120% revenue and 5 times EBITDA growth delivers first annual profit
Argo Blockchain Plc, a global leader in cryptocurrency mining (LSE: ARB), is pleased to announce its audited results for the year ended 31 December 2020.
Financial highlights
- Revenue increased by 120% to £19.0m (2019: £8.6m)
- Total number of Bitcoins mined rose from 1,330 in 2019 to 2,465 in 2020, an 85% increase in annual production
- Mining margin 41% (2019: 60%) despite challenging market conditions, including Bitcoin halving in May 2020 and the global impact of the COVID-19 pandemic
- Administrative expenses were reduced by £1.1m to £2.4m as a result of series of cost reduction efforts
- Achieved EBITDA* of £7.9m in 2020 compared with EBITDA* of £1.4m in 2019
- Delivered net profit of £1.7m (2019: £0.7m net loss)
- Cash and digital assets held as at 31 December 2020 amounted to £6.7m (2019: £1.2m)
- As at 31st March 2021, the Group held 764 Bitcoin and equivalents valued at a £32.6m based on the Bitcoin price at that time
*Earnings before interest, tax, depreciation and amortisation
Operating highlights
- Strong execution of "smart growth" strategy by new leadership team under chief executive officer Peter Wall and executive chairman Ian MacLeod following their respective appointments in January 2020
- Mining capacity expanded from 210 petahash in January 2020 to 645 petahash on SHA-256 and from 180 Megasols to 280 Megasols on Equihash
Post balance sheet events
- All mining machines currently mining have achieved over 100% ROI*, including those installed in January and February of 2021
- Acquired 320 acres of land in west Texas for a total consideration of US$17.5m with access to some of the lowest-cost clean electricity to support a hosting facility project as part of the next phase of smart growth in 2022
- Raised £49m in new equity for investment in mining rigs, Texas development, blockchain/fintech ventures including a significant equity investment in Pluto Digital Assets Plc, and working capital
- Memorandum of understanding signed with DMG Blockchain Solutions to create Terra Pool, the first "green" Bitcoin mining pool to be powered by clean energy, in response to climate change concerns
- Shares admitted to trading on the OTCQB Venture Market in January 2021 and upgraded to trading on the OTCQX Best Market in February 2021
- On 2 February 2021, the Group signed a Sale and Purchase Agreement with GPUone for the purchase of two data centres in Quebec
- Q1 2021 was the most profitable quarter to date with 387 Bitcoin mined, revenues of £13.4 million and a mining margin of 81%
*ROI defined as yield of mining being greater than machine cost
Current Trading and Outlook
- Strong start to trading in Q1 2021 driven by rise in Bitcoin prices and stable mining difficulty
- Continued investment in new mining capacity, new ventures and strong balance sheet has positioned Argo for long-term growth
- Well placed to benefit from robust trading conditions amid buoyant demand for cryptocurrency
Commenting on the results, Peter Wall, CEO, said: "Argo crossed a major inflexion point in 2020 in its history by achieving full-year profitability on a 120% increase in revenue, our second consecutive year of triple-digit top-line growth. With a proven management team, world-class mining infrastructure, and strong tailwinds from the industry's recent growth, the Board looks forward to the future with great confidence."
About Argo:
Argo Blockchain Plc is a global leader in cryptocurrency mining with one of the largest and most efficient operations powered primarily by clean energy. The Group is headquartered in London, UK and its shares are listed on the Main Market of the London Stock Exchange under the ticker: ARB and on the OTCQX Best Market in the United States under the ticker: ARBKF.
www.argoblockchain.com
Chairman's Statement
I am delighted to report that 2020 was a transformational year for Argo as it moved into annual profits for the first time since inception. During the past year, Argo focused on operational excellence and a revised "smart growth" strategy, which we set out following the appointment of Peter Wall as CEO and myself as executive chairman early last year.
Our immediate focus in the first half of 2020 was to manage a major scale-up of mining operations on time and budget while navigating through challenging trading conditions in the cryptocurrency sector, as well as the Bitcoin halving in May 2020, which impacted our mining margins. The emergence of COVID-19 also presented additional challenges although the pandemic had no direct impact on our business.
Despite these headwinds, the team made excellent progress across all fronts, culminating in a strong finish to the year as Argo's state-of-the-art and enlarged mining infrastructure was already in place to benefit from a sustained rally in cryptocurrency prices late in the year.
Revenue increased by 120% to almost £19m reflecting a 207% increase in petahash mining infrastructure from 210 petahash at the end of 2019 to 645 petahash on SHA-256 and from 180 Megasols to 280 Megasols on Equihash. In addition, Argo secured an agreement to acquire two clean energy mining facilities in Quebec, giving the Group greater control over its hosting costs.
The Group increased EBITDA from £1.4m in 2019 to £7.9m in 2020.
Profit before tax amounted to £1.4m against £0.9m loss in the previous year while earnings attributable to shareholders amounted to £1.7m, up from a £0.7m loss in 2019.
The results also reflect Argo's strategy to pursue "smart growth", which entailed a gradual investment in its mining infrastructure when hardware prices were competitive, while enhancing mining efficiency through optimisation of machine performance and energy costs. These factors enabled the Group to manage its cash resources through a highly volatile pricing environment for Bitcoin, which impacted mining margins and difficulty rates across the sector for much of the year.
However, late in the year the Bitcoin price began to rally from around $12,000 at the start of September to around $29,000 at the end of December, and has continued to push higher since, setting a record at $64,870 on 14 April 2021. Although cryptocurrency prices can be volatile, we are optimistic that there are sound fundamentals and that prices will remain robust.
We believe the gains that began late last year mark a sea-change in the cryptocurrency and blockchain industry due to a series of positive developments that demonstrate a growing acceptance of cryptocurrencies, in particular Bitcoin, as a new asset class, a means of exchange and store of value by corporate and institutional investors as well as consumers.
Bitcoin's credibility received a major boost after MicroStrategy, the Nasdaq-listed business intelligence company, and Tesla, the electric car maker, invested $2.2bn and $1.5bn, respectively, in the digital currency. This was followed by Tesla's decision to accept Bitcoin as payment for its vehicles. Recent initiatives by online payment companies such as PayPal and Square to support Bitcoin and other digital currencies, together with growing interest from blue-chip asset managers, such as Fidelity Investments, have provided further confidence and momentum in the cryptocurrencies, which we believe will continue to gain share over the long term.
We believe Argo is well positioned to capitalise on these long-term trends through its large and highly efficient mining infrastructure and experience. The Group will also continue to manage growth through the expansion of the size and quality of its mining infrastructure as well as strategic opportunities that leverage its leading market position.
We also invested £8.3m for an approximately 25% equity stake in Pluto Digital Assets Plc, a UK-based company that specialises in identifying emerging DeFi (decentralised finance) related opportunities including tokens and platforms. Argo's management believes that DeFi, along with proof-of-stake opportunities, can expand its leading position in the Bitcoin and proof-of-work consensus mechanism.
The Group has also taken significant steps in response to the growing importance of environmental, social and governance issues. In March 2021, we acquired 320 acres of land in west Texas, with access to up to 800 megawatts of clean energy at low prices. Initially, we intend to build a new 200-megawatt hosting facility, which will be our flagship mining centre in the United States and will be completed by the first quarter of 2022. Separately, a memorandum of understanding was signed with DMG Blockchain Solutions to launch Terra Pool, the first Bitcoin "green" mining pool powered exclusively by clean energy. This pool will initially consist of both Argo's and DMG's hashrate, which is mostly generated by hydroelectric resources.
Our strategic priority in 2021 remains to focus on continued "smart growth", to further expand our mining capacity and our facilities whilst investigating new and innovative opportunities in emerging cryptocurrencies and addressing our environmental responsibilities. We will focus on increasing returns from our installed base by optimising hardware performance to reduce power consumption from clean power, improve machine uptime and maintain among the best mining margins in the sector.
On behalf of the Board, I would like to thank all shareholders for their support and take this opportunity to welcome those from North America who have become Argo investors following our hugely successful commencement of trading on the OTC market in early 2021.
Throughout the year, the Argo team and commercial partners have worked hard and with dedication, and as a result the Group is well-positioned to deliver further growth. It is noteworthy that Peter Wall has elected to take his salary in Bitcoin as a mark of confidence in Argo's prospects.
Ian MacLeod
Executive Chairman
Operatingand financial review
The results reflect the impact of a major ramp-up of the Group's mining operations, which was completed ahead of schedule in the first half of the year amid difficult trading conditions and uncertainty caused by the halving of Bitcoin in May. This event occurs about every four years in the Bitcoin protocol and reduces the amount of new Bitcoin issued to miners as a reward for mining a block. The reduced reward results in greater pressure on inefficient miners and can also affect difficulty rates.
The Bitcoin halving, as anticipated by the management team, contributed to a decline in mining margins before a strong recovery late in the year. Despite the challenging conditions, the Group pushed through its growth strategy at pace and on budget, putting it in a position to capitalise on the eventual industry upturn, which came in the last quarter of the year when Bitcoin prices staged a strong rally.
As announced within our monthly RNS operational updates, mining margin more than doubled from approximately 27% in June 2020 to approximately 60% in December 2020. This was due to the increase in the price of Bitcoin in Q3 and Q4 and the efficiency of our new generation mining infrastructure, as some older generation machines became unprofitable and went offline post-Bitcoin halving.
Overall mining capacity expanded from 210 petahash at three sites, to 645 petahash on SHA-256 and from 180 Megasols to 280 Megasols on Equihash at three sites in Canada and three sites in the United States by the end of 2020.
In addition to completing the ramp up in mining operations, Argo also focused on lowering administrative costs and optimising its mining performance with proprietary tools to lower energy cost and machine downtime.
The Group's total headcount since the year end rose from six to seven.
In Q1 2021, the Group has installed another 430 petahash of mining capacity, increasing its total hashing power to 1,075 petahash.
One of Argo's key metrics of success is the efficient allocation of capital. Through careful analysis of each purchase of mining machines before commitment, the Group has achieved an ROI* on all machines currently running. This includes the Bitmain S19 and S19 Pro machines acquired in November 2020 and installed in January and February 2021 which have beaten expectations by a significant margin and achieved an ROI within 3 months.
*ROI defined as yield of mining being greater than machine cost
Financial review
In 2020, a portion of Bitcoin generated by mining operations was held as a store of value for the longer term. The remaining proportion were sold for U.S. or Canadian dollars at regular intervals, in line with the Group's risk mitigation policy. The timing of such sales is determined by Argo's safe exposure strategy, designed and implemented by our management team led by Peter Wall.
Total administrative expenses were reduced by 31% from £3.6m to £2.4m. Note the fair value movement of the crypto assets previously disclosed within administrative expenses has been disclosed separately and above the gross profit line.
Depreciation of computer hardware amounted to £5.9m (2019: £2.1m) and was accounted under direct costs.
Total debt amounted to £7.4m as at 31 December 2020 compared with £1.1m in the previous year.
As at 31st March 2021, the Group held 764 Bitcoin and equivalents valued at a £32.6m based on the Bitcoin price at that time.
Outlook
As reported previously, the Group increased revenues to £13.4m at a mining margin of over 80% in the first quarter of 2021, its most profitable quarter to date.
Trading conditions remain robust as Argo's mining operations benefit from the continuing improvement in industry fundamentals and the rally in Bitcoin and other leading cryptocurrency prices since last year. These trends are being driven by rising global demand, growing acceptance and confidence in digital currencies as a new asset class.
These factors provide a strong background for another year of robust growth, though mining margins are expected to ease back from the 80% average level seen in the first quarter of this year.
With a world class platform and operational team, we believe Argo is in a great position to further capitalise on the industry's growth and the Board looks forward to the future with great confidence.
Independent Auditor's Report
Opinion
We have audited the financial statements of Argo Blockchain plc (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2020 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 international accounting standards in conformity with the Companies Act 2006 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 2020 and of the group's profit and parent company's loss for the year then ended;
- the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;
- the parent company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 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; and as regard to the group financial statements, international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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 with international accounting standards in conformity with the Companies Act 2006. 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 international accounting standards in conformity with the Companies Act 2006 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 and, as regards the group financial statements, international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. 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 group and 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 international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union 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.
GROUP STATEMENT OF COMPREHENSIVE INCOME
Year ended | Year ended | ||
31 December | 31 December | ||
2020 | 2019 | ||
Note |
|
| |
Revenue | Error! Reference source not found. | 18,957,417 | 8,616,879 |
Direct costs | Error! Reference source not found. | (17,106,462) | (5,559,796) |
Crypto asset fair value movement | 22 | 2,070,396 | (333,853) |
Gross profit | 3,921,351 | 2,723,230 | |
Administrative expenses | Error! Reference source not found. | (2,438,330) | (3,557,045) |
Reversal of credit loss provision | 8 | 447,242 | |
Share based payment expense | 23 | (331,733) | |
Operating profit/(loss) | 1,598,530 | (833,815) | |
Interest expense | 8 | (157,501) | (40,853) |
Finance income | 1,389 | 5,617 | |
Profit/(loss) before taxation | 1,442,418 | (869,051) | |
Tax on profit/(loss) | Error! Reference source not found. | ||
Profit/(loss) after taxation | 1,442,418 | (869,051) | |
| Other comprehensive income | |||
Items which may be subsequently reclassified to profit or loss: | |||
Currency translation reserve | Error! Reference source not found. | 264,612 | 178,240 |
Total other comprehensive income, net of tax | 264,612 | 178,240 | |
Total comprehensive income attributable to the equity holders of the Company | 1,707,030 | (690,811) | |
Earnings per share attributable to equity owners (pence) | |||
Basic earnings per share | Error! Reference source not found. | 0.6p | (0.2p) |
Diluted earnings per share | 13 | 0.5p | (0.2p) |
The income statement has been prepared on the basis that all operations are continuing operations.
GROUP STATEMENT OF FINANCIAL POSITION
As at | As at | ||
31 December | 31 December | ||
2020 | 2019 | ||
Note |
|
| |
ASSETS | |||
Non-current assets | |||
Investments at fair value through profit or loss | Error! Reference source not found. | 1,393,303 | 58,140 |
Financial assets fair valued through profit or loss | Error! Reference source not found. | 1,346,236 | |
Intangible fixed assets | Error! Reference source not found. | 367,768 | 481,935 |
Tangible fixed assets | Error! Reference source not found. | 10,524,232 | 15,399,312 |
Right of Use assets | 18 | 7,379,387 | |
Other receivables | Error! Reference source not found. | 4,114,727 | 4,151,400 |
Total non-current assets | 23,779,416 | 21,437,023 | |
Current assets | |||
Trade and other receivables | Error! Reference source not found. | 2,175,319 | 2,085,699 |
Digital assets at fair value through profit or loss | Error! Reference source not found. | 4,637,438 | 1,040,964 |
Cash and cash equivalents | 2,050,761 | 161,342 | |
Total current assets | 8,863,518 | 3,288,005 | |
Total assets | 32,642,934 | 24,725,028 | |
EQUITY AND LIABILITIES | |||
Equity | |||
Share capital | Error! Reference source not found. | 303,436 | 293,750 |
Share premium | Error! Reference source not found. | 1,540,497 | 25,252,288 |
Share based payment reserve | 23 | 75,233 | |
Foreign currency translation reserve | Error! Reference source not found. | 442,852 | 178,240 |
Accumulated surplus/(deficit) | Error! Reference source not found. | 21,964,870 | (4,986,336) |
Total equity | 24,326,888 | 20,737,942 | |
Current liabilities | |||
Trade and other payables | Error! Reference source not found. | 936,659 | 3,987,086 |
Lease liability | 27 | 3,469,672 | |
Total current liabilities | 4,406,331 | 3,987,086 | |
| Non-current liabilities | |||
Lease liability | 27 | 3,909,715 | |
Total liabilities | 8,316,046 | 3,987,086 | |
Total equity and liabilities | 32,642,934 | 24,725,028 |
COMPANY STATEMENT OF FINANCIAL POSITION
Company Registration No. 11097258 | |||
As at | As at | ||
31 December | 31 December | ||
2020 | 2019 | ||
Note |
|
| |
ASSETS | |||
Non-current assets | |||
Investments | Error! Reference source not found. | 1 | 1 |
Total non-current assets | 1 | 1 | |
Current assets | |||
Trade and other receivables | Error! Reference source not found. | 23,062,640 | 23,227,957 |
Cash and cash equivalents | 1,455,822 | 40,097 | |
Total current assets | 24,518,462 | 23,268,054 | |
Total assets | 24,518,463 | 23,268,055 | |
EQUITY AND LIABILITIES | |||
Equity | |||
Share capital | Error! Reference source not found. | 303,436 | 293,750 |
Share premium | Error! Reference source not found. | 1,540,497 | 25,252,288 |
Share based payment reserve | 23 | 75,233 | |
Accumulated surplus/(deficit) | Error! Reference source not found. | 22,429,233 | (2,469,233) |
Total equity | 24,348,399 | 23,076,805 | |
Current liabilities | |||
Trade and other payables | Error! Reference source not found. | 170,064 | 191,250 |
Total liabilities | 170,064 | 191,250 | |
Total equity and liabilities | 24,518,463 | 23,268,055 |
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 £610,322 (2019: £689,621).
GROUP STATEMENT OF CHANGES IN EQUITY
Share capital | Share premium | Foreign currency translation reserve | Retained earnings | Total | |
|
|
|
|
| |
Balance at 1 January 2019 | 293,750 | 25,252,288 | (4,117,285) | 21,428,753 | |
Total comprehensive loss for the period: | |||||
Loss for the period | (869,051) | (869,051) | |||
Other comprehensive income | 178,240 | 178,240 | |||
Total comprehensive income for the period | 178,240 | (869,051) | (690,811) | ||
Transactions with equity owners: | |||||
Issue of share capital net of issue costs | |||||
Balance at 31 December 2019 | 293,750 | 25,252,288 | 178,240 | (4,986,336) | 20,737,942 |
Share capital | Share premium | Foreign currency translation reserve | Share based payment reserve | Retained earnings | Total | |
|
|
|
|
|
| |
Balance at 1 January 2020 | 293,750 | 25,252,288 | 178,240 | (4,986,336) | 20,737,942 | |
Total comprehensive income for the period: | ||||||
Profit for the period | 1,442,418 | 1,442,418 | ||||
Other comprehensive income | 264,612 | 264,612 | ||||
Total comprehensive income for the period | 264,612 | 1,442,418 | 1,707,030 | |||
Transactions with equity owners: | ||||||
Shares to be issued* | 9,686 | 1,540,497 | 1,550,183 | |||
Share options/warrants charge | 331,733 | 331,733 | ||||
Share based payments lapsed/expired | (256,500) | 256,500 | ||||
Cancellation of share premium account | (25,252,288) | 25,252,288 | ||||
Total transactions with equity owners | 9,686 | (23,711,791) | 75,233 | 25,508,788 | 1,881,916 | |
Balance at 31 December 2020 | 303,436 | 1,540,497 | 442,852 | 75,233 | 21,964,870 | 24,326,888 |
*Shares to be issued relate to share options exercised and paid up pre year end, however the shares were formally issued post year end.
COMPANY STATEMENT OF CHANGES IN EQUITY
Share capital | Share premium | Share based payment reserve | Retained earnings | Total | |
|
|
|
|
| |
Balance at 1 January 2019 | 293,750 | 25,252,288 | (1,779,612) | 23,766,426 | |
Total comprehensive loss for the period: | |||||
Loss for the period | (689,621) | (689,621) | |||
Other comprehensive income | |||||
Total comprehensive income for the period | (689,621) | (689,621) | |||
Transactions with equity owners: | |||||
Issue of share capital net of issue costs | |||||
Balance at 31 December 2019 | 293,750 | 25,252,288 | (2,469,233) | 23,076,805 | |
Share capital | Share premium | Share based payment reserve | Retained earnings | Total | |
|
|
|
|
| |
Balance at 1 January 2020 | 293,750 | 25,252,288 | (2,469,233) | 23,076,805 | |
Total comprehensive loss for the period: | |||||
Loss for the period | (610,322) | (610,322) | |||
Other comprehensive income | |||||
Total comprehensive income for the period | (610,322) | (610,322) | |||
Transactions with equity owners: | |||||
Shares to be issued | 9,686 | 1,540,497 | 1,550,183 | ||
Share options/warrants charge | 331,733 | 331,733 | |||
Share based payments lapsed/expired | (256,500) | 256,500 | |||
Cancellation of share premium account | (25,252,288) | 25,252,288 | |||
Total transactions with equity owners | 9,686 | (23,711,791) | 75,233 | 25,508,788 | 1,881,916 |
Balance at 31 December 2020 | 303,436 | 1,540,497 | 75,233 | 22,429,233 | 24,348,399 |
GROUP STATEMENT OF CASH FLOWS
Year ended | Year ended | |||
31 December | 31 December | |||
2020 | 2019 | |||
Note |
|
| ||
Cash flows from operating activities | ||||
Operating profit/(loss) | 1,598,530 | (833,815) | ||
Adjustments for: | ||||
Depreciation/Amortisation | Error! Reference source not found. | 6,026,779 | 2,221,201 | |
Foreign exchange movements | 271,175 | 178,240 | ||
Loss on disposal of tangible assets | 66,157 | |||
Share based payment expense | 331,733 | |||
Interest expense | (157,501) | (40,853) | ||
Working capital changes: | ||||
(Increase) in trade and other receivables | Error! Reference source not found. | (89,620) | (4,058,043) | |
(Decrease)/increase in trade and other payables | Error! Reference source not found. | (2,106,788) | 2,684,300 | |
(Increase) in digital assets as receivables | Error! Reference source not found. | (3,578,381) | (1,038,882) | |
Net cash flow from/(used in) operating activities | 2,362,084 | (887,852) | ||
Investing activities | ||||
Investment in GPUone | Error! Reference source not found. | (58,140) | ||
Convertible loan note with GPUone | Error! Reference source not found. | (1,346,236) | ||
Foreign exchange on investing activities | 15,16, 19 | 47,746 | ||
Purchase of tangible fixed assets | Error! Reference source not found. | (1,807,971) | (15,025,708) | |
Proceeds from disposal of tangible fixed assets | 704,282 | |||
Interest received | 1,389 | 5,617 | ||
Net cash used in investing activities | (1,054,554) | (16,424,467) | ||
Financing activities | ||||
(Decrease)/Increase in loans | Error! Reference source not found. | (968,294) | 1,084,218 | |
Proceeds from shares to be issued | 25 | 1,550,183 | ||
Net cash generated from financing activities | 581,889 | 1,084,218 | ||
Net increase/(decrease) in cash and cash equivalents | 1,889,419 | (16,228,101) | ||
Cash and cash equivalents at beginning of period | 161,342 | 16,389,443 | ||
Cash and cash equivalents at end of period | 2,050,761 | 161,342 | ||
Material non-cash movements:
- During the year, the company converted the loan to GPUone into equity in that entity. Refer to Note 15.
COMPANY STATEMENT OF CASH FLOWS
Year ended | Year ended | ||
31 December | 31 December | ||
2020 | 2019 | ||
Note |
|
| |
Cash flows from operating activities | |||
Operating loss | (610,368) | (694,532) | |
Share based payment expense | 331,733 | ||
(Increase) in trade and other receivables | Error! Reference source not found. | (132,945) | (37,198) |
(Decrease)/increase in trade and other payables | Error! Reference source not found. | (21,186) | 128,250 |
Net cash flow from/(used in) operating activities | (432,766) | (603,480) | |
Investing activities | |||
Decrease/(Increase) in loan to subsidiary | Error! Reference source not found. | 298,262 | (12,478,403) |
Interest received | 46 | 4,911 | |
Net cash raised/(used) in investing activities | 298,308 | (12,473,495) | |
Financing activities | |||
Proceeds from shares to be issued | 25 | 1,550,183 | |
Net cash generated from financing activities | 1,550,183 |
| |
Net increase/(decrease) in cash and cash equivalents | 1,415,725 | (13,076,975) | |
Cash and cash equivalents at beginning of period | 40,097 | 13,117,072 | |
Cash and cash equivalents at end of period | 1,455,822 | 40,097 | |
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 Room 4, 1st Floor 50 Jermyn Street, London, United Kingdom, SW1Y 6LX. 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 Blockchain Canada Holdings Inc. (together "the Group"), incorporated in Canada, on 12 January 2019.
On 3 August 2019 the company placed 156,250,000 ordinary shares at a price of 16 pence per ordinary share and gained admission to the official list (by way of Standard Listing under chapter 14 of the Listing Rules) and to trading on the London Stock Exchange's main market for listed securities.
On 1 September 2019 the company acquired 100% of Argo Innovation Labs Limited (formerly Argo Mining Limited) for £1, which was dormant in the period ended 31 December 2019 and 2020.
The principal activity of the Group is that of crypto asset mining.
The financial statements cover the year ended 31 December 2020.
2. BASIS OF PREPARATION
The financial statements have been prepared in accordance with international accounting standards in conformity with the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. 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 £. Argo Innovations Labs Inc.'s functional currency is Canadian Dollars; all entries from this entity are presented in the Group's presentational currency of Sterling. Where Argo Innovation Labs Inc's 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).
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3.
3. SIGNIFICANT 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. The Directors have reviewed cash flow projections for a period of at 15 months from the date of approval of the Financial Statements. The Group currently has an increasing level of revenues and margin as crypto prices have increased significantly at the end of the year and post the year end. In making their assessment of going concern, the Directors acknowledge that the Group has increasing cash reserves from the exercise of share options and warrants and two private placements post year end and can therefore confirm that they hold sufficient funds to ensure the Group continues to meet its obligations as they fall due for a period of at least one year from date of approval of these Financial Statements. The Directors have considered the impacts of Covid-19 and conclude that there are no material factors that are likely to affect the ability of the Group to continue as a going concern. Accordingly, the Board believes it is appropriate to adopt the going concern basis in the preparation of the Financial Statements.
Revenue 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.
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 and Argo Innovation Labs Limited, the latter remaining dormant. Argo Innovation Labs Limited has been dormant since incorporation.
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 2020. 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.
Segmental reporting
The directors consider that the Group has only one significant reporting segment being crypto mining which is fully earned by the Canadian subsidiary.
Intangible assets
Intangible fixed assets comprising of the Group's website and supporting software platform relates partly to the user interface for customers, and as such has been revenue generating and will be should the Group return to mining as a service ('MaaS').
Intangible assets are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is recorded within administration expenses.
Costs relating to the development of website and software are capitalised once all the development phase recognition criteria of IAS 38 "Intangible Assets" are met. When the software is available for its intended use, 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.
Tangible fixed assets
Tangible fixed assets comprise of mining and computer equipment, and data centre improvements.
Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation 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.
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their estimated useful lives of 3 years in the case of mining and computer equipment and 5 years in the case of the data centre improvements, on a straight line basis. Depreciation is recorded in the Statement of Comprehensive Income within direct costs.
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, such as changes in technology.
Digital assets
Digital assets, including tokens and cryptocurrency, 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.
Impairment of fixed assets
At each reporting period end date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group and Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
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. Where the Group's management has elected to present fair value gains and losses on equity investments in OCI, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. 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 2020 and 2019 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 borrowings 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.
Financial instruments
The Group enters into forward, option and swap contracts to reduce its exposure to mining difficulty movements and crypto asset price risk. Derivative financial instruments are not used for speculative purposes and the group does not apply hedge accounting.
Derivatives financial instruments are initially recognised at fair value on the date the contract is entered into, and subsequently measured at fair value. Gains or losses on derivatives are recognised in the income statement.
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.
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 and general sentiment of crypto assets as a whole. During the year the Group managed the company's cryptocurrency through a carefully structured active management strategy for all Group held crypto assets. It is designed to protect the Company in the event that crypto prices decrease, but would also have the potential to provide an upside in a rising crypto asset market. This strategy was executed both internally and through a treasury services contract with Protos Asset Management, a Swiss-based company with a focus on asset management. Internally, the Argo team exchanged cryptocurrency to fiat currency on a weekly and monthly basis through exchange accounts held at Binance and Kraken. For treasury management Protos used a 'trend-following' strategy to adjust Argo's cryptocurrency holdings on a weekly basis into various cryptocurrencies and stable coins.
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. Crypto currency 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 monitors exchange rates on a constant basis and maintains bank accounts in all applicable currency denominations.
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.
The company considers the intercompany loan to its subsidiary (Argo Innovation Labs Inc.) to be fully recoverable through review of projected cash flows and acceptance of regular repayments.
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.
The Board 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.
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 entered into short-term financing arrangements during the year, to increase capital for mining hardware purchases. As at 31 December 2019, £1,084,218 was outstanding and was fully repaid by June 2020.
During the year the Group entered into a short-term loan to finance equipment purchases of £344,991. As at 31 December 2020 the balance outstanding was £115,924.
The Group entered into a long-term lease for a total of £7,379,388 to finance the purchase of mining hardware (disclosed as right of use assets). In accordance with the agreement nothing was repaid during the year.
The Group monitors capital on the basis of the total equity held by the Group, being £24,326,888 (2019: £20,737,942).
5. ADOPTION OF NEW AND REVISED STANDARDS AND INTERPRETATIONS
The Group and Company have 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 2020. The adoption of these standards and amendments did not have any material impact on the financial result of position of the Group and Company.
Standards which are in issue but not yet effective:
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 Classification of Liabilities as Current or Non-current | 1 January 2023 |
IAS 16 | Amendments Property, Plant and Equipment | 1 January 2022 |
IAS 8 | Amendments Definition of Accounting Estimates | 1 January 2023 |
IAS 1 | Amendments Disclosure of Accounting Policies | 1 January 2013 |
IFRS | Annual Improvements to IFRS Standards 2018-2020 | 1 January 2022 |
The Group and Company have 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.
Share-based payments Note 23
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 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 Error! Reference source not found.
Valuation of tangible and intangible fixed assets Note 17 and 18
The directors considered at length whether any further impairments were required on the value of the mining and computer equipment, and website and underlying software. In doing so they made use of forecasts of revenues and expenditure prepared by the Group and came to the conclusion that further impairment of those assets were unnecessary based on current forecasts.
Valuation of amounts due from group companies Note 21
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 were unnecessary based on current forecasts and performance during the first part of 2021.
Valuation of investments Note 15
The Board has reviewed the carrying value of investments at the year end. They have taken into account the underlying investments and post balance sheet events which give relevant third party valuations to those investments and have concluded those investments do not require impairment.
Recoverability of non-current other receivables Note 19
As with the valuation of investments in GPUone the Board has reviewed the post balance sheet events and the continued provision of services from GPUone on time and in line with expectations and as such have concluded that the deposits will be recoverable and are valued appropriately.
Valuation of cryptocurrencies Note 22
The Board monitors regularly the values of the cryptocurrencies and any market forecasts. During the period, the Group entered into crypto currency transactions, which were assessed for fair value in line with the requirements of IAS 2, Inventories. 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. Revaluations were made with such regularity that as at the end of the reporting period the carrying amount of the asset does not differ materially from its fair value. All revaluations were made with reference to level 1 information, being crypto currencies actively traded on the open market. As at 31 December 2020 the Group held £4,637,438 of crypto currency (see note Error! Reference source not found.
7. REVENUE
2020 | 2019 | ||
|
| ||
Canada (corporate reseller) | 239,453 | ||
Subscriber revenue worldwide | 9,509 | 29,242 | |
Crypto currency mining worldwide | 18,947,908 | 8,348,184 | |
Total revenue | 18,957,417 | 8,616,879 | |
Due to the nature of Crypto currency mining, it is not possible to provide a geographical split of the revenue stream.
Revenue is recorded at a point in time, being when it is credited to the Group's wallets.
8. EXPENSES BY NATURE
2020 | 2019 | ||
Direct costs |
|
| |
Depreciation of mining hardware | 5,895,573 | 2,083,636 | |
Hosting and other costs | 11,210,889 | 3,476,160 | |
Total direct costs | 17,106,462 | 5,559,796 |
2020 | 2019 | ||
Administrative expenses |
|
| |
Salary and other employee costs | 460,881 | 289,272 | |
Depreciation and amortisation | 131,206 | 137,565 | |
Legal, professional and regulatory fees | 249,440 | 607,190 | |
Foreign exchange losses | 271,175 | 401,038 | |
Consulting fees | 690,430 | 1,186,450 | |
Advertising fees | 113,027 | 104,806 | |
Travel and subsistence | 45,624 | 168,567 | |
Research costs | 20,000 | 103,973 | |
Senior management loss of office | 236,194 | ||
Loss on futures | 258,326 | ||
Other expenses | 198,221 | 321,990 | |
Total administrative expenses | 2,438,330 | 3,557,045 | |
2020 | 2019 | ||
Finance costs |
|
| |
Interest on short term loans | 157,501 | 40,853 | |
Total finance costs | 157,501 | 40,853 |
Reversal of credit loss provision
In the period ended 31 December 2018 the Group made a full provision against £834,000 receivable from Mirabaud Securities Limited as part of the Listing process on 3 August 2018. During the year ended 31 December 2020 the Group recovered £447,242. This represents the total monies which will be received against that initial amount.
9. AUDITOR'S REMUNERATION
2020 | 2019 | ||
|
| ||
In relation to statutory audit services | 100,000 | 50,000 | |
Other audit assurance services | 35,000 | ||
Total auditor's remuneration | 135,000 | 50,000 | |
10. EMPLOYEES
The average monthly number of persons (including directors) employed by the Group during the period was:
2020 | 2019 | ||
Number | Number | ||
Directors and employees | 6 | 7 | |
Their aggregate remuneration comprised:
2020 | 2019 | ||
|
| ||
Wages and salaries | 191,057 | 268,620 | |
Social security costs | 12,939 | 16,592 | |
Pension costs | 4,060 | ||
Share based payment charge | 23,664 | ||
227,660 | 289,272 | ||
The average monthly number of persons (including directors) employed by the company during the period was:
2020 | 2019 | ||
Number | Number | ||
Directors and employees | 1 | 1 | |
Their aggregate remuneration comprised:
2020 | 2019 | ||
|
| ||
Wages and salaries | 91,785 | 135,000 | |
Social security costs | 7,607 | 17,551 | |
Share based payment expense | 194 | ||
99,586 | 152,551 |
11. DIRECTORS' AND KEY MANAGEMENT REMUNERATION
2020 | 2019 | ||
|
| ||
Director's remuneration for qualifying services | 546,722 | 688,767 | |
Senior management loss of office | 236,194 | ||
Key management personnel | 578,103 | ||
Share based payment expense | 20,271 | ||
Total remuneration for directors and key management | 566,993 | 1,503,064 | |
The amounts above are remunerated through service companies (as disclosed in note Error! Reference source not found.). Further details of Directors' remuneration are available in the Remuneration report. The highest paid director during the year was Peter Wall, earning £251,241 (2019: Mike Edwards £343,555).
12. TAXATION
The actual charge/(credit) for the period can be reconciled to the expected charge/(credit) based on the profit or loss and the standard rate of tax as follows:
2020 | 2019 | ||
|
| ||
Profit/(loss) before taxation | 1,442,418 | (869,051) | |
Expected tax charge/(credit) based on a weighted average of 24% (UK and Canada) | 346,180 | (208,572) | |
Effect of expenses not deductible in determining taxable profit | 3,260 | 31,871 | |
Capital allowances in excess of depreciation | (100,861) | (1,141,206) | |
Other tax adjustments | (703,067) | 94,129 | |
Unutilised tax losses carried forward | 455,058 | 1,223,778 | |
Taxation charge in the financial statements |
|
| |
The group has tax losses available to be carried forward and used against trading profits arising in future periods of £10,031,918 (2019: £8,728,978). A deferred tax asset of £2,407,661 (2019: £2,094,955) calculated at a weighted average rate of 24% has not been recognised in respect of the tax losses carried forward on the basis that there is insufficient certainty over the level of future profits to utilise against this amount.
13. EARNINGS PER SHARE
The basic earnings per share is calculated by dividing the profit attributable to equity shareholders by the weighted average number of shares in issue.
The Group and Company has in issue 41,802,911 warrants and options at 31 December 2020.
2020 | 2019 | |
Net profit/(loss) for the period attributable to ordinary equity holders from continuing operations (£) | 1,707,030 | (690,811) |
Weighted average number of ordinary shares in issue | 303,435,997 | 293,750,000 |
Basic earnings per share for continuing operations (pence) | 0.6 | (0.2) |
| 2020 | 2019 | |
Net profit/(loss) for the period attributable to ordinary equity holders for continuing operations (£) | 1,707,030 | (690,811) |
Diluted number of ordinary shares in issue | 334,638,379 | 338,604,769 |
Diluted earnings per share for continuing operations (pence) | 0.5 | (0.2) |
| In 2019, given the loss for the year, the diluted earnings per share was the same as the basic earnings per share as this would otherwise be dilutive. | ||
14. INVESTMENT IN SUBSIDIARIES
Company | Shares in subsidiaries | ||
| |||
Cost and carrying value | |||
At 1 December 2019 | 1 | ||
Additions | |||
At 31 December 2019 | 1 | ||
Cost and carrying value | |||
At 1 January 2020 | 1 | ||
Additions | |||
At 31 December 2020 | 1 | ||
Details of the company's subsidiaries at 31 December 2020 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 |
** The provision of cryptocurrency mining services.
The company's interest in Argo Innovation Labs Inc. was acquired on incorporation of that Company, previously named Argo Blockchain Canada Holdings Inc., on 12 January 2019.
The registered office of Argo Blockchain Canada Holdings Inc. is 700-401 West Georgia Street, Vancouver BC V6B 5A1 Canada. On 8January 2020 that company changed its name to Argo Innovation Labs Inc.
On 1 September 2019 the Company acquired 100% of Argo Mining Limited for £1. The registered office is Room 4, 1st Floor 50 Jermyn Street, London, United Kingdom, SW1Y 6LX. On 14 January 2020 that company changed its name to Argo Innovation Labs Limited. This company was dormant in the year ended 31 December 2019 and 2020.
15. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Group |
| ||
At 1 January 2020 | 58,140 | ||
Additions: | 1,335,676 | ||
Foreign exchange movement | (513) | ||
At 31 December 2020 | 1,393,303 |
On 29 November 2020 the Group converted its loan note (CDN$2,314,334) in GPUone Holdings Inc into Class A shares. This investment represents an interest of approximately 10% of GPUone Holding Inc. as at 31 December 2020 (2019: 0.4%). See note 16.
16. FINANCIAL ASSETS FAIR VALUED THROUGH PROFIT OR LOSS
Group |
| ||
At 1 January 2020 | 1,346,236 | ||
Converted loan note | (1,335,676) | ||
Foreign exchange loss | (10,560) | ||
At 31 December 2020 |
|
On 29 November 2020 the Group converted its loan note (CDN$2,314,334) in GPUone Holdings Inc into Class A shares. See note 15.
17. INTANGIBLE FIXED ASSETS
Group | Website | ||||
| |||||
Cost | |||||
As at 31 December 2018 and 2019 | 671,921 | ||||
Additions | |||||
At 31 December 2020 | 671,921 | ||||
Amortisation and impairment | |||||
At 31 December 2018 | 52,421 | ||||
Amortisation charged during the period | 137,565 | ||||
At 31 December 2019 | 189,986 | ||||
Amortisation charged during the period | 114,167 | ||||
Impairment losses | |||||
At 31 December 2020 | 304,153 | ||||
Carrying amount | |||||
At 31 December 2019 | 481,935 | ||||
At 31 December 2020 | 367,768 | ||||
All intangible assets are held by the subsidiary, Argo Innovation Labs Inc.
18. TANGIBLE FIXED ASSETS
Group | Right of use Assets | Mining and Computer Equipment | Improvements to Datacentre | Total | |
|
|
|
| ||
Cost | |||||
At 31 December 2018 | 2,807,589 | 84,927 | 2,892,516 | ||
Additions | 15,025,708 | 15,025,708 | |||
At 31 December 2019 | 17,833,297 | 84,927 | 17,918,224 | ||
Foreign exchange movement | (136,479) | (136,479) | |||
Additions | 7,379,387 | 1,807,971 | 9,187,358 | ||
Disposals | (1,640,442) | (1,640,442) | |||
At 31 December 2020 | 7,379,387 | 17,864,347 | 84,927 | 25,328,661 | |
Depreciation and impairment | |||||
At 31 December 2018 | 421,711 | 13,565 | 435,276 | ||
Depreciation charged during the period | 2,066,248 | 17,388 | 2,083,636 | ||
At 31 December 2019 | 2,487,959 | 30,953 | 2,518,912 | ||
Foreign charge movement | 14,658 | 14,658 | |||
Depreciation charged during the period | 5,895,573 | 17,039 | 5,912,612 | ||
Depreciation on disposals | (1,021,140) | (1,021,140) | |||
At 31 December 2020 | 7,377,050 | 47,992 | 7,425,042 | ||
Carrying amount | |||||
At 31 December 2019 | 15,345,338 | 53,974 | 15,399,312 | ||
At 31 December 2020 | 7,379,387 | 10,487,297 | 36,935 | 17,903,619 | |
All property, plant and equipment is owned by the subsidiary, Argo Innovation Labs Inc. The right of use assets were contracted but not in use prior to 31 December 2020.
19. OTHER RECEIVABLES (NON-CURRENT)
Group | Company | Group | Company | |
2020 | 2020 | 2019 | 2019 | |
|
|
|
| |
Deposits | 4,114,727 | 4,151,400 | ||
Total carrying amount of other receivables | 4,114,727 | 4,151,400 |
On 26 June 2019 the Group agreed an amendment to the master service agreement with GPUone Holding Inc. whereby the service contract for the supply of hosting and power would attract lower costs and terminate on 26June 2022. Early termination of the contract by the Group would result in costs equivalent to 4 months of power usage, deductible from the deposit. These deposits are fixed and are to be drawn down upon during the final months of the contract term as a prepayment for hosting and power. The decrease in the year relates to foreign exchange movements only.
20. FINANCIAL INSTRUMENTS
Group | Company | Group | Company | |
2020 | 2020 | 2019 | 2019 | |
|
|
|
| |
Carrying amount of financial assets | ||||
Measured at amortised cost | ||||
Trade and other receivables | 144,607 | 22,949,160 | 74,929 | 23,173,994 |
Cash and cash equivalents | 2,050,761 | 1,455,822 | 161,342 | 40,097 |
Measured at fair value through profit loss | ||||
Total carrying amount of financial assets | 2,195,368 | 24,404,982 | 236,271 | 23,214,091 |
Carrying amount of financial liabilities | ||||
Measured at amortised cost | ||||
Trade and other payables | 548,293 | 10,397 | 2,463,501 | 78,000 |
Short term loans | 115,924 | 1,084,218 | ||
Lease liabilities | 7,409,387 | |||
Total carrying amount of financial liabilities | 8,073,604 | 10,397 | 3,547,719 | 78,000 |
The directors consider the carrying amounts of financial instruments in the financial statements approximate to their fair values.
21. TRADE AND OTHER RECEIVABLES
Group | Company | Group | Company | |
2020 | 2020 | 2019 | 2019 | |
|
|
|
| |
Amounts due from group companies | 22,875,732 | 23,173,994 | ||
Prepayments and other receivables | 811,684 | 108,336 | 268,842 | 33,975 |
Other taxation and social security | 1,363,635 | 78,572 | 1,816,857 | 19,988 |
Total trade and other receivables | 2,175,319 | 23,062,640 | 2,085,699 | 23,227,957 |
Amounts due from group companies consist of an intercompany loan made to the 100% subsidiary, Argo Innovation Labs Inc. and is eliminated on consolidation. This debtor is greater than 90 days and is considered recoverable through regular payments from the subsidiary.
Other receivables includes a prepayment for hosting to GPUone of £472,385 (2019: £nil).
Other taxation and social security consist of purchase tax recoverable in the UK and Canada. UK VAT debtors are greater than 90 days old as at 31 December 2020. Canadian GST and QST debtors are greater than 90 days as at 31 December 2020.
The directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
22. DIGITAL ASSETS
Group | 2020
| 2019
| ||
Brought forward | 1,040,964 | 2,082 | ||
Additions | ||||
Crypto assets purchased and received | 9,896,641 | 237,018 | ||
Crypto assets mined | 18,947,908 | 8,348,184 | ||
Total additions | 28,844,549 | 8,585,202 | ||
Disposals | ||||
Crypto assets sold | (27,318,471) | (7,212,466) | ||
Total disposals | (27,318,471) | (7,212,466) | ||
Fair value movements | ||||
Movements on crypto asset sales | (13,816) | (132,107) | ||
Loss on futures | (258,326) | |||
Movements on crypto assets held at the year end | 2,342,538 | (201,747) | ||
Total fair value movements | 2,070,396 | (333,854) | ||
Carried forward | 4,637,438 | 1,040,964 | ||
The Group mined crypto assets during the year, 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.
At the period end, the Group held crypto assets representing a fair value of £4,637,438. The breakdown of which can be seen below:
Group 2020 | |||
Crypto asset name | Coins/tokens | Fair value
| |
Bitcoin Bitcoin | 183 | 3,937,344 | |
Polkadot DOT | 75,000 | 515,176 | |
Ethereum ETH | 254 | 138,257 | |
Binance Coin BNB | 1,243 | 34,260 | |
USDT, USDC Tether (stable coin fixed to USD) | 26,509 | 19,553 | |
Alternative coins | 496 | ||
At 31 December 2020 | 4,637,438 | ||
Group 2019 | |||
Crypto asset name | Coins/tokens | Fair value
| |
Bitcoin | 63 | 339,839 | |
PAX and USDT (stable coin fixed to USD) | 404,108 | 321,615 | |
XTZ | 153,198 | 158,688 | |
ETH | 548 | 54,149 | |
BEAM | 66,967 | 27,600 | |
XRP | 130,143 | 19,001 | |
ZEC | 795 | 17,155 | |
LTC | 536 | 16,859 | |
BCH | 107 | 16,551 | |
EOS | 5,240 | 10,320 | |
Alternative coins | Various | 59,187 | |
At 31 December 2019 | 1,040,964 |
23. SHARE OPTIONS AND WARRANTS
The following options and warrants over Ordinary Shares have been granted by the company and are outstanding:
Options warrants | Grant date | Expiry date | Exercise price | Number of options and warrants outstanding at 31 December 2020 | Number of options and warrants exercisable at 31 December 2020 | |||
Warrants | 2 February 2018 | 2 February 2023 | £0.08 | 2,250,000 | 2,250,000 | |||
Warrants | 23-26 February 2018 | 23-26 February 2021 | £0.08 | 6,580,000 | 6,580,000 | |||
Warrants | 23 February 2018 | 23 February 2021 | £0.08 | 1,400,000 | 1,400,000 | |||
Warrants | 14 17 June 2018 | 14-17 June 2021 | £0.16 | 650,000 | 650,000 | |||
Warrants | 15 June 2018 | 15 June 2021 | £0.16 | 210,453 | 210,453 | |||
Warrants | 3 August 2018 | 3 August 2023 | £0.16 | 3,231,600 | 3,231,600 | |||
Options | 25 July 2018 | 25 July 2024 | £0.16 | 10,506,784 | 10,506,784 | |||
Options | 25 July 2018 | 30 August 2022 | £0.16 | 5,000,000 | 5,000,000 | |||
Options | 17 July 2019 | 17 July 2025 | £0.16 | 425,926 | 425,926 | |||
Options | 5 February 2020 | 4 February 2030 | £0.07 | 4,750,000 | 1,809,524 | |||
Options | 5 February 2020 | 4 February 2030 | £0.07 | 475,000 | 180,952 | |||
Options | 5 February 2020 | 4 February 2030 | £0.07 | 5,700,000 | 2,171,429 | |||
Options | 5 February 2020 | 25 July 2024 | £0.07 | 22,619 | 22,619 | |||
41,202,382 | 34,439,287 | |||||||
Number of options and warrants | Weighted average exercise price £ | |||||||
At 1 January 2020 | 45,037,075 | 0.14 | ||||||
Granted | 11,400,000 | 0.07 | ||||||
Exercised | (9,685,997) | 0.16 | ||||||
Lapsed | (5,548,696) | 0.16 | ||||||
Outstanding at 31 December 2020 | 41,202,382 | 0.13 | ||||||
Exercisable at 31 December 2020 | 34,439,287 | 0.13 | ||||||
Number of options and warrants | Weighted average exercise price £ | ||
At 1 January 2019 | 48,230,103 | 0.14 | |
Granted | 1,000,000 | 0.16 | |
Exercised | |||
Lapsed | (4,375,334) | 0.16 | |
Outstanding at 31 December 2019 | 44,854,769 | 0.14 | |
Exercisable at 31 December 2019 | 37,910,408 | 0.14 |
The weighted average remaining contractual life of options and warrants as at 31 December 2020 is 29 months (2019: 36 months). If the exercisable shares had been exercised on 31 December 2020 this would have represented 11% 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 the grant date. Risk free interest has been based on UK Government Gilt rates for an equivalent term.
Black-Scholes table | ||||||||||||||||
Grant date | Grant date share price | Exercise price | Volatility | Life | Risk free interest rate | Marketability discount | ||||||||||
2 February 2018 | 0.08 | 0.08 | 40% | 5 years | 1% | 75% | ||||||||||
23-26 February 2018 | 0.08 | 0.08 | 40% | 3 years | 1% | 75% | ||||||||||
23 February 2018 | 0.08 | 0.08 | 40% | 3 years | 1% | 75% | ||||||||||
14-17 June 2018 | 0.08 | 0.16 | 40% | 3 years | 1% | 75% | ||||||||||
15 June 2018 | 0.08 | 0.16 | 40% | 3 years | 1% | 75% | ||||||||||
3 August 2018 | 0.11 | 0.16 | 40% | 5 years | 1% | 0% | ||||||||||
25 July 2018 | 0.08 | 0.16 | 40% | 6 years | 1% | 75% | ||||||||||
25 July 2018 | 0.08 | 0.16 | 40% | 6 years | 1% | 75% | ||||||||||
17 July 2019 | 0.09 | 0.16 | 40% | 6 years | 1% | 90% | ||||||||||
5 February 2020 | 0.07 | 0.07 | 40% | 10 years | 1% | 0% | ||||||||||
5 February 2020 | 0.07 | 0.07 | 40% | 10 years | 1% | 0% | ||||||||||
5 February 2020 | 0.07 | 0.07 | 40% | 10 years | 1% | 0% | ||||||||||
5 February 2020 | 0.07 | 0.07 | 40% | 10 years | 1% | 0% | ||||||||||
24. SHARE CAPITAL
2020 | 2019 | ||
|
| ||
Ordinary share capital | |||
Issued and fully paid | |||
293,750,000 Ordinary Shares of £0.001 each | 293,750 | 293,750 | |
Fully paid not yet issued | |||
9,685,997 Ordinary Shares of £0.001 each | 9,686 | ||
303,435,997 Ordinary Shares of £0.001 each | 303,436 | 293,750 | |
Share premium account | |||
At beginning of the period | 25,252,288 | 25,252,288 | |
Cancelled during the year | (25,252,288) | ||
Fully paid not yet issued | 1,540,497 | ||
At the end of period | 1,540,597 | 25,252,288 | |
| On 23 November 2020 the High Court of England and Wales confirmed the reduction to the Company's equity through cancellation of the share premium account. This was transferred into retained earnings. | |||
25. RESERVES
The following describes the nature and purpose of each reserve:
Reserve | Description |
Share capital | 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 shares granted during the year and as a result of a change in estimation those granted in prior periods |
Foreign currency translation | Cumulative effects of translation of opening balances on non-monetary assets between subsidiary functional currency (Canadian dollars) and Group functional and presentational currency (Sterling). |
Retained earnings | Cumulative net gains and losses and other transactions with equity holders not recognised elsewhere. |
26. TRADE AND OTHER PAYABLES
Group | Company | Group | Company | |
2020 | 2020 | 2019 | 2019 | |
|
|
|
| |
Trade payables | 548,293 | 10,397 | 2,463,501 | 78,000 |
Accruals and other payables | 271,471 | 158,695 | 439,367 | 113,250 |
Short term loans | 115,924 | 1,084,218 | ||
Other taxation and social security | 972 | 972 | ||
Total trade and other creditors | 936,660 | 170,064 | 3,987,086 | 191,250 |
Within other payables is an amount of £5,000 (2019: £5,000) owed to related parties in relation to securing trade agreements and facilitating the business and expenditure accrued during the early stages of the business.
The directors consider that the carrying value of trade and other payables is approximately equal to their fair value.
27. LEASE LIABILITIES
Group | Company | Group | Company | |
2020 | 2020 | 2019 | 2019 | |
|
|
|
| |
Lease liability current | 3,469,672 | |||
Lease liability non current | 3,909,715 |
|
|
|
The lease liability for mining hardware from Celsius Network attracts an interest rate of 12% per annum. No depreciation, finance cost or cash outflows arose from this lease liability during the year.
28. COMMITMENTS
The Group's material contractual commitments relate solely in regards to the master services agreement with GPUone and Core Scientific, which provides hosting, power and support services. 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 Director's consider that the early termination fee, drawn down from deposits held by GPUone (see note Error! Reference source not found.) represents the minimum committed payment due.
29. RELATED PARTY TRANSACTIONS
Rental agreements
The Company rents office space from Dukemount Capital plc, for which Timothy Le Druillenec was a Director during the period up until 1 February 2020. During the period, payments of £275 were made whilst Timothy Le Druillenec was a Director of Dukemount Capital plc.
The Group also rents office space from Vernon Blockchain Inc, for which Peter Wall was a Director during the period. During the period, payments of £20,876 (2019: £9,314) were made with a balance of £nil outstanding as at 31 December 2020 (2019: £16,299.)
For each agreement, there is no long-term commitment, and these transactions were made on an arm's length basis.
Protos Asset Management
During the year, the Group obtained services from Protos Asset Management in regards to crypto portfolio management. Protos Asset Management is paid a monthly management fee of USD$5,000 and a percentage performance payment based on the relative success of the portfolio against the market. Matthew Shaw, appointed on 17 July 2020 as a non-executive of Argo Blockchain Plc founded Protos Asset Management. During the period of his directorship, the Group paid £22,715 (2019: £83,553) in service fees. This service was terminated during the year.
Key management compensation
Key management includes Directors (executive and non-executive).
£36,532 (2019: £17,086) paid to POMA Enterprises Limited in respect of fees of Matthew Shaw who is the owner of that entity; £240,922 (2019: £250,218) paid to Vernon Blockchain Inc in respect fees of Peter Wall who is owner of that entity; and £164,983 paid to Tenuous Holdings in respect of fees of Ian MacLeod who is the owner of that entity These are not inclusive of the related party transactions disclosed above and for the avoidance of doubt are not in addition to any other remuneration stated elsewhere in the financial statements.
30. CONTROLLING PARTY
There is no controlling party of the Group.
31. POST BALANCE SHEET EVENTS
In late December 2020, the Company's shares were admitted to OTCQB Venture Market, allowing North American investors an easier route to acquiring Argo shares. As a result of increasing volumes in trading Argo shares were upgraded to trading on New York's OTCQX Venture Market in February 2021.
On 2 February 2021, the Company signed a Share Purchase Agreement with GPUone, the Canadian data centre provider, for the strategic purchase of the two data centres in Quebec. These facilities are currently owned and operated by GPUone and house a portion of Argo's cryptocurrency mining equipment. The data centres have a combined total of 20MW of power capacity. The purchase will be funded out of Argo's existing deposits with GPUone, and a small cash consideration. Completion of the transaction is subject to resolution of the outstanding conditions.
The Group carried out two fund raises in January and March 2021. These generated £49m in new equity for investment in mining rigs, the West Texas development, and blockchain/fintech ventures including a significant equity holding in Pluto Digital Assets PLC.
In March 2021 Argo acquired a hosting facility project with 320 acres of land in West Texas with access to 800MW of low cost clean energy power for a total consideration of US$17.5m. The Group intends on building out a 200MW facility over the next 12 months. with access to some of the lowest cost clean electricity to support next phase of smart growth in 2022.
In late March 2021 the Group signed a Memorandum of understanding signed with DMG Blockchain Solutions to create Terra Pool, the first 'green' Bitcoin mining pool to be powered by clean energy, in response to climate change concerns. The mining pool will provide a platform for cryptocurrency miners to produce Bitcoin and other cryptocurrencies in a sustainable way.
All mining machines currently mining have achieved over 100% ROI, including those installed in January and February of 2021.
View source version on businesswire.com: https://www.businesswire.com/news/home/20210429005540/en/
Contacts:
Argo Blockchain
Peter Wall
Chief Executive
Ian MacLeod
Executive Chairman
via Tancredi +44 203 434 2334
finnCap Ltd
Corporate Finance
Jonny Franklin-Adams
Tim Harper
Joint Corporate Broker
Sunila de Silva
+44 207 220 0500
Tennyson Securities
Joint Corporate Broker
Peter Krens
+44 207 186 9030
OTC Markets
Jonathan Dickson
jonathan@otcmarkets.com
+44 204 526 4581
+44 7731 815 896
Tancredi Intelligent Communication
UK Europe Media Relations
Emma Valgimigli, +44 7727 180 873
Emma Hodges, +44 7861 995 628
Salamander Davoudi, +44 7957 549 906
argoblock@tancredigroup.com
