9366-5230 Quebec Inc. are based in Canada and transact in CAD. Argo Innovations Facilities (US) Inc., Argo Holdings US Inc. and Argo Operating US LLC are located in the United States of America and transacts in USD. The Group bond is denominated in USD. Cryptocurrency is primarily convertible into fiat through USD currency pairs and through USD denominated stable coins and is the primary method for the Group for conversion into cash. The Group maintains bank accounts in all applicable currency denominations.

Foreign currency sensitivity

The following tables demonstrate the sensitivity to a reasonable possible change in USD and CAD exchange rates, with all other variables held constant. The impact on the Group's profit before tax is due to changes in the fair value of monetary assets and liabilities.

 

	Change in USD rate	Effect on profit before tax	Effect on pre-tax equity
		£'000	£'000
2022	+/-10%	+/- 4,302	-
2021	+/-10%	+/-250	+/-87

 

	Change in CAD rate	Effect on profit before tax	Effect on pre-tax equity
		£'000	£'000
2022	+/-10%	+/- 1,471	-
2021	+/-10%	+/-1,611	+/-3,208

 

 

Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonable possible change in interest rates on the portion of the loans and borrowings affected. With other variables held constant, the impact on the Group's profit before tax is affected through the impact on floating rate borrowings, as follows.

	Increase/decrease in basis points	Effect on profit before tax
		£'000
2022	+/-180	+/-522
2021	0%	+/-0

 

Credit risk

Credit risk arises from cash and cash equivalents as well as any outstanding receivables. Management does not expect any losses from non-performance of these receivables. The amount of exposure to any individual counter party is subject to a limit, which is assessed by the Board.

The Group considers the credit risk on cash and cash equivalents to be limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. However, the banking sector is not currently favourable toward crypto based businesses in all of the jurisdictions that the Group operates and as such the Group has opened accounts with a number of Tier 2 banks in order to mitigate the risk of an account being deactivated or closed by the bank. Management continues to assess various opportunities to partner with FDIC-insured banks and or financial institutions.

The Company considers the intercompany loan to its subsidiary (Argo Innovation Labs Inc.) to be fully recoverable based on review of projected cash flows and acceptance of regular payments directly to the Company's creditors.

The carrying amount of financial assets recorded in the financial statements represent the Group's and Company's maximum exposure to credit risk. The Group and Company do not hold any collateral or other credit enhancements to cover this credit risk.

Liquidity risk

Liquidity risk arises from the Group's management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

Management updates cashflow projections on a regular basis and closely monitors the cryptocurrency market on a daily basis. Accordingly, the Group's controls over expenditure are carefully managed, in order to maintain its cash reserves. The Treasury committee meets on a weekly basis to make decisions around future cashflows and working capital requirements. Decisions may include considering debt/equity options alongside selling Bitcoin.

The table below analyses the Group's non-derivative financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings, based on the remaining period at the Statement of Financial Position to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows.

The Group complied with all covenants during the year and through the reporting date.

 

	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
At 31 December 2022
Loans	9,624	11,314	10,178	-
Lease liabilities	4	8	12	424
Issued debt - bonds	-	-	31,356	-
At December 2021
Loans	23,901	2,188	693	-
Lease liabilities	21	42	63	251
Issued debt - bonds	-	-	26,908	-

 

Capital risk management

The Group's objectives when managing capital is to safeguard the Group's ability to continue as a going concern, in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders or issue new shares.

The Group carefully monitors its EBITDA vs. debt, net assets vs. debt and market capitalisation vs. debt ratios. Please see the net debt tables below the cashflows and note 27 showing the fair value hierarchy of liabilities.

 

5.         ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS

The Group has adopted all recognition, measurement and disclosure requirements of IFRS, including any new and revised standards and Interpretations of IFRS, in effect for annual periods commencing on or after 1 January 2022. The adoption of these standards and amendments did not have any material impact on the financial result or position of the Group.

At the date of authorisation of these financial statements, the following Standards and Interpretation, which have not yet been applied in these financial statements, were in issue but not yet effective:

Standard or Interpretation	Description	Effective date for annual accounting period beginning on or after
IAS 1	Amendments - Presentation and Classification of Liabilities	TBC
IFRS 16	Amendments - Lease liability in a sale and leaseback	TBC
IAS 1	Amendments - Disclosure of Accounting Policies	1 January 2023
IAS 8	Amendments - Definition of Accounting Estimates	1 January 2023
IAS 12	Amendments - Deferred Tax related to Assets and Liabilities arising from a Single Transaction	1 January 2023
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 31 December 2022	Year ended 31 December 2021
		£'000	£'000
Crypto currency mining - worldwide		47,267	70,325
Crypto currency management fees - United States		96	3,879
Total revenue		47,363	74,204

Due to the nature of Cryptocurrency mining, it is not possible to provide a geographical split of the revenue stream.

 

Cryptocurrency mining revenues are recognised at a point in time.

 

Cryptocurrency management fees are services recognised over time.

 

Other Income

 

Argo held 2,441 Bitcoin (fair valued at £80m as at 31 December 2021) on its balance Sheet at the beginning of 2022. The Group used up to 1,504 Bitcoins as collateral with Galaxy Digital LP for a short-term payable on demand loan of USD$30 million (£22.2m) taken out on December 23, 2021. To protect its Bitcoin holdings used as collateral for the loan and reduce overall exposure, Argo took positions in the markets which resulted in a net hedge gain of £1.7m for 2022.

 

		2022	2021
Gain on Hedging		£'000	£'000
Gain on Hedging		1,695	-
Total gain on hedging		1,695	-

 

 

8.         EXPENSES BY NATURE

				2022		2021
Direct Costs				£'000		£'000
Depreciation of mining hardware				16,549		11,129
Hosting and other costs				21,634		11,057
Total direct costs				38,183		22,186
		2022			2021
Administrative expenses		£'000			£'000
Legal, professional, and regulatory fees		12,763			1,533
Salary and other employee related costs		9,610			2,662
Depreciation and amortisation		6,900			382
Insurance		6,027			1,408
Indirect taxes		3,684			-
Freight, postage & delivery		1,314			-
Consulting fees		828			684
Repairs and maintenance		863			692
Office general expenses		840			424
Travel		678			128
Public relations and associated activities		519			699
Impairment of intangible assets		-			535
Hedging costs		-			326
Carbon credits		-			252
Audit fees		310			239
Bank charges		240			247
Capital loss		116			-
Research costs		91			-
Write off of variable contingent consideration		-			(352)
Settlement re Crypto mining management fees		-			(1,561)
Foreign exchange gain (loss)		(17,250)			589
Total operating costs and administrative expenses		27,534			8,887
		2022			2021
Finance Costs		£'000			£'000
Interest on loans, including associated prepayment penalties		18,321			2,142
Total finance costs		18,321			2,142

 

9.         AUDITOR'S REMUNERATION

		2022	2021
		£'000	£'000
In relation to statutory audit services		251	170
Other audit assurance services		59	52
Total auditor's remuneration		310	222

10.        EMPLOYEES

The average monthly number of persons (including directors) employed by the Group during the period was:

		2022	2021
		Number	Number
Directors and employees		82	26

Their aggregate remuneration comprised:

		2022	2021
		£'000	£'000
Wages and salaries		8,934	2,286
Social security costs		646	199
Pension costs		30	25
Share based payments		4,928	1,392
		14,538	3,902

 

The average monthly number of persons (including directors) employed by the Company during the period was:

		2022	2021
		Number	Number
Directors and employees		6	4

Their aggregate remuneration comprised:

		2022	2021
		£'000	£'000
Wages and salaries		1,072	406
Social security costs		44	8
Pension costs		12	1
Share based payments		4,928	330
		6,056	745

 

 

11.        DIRECTOR'S REMUNERATION

 

		2022	2021
		£'000	£'000
Director's remuneration for qualifying services		1,285	856
Senior management loss of office		-	132
Share based payments		1,522	431
Total remuneration for directors and key management		2,807	1,419

The amounts above are remunerated through both salaries (of which, some are included in 10) and through service companies (as disclosed in note 29). Further details of Directors' remuneration are available in the Remuneration report. The highest paid director during the year earned £588k (2021 - £455k).

12.        EARNINGS PER SHARE

 

The basic earnings per share is calculated by dividing the profit/(loss) attributable to equity shareholders by the weighted average number of shares in issue.

 

The Group and Company has in issue 18,698,304 warrants and options at 31 December 2022 (2021: - 17,688,897).

 

	2022	2021
Net profit/(loss) for the period attributable to ordinary equity holders from continuing operations (£'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 (£'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 £'000 2021 £'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 £'000 2021 £'000 Origination and reversal of temporary differences 7,955 827 Total deferred tax liability 7,955 827   Total tax (credit)/charge (361) 8,506   No deferred tax has been recognised on the losses brought forward and carried interest on the UK, Canada and US losses given the uncertainty on the generation of future profits.   Income tax expense   The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:   2022 2021     £'000 £'000 Profit (loss) before taxation (194,592) 39,271   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 £34,000,000 (2021 - £10,476,000).

The weighted average applicable tax rate was 25% (2021: 25%).

The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax liabilities	2022 £'000		2021 £'000
Digital assets	(286)		286
Gain on fair value of property acquired (see note 17)	442		442
Share of other comprehensive income of associates	-		99
Property, plant and equipment	8,626		-
Total deferred tax	8,782		827
Current portion	2,196		286
Non-current	6,586		541

 

A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, Her Majesty's Revenue & Customs ("HMRC"), the IRS or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies, including amounts paid with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions.

14.        INVESTMENT IN SUBSIDIARIES AND LOSS ON SALE OF SUBSIDIARY

 

Company

Details of the Company's subsidiaries at 31 December 2022 and 31 December 2021 are as follows:

Name of Undertaking			Country of Incorporation	Ownership Interest (%)	Voting Power Held (%)		Nature of Business
Argo Innovation Labs Inc.			Canada	100%	100%		***
Argo Innovation Labs Limited			UK	100%	100%		Dormant
Argo Innovation Facilities (US) Inc.			USA	100%	100%		*
9377-2556 Quebec Inc.			Canada	100%	100%		**
9366-5230 Quebec Inc.			Canada	100%	100%		**
Argo Holdings US Inc.			USA	100%	100%		****
Argo Operating US LLC			USA	100%	100%		*

* The provision of cryptocurrency mining services

** The provision of cryptocurrency mining sites

*** Converted from the provision of cryptocurrency mining services to cost centre in 2022

**** Holding company

Investment in subsidiaries	2022 £'000	2021                           £'000
At 1 January	12,181	-
Additions	53,494	12,181
Disposals	(12,181)	-
At 31 December	53,494	12,181

 

The cost of the investment above is in respect of the DPN LLC acquisition further detail can be found in note 19.

9377-2556 Quebec Inc. and 9366-5230 Quebec Inc. are the GPU.One subsidiaries acquired on 11 May 2021 with registered addresses of 8 avenue William Dobell, Baie-Comeau, Quebec G4Z 1T7 and 10205 Irene Vachon, Mirabel, Quebec J7N 3E3 respectively. More information on this acquisition can be found in note 17.

Argo Holdings US Inc. was incorporated on November 22, 2022, with a registered office of 1209 Orange Street, Wilmington, Delaware, USA, 19801. The Company contributed shares in Argo Innovation Facilities (US) valued at £53.5m.

Argo Operations US LLC was formed on November 22, 2022, with a registered office of 1209 Orange Street, Wilmington, Delaware, USA, 19801.

Argo Innovation Facilities (US) Inc was incorporated on 25 February 2021 with a registered address of 2028 East Ben White Blvd. Austin, TX 78740. This entity held the Helios facility and real property in Dickens County, Texas. On 21 December 2022, Argo Innovation Facilities (US) Inc. was converted to Galaxy Power LLC. Galaxy Power LLC was sold on 28 December 2022 pursuant to an equity purchase agreement. The proceeds received for the sale were £53.0 million against a book value £97.8 million resulting in a loss on sale for the Group of £44.8 million.

The effects of the disposal of Galaxy Power LLC on the cash flows of the Group were:

		Group at 28 December 2022
Carrying amounts of assets and liabilities as at the date of disposal:		£'000
Cash and bank balances		1,357
Property, plant and equipment		104,888
Trade and other debtors		297
Total assets		106,542
Trade and other creditors		9,764
Total liabilities		9,764
Net assets disposed of		96,778
Cash inflows arising from disposal:
Proceeds used to paydown existing debt		70,654
Issuance of new loan		(25,356)
Proceeds received in cash for new loans		6,676
Total Proceeds		51,974
Net assets disposed of (as above)		96,778
Loss on disposal		(44,804)

15.        INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Non-current Group	2022 £'000		2021 £'000
At 1 January	403		1,393
Foreign exchange movement	20		-
Additions	249		219
Fair value through profit or loss	(328)		183
Disposals	-		(1,392)
At 31 December	344		403

 

 

 

16.        INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

			2022	2021
			£000's	£000s
Opening balance			13,817	-
Acquired during the period			-	8,444
Share of loss			(4,872)	(1,198)
Share of fair value (losses)/gains on intangible assets through other 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 registered office	% of ownership interest	Nature of relationship	Measurement method
Emergent Entertainment PLC (Previously Pluto Digital plc)	Hill Dickinson LLP, 8th Floor The Broadgate Tower, 20 Primrose Street, London, United Kingdom, EC2A 2EW	19.94%	Refer below	Equity

On 3 February 2021 Argo invested in Pluto Digital PLC ("Pluto"), a crypto venture capital and technology company. The investment was satisfied with 75,000 Polkadot with a fair value at that date of £1.1m. Further to this in a second round of funding the Group invested an additional £7.4m on 8 March 2021.

In addition, Argo holds 121,666,666 warrants at a price of £0.12 each and 35,450,000 warrants at a price of £0.06 each. If Pluto was fully diluted Argo's ownership would be 33.26% as at 31 December 2022 including the exercise of the share warrants.

The warrants expired unexercised in February and March 2023. 

In October 2022, Pluto merged with Maze Theory to become Emergent Entertainment PLC ("Emergent").

Argo owns 19.94% (2021 - 24.65%) of the total share capital and voting rights of the business. The Group retains the right to appoint a board member from Argo on Emergent's board based on its current ownership percentage.

Emergent Entertainment PLC is a next-generation entertainment company that brings storytellers and their audiences closer together by harnessing new technologies including virtual reality, augmented reality, artificial intelligence and blockchain.

Emergent Entertainment is a private company and there is no quoted market price available for its shares.

There are no contingent liabilities relating to the Group's interest in the associates.

The audited financial information for the period ended 30 September 2021, together with the unaudited management accounts for the period from 1 October 2021 to 31 December 2022, have been made available by Emergent to the Group and the figures in the above represent Argo's share of the loss for the period and movements in the fair value of the net assets (net of deferred tax).

 

Summarised financial information for associates

Set out below is the preliminary, unaudited financial information for Emergent Entertainment PLC which is accounted for using the equity method.

Summarised Statement of Financial Position

Current	As at December 31, 2022 £000's		As at December 31, 2021 £000's
Cash and cash equivalents	2,964		1,759
Other current assets (excluding cash)	3,650		335
Total current assets	6,614		2,094
Trade payables	280		88
Other current liabilities	74		1,494
Total current liabilities	354		1,582
Non-current
Tangible fixed assets	106		49
Investments and other non-current assets	11,596		56,000
Total non-current assets	11,702		56,049
Financial liabilities	4,809		2,807
Total non-current liabilities	4,809		2,807
Net assets	13,153		53,754

 

Summarised Statement of Comprehensive Income, Emergent Entertainment PLC

	2022		January 12 to December 31, 2021
	£000's		£000's
Revenue	352		-
Cost of sales	(224)		-
Gross profit	(128)		-
Operating costs	(12,088)		7,652
Revaluation loss - digital assets	(12,810)		(2,394)
Loss from operations	(24,770)		5,258
Non-operating costs	(209)		-
Income tax expense (recovery)	(2,579)		575
Post-tax loss	(23,400)		4,867
Other comprehensive income	(26,991)		26,991
Total comprehensive income (loss)	(49,391)		21,824

The information above reflects the amounts presented in the financial statements of the associate (and not Argo Blockchain Plc's share of those amounts) adjusted for differences in accounting policies between the Group and the associate.

Reconciliation of summarised financial information

		2022 £000's	2021 £000's
Summarised financial information (as adjusted)
Net assets, opening		56,052	-
Acquired during the period		-	34,228
Profit/(loss) for the period		(22,400)	(4,867)
Other comprehensive income		(26,991)	26,691
Closing net assets		6,661	56,052
Interest in associates (2022: 19.94%; 2021: 24.65%)*		2,374	13,818
Goodwill		-	-
Carrying value		2,374	13,818

 

*The percentage share of the associate profit or loss for the year was calculated and recorded on a month by month basis, based on the movements in the percentage ownership, from the unaudited management accounts.

 

17.        BUSINESS COMBINATION

GPU.One subsidiaries acquired from GPU.One Holding Inc.

On 11 May 2021, the Group acquired 100% of the share capital of GPU.One 9377-2556 Quebec Inc. and GPU.One 9366-5230 Quebec Inc. from its shareholder GPU.One Holding Inc. for a total consideration of £5.5m; consisting of £212k being satisfied in cash and the balance satisfied by the cancellation of certain prepayments and deposits previously paid by Argo to the vendor. Each of these acquired entities owned and operated a data centre within which Argo was the lead tenant.

The acquisition was performed to enable the Group to obtain control of its hosting facility and power costs across its facilities in Canada. From acquisition on 11 May 2021 to 31 December 2021 the GPU.One subsidiaries loss amounted to £3.4m which is fully consolidated. No revenue has been generated from these entities since acquisition, however both entities have provided hosting services to Argo Innovation Labs Inc. Both GPU.One entities were dormant up until the date of acquisition, when the relevant assets and liabilities acquired were transferred by GPU.One Holding Inc. to these entities immediately prior to acquisition. There is no difference between the amount consolidated within profit and loss and the amount which would have been consolidated if the acquisition happened on 1 January 2021.   

The consideration was negotiated on an arm's length basis and primarily on the basis of the valuation of the land and buildings being acquired. The directors attribute the consideration as fair value of the land and buildings with no goodwill being recognised as currently Argo does not anticipate hosting any third parties at these sites in the medium term.

The fair values of the acquisition date assets and liabilities, together with any separately identifiable intangible assets, have been provisionally determined at 30 September 2021 because the acquisition was completed late in the period. The Group is currently obtaining the information necessary to finalise its valuation.

On a £1 for £1 basis certain deposits and other receivables totalling £668k were acquired. The directors consider these amounts fully recoverable and as such these receivables have not been impaired. Liabilities assumed are incorporated at their cost.

The following table summarises the consideration paid for the GPU.One subsidiaries and the fair value of assets acquired and liabilities assumed at the acquisition date:

 

Consideration

       

	£'000
Cash	213
Payment for deposits	668
Cancellation of prepayment and deposits	4,656
Total consideration	5,537

 

 

Recognised amounts of identifiable assets acquired, and liabilities assumed

 

	£'000
Cash and cash equivalents	4
Property, plant and equipment (Note 11)	10,779
Trade and other receivables	387
Trade and other payables	(326)
Property mortgages	(5,010)
Lease liability	(377)
Goodwill	80
Total	5,537

 

 

Fair value of assets acquired was assessed in line with independent valuations provided by CBRE of the sites. Given the continued demand for power sites and data centres in North America the Directors consider the valuations to be prudent, however they are still in line with the fair value and consideration paid for the entities, primarily (as discussed above) for Argo to gain access to the low cost of power and direct control of management of the miners at those sites. No acquisition costs have been recognised in the above calculations.

18.        INTANGIBLE FIXED ASSETS 

Group		Goodwill	Digital assets	Website	2022 Total
		£'000	£'000	£'000	£'000
Cost
At 1 January 2022		80	5,303	671	6,054
Additions		-	1,728	-	1,728
Disposals		-	(2,058)	-	(2,058)
At 31 December 2022		80	4,973	671	5,724
Amortisation and impairment
At 1 January 2022		-	121	450	571
Foreign exchange movement			(1,321)	(18)	(1,339)
Fair value movement			4,601	-	4,601
Amortisation charged during the period		-	-	147	147
At 31 December 2022		-	3,309	579	3,888
Balance at 31 December 2022		80	1,572	92	1,744

 

Group		Goodwill	Digital assets	Website	2021 Total
		£'000	£'000	£'000	£'000
Cost
At 1 January 2021		-	-	671	671
Additions		80	18,216	-	18,296
Disposals		-	(12,792)	-	(12,792)
At 31 December 2021		80	5,424	671	6,175
Amortisation and impairment
At 1 January 2021		-	-	303	303
Foreign exchange movement		-	-	9	9
Impairment		-	535	-	535
Fair value gain			(414)	-	(414)
Amortisation charged during the period		-	-	138	138
At 31 December 2021		0	121	450	571
Balance at 31 December 2021		80	5,303	221	5,604

 

Digital assets are cryptocurrencies not mined by the Group. The Group held crypto assets during the year, which are recorded at cost on the day of acquisition. Movements in fair value between acquisition (date mined) and disposal (date sold), and the movement in fair value in crypto assets held at the year end, impairment of the intangible assets and any increase in fair value are recorded in the fair value reserve.   The digital assets held below are held in Argo Labs (a division of the Group) as discussed above. The assets are all held in secure custodian wallets controlled by the Group team and not by individuals within the Argo Labs team. The assets detailed below are all accessible and liquid in nature. As at 31 December 2022 Crypto asset name Coins / tokens Fair value £'000 Token deals - 771 Ethereum - ETH 518 519 Polkadot - DOT 32,964 118 Alternative coins - 164 As at 31 December 2022   1,572