2019 ARBICO ANNUAL REPORT FINAL PRINTED upd

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle.

Depreciation table
Motor Vehicle

Deprecation Engine Body Interior Gear Box PUMP/JACK Chassis Bucket Transmission
Rate %% % % % % % Aix
%
Motor Car 25 20 20 25 - 20 -
Ford 25 20 20 25 - 20 - -
Truck 25 20 20 25 25 20 20 -
Jeep 25 20 20 - 20 25 -
Motor Cycle 50 50 - - - -
- - - -

I.T Infrastructures

Screen Monitor Mother Hard Memory Lamp Display Plating Main Heater

Deprecation Board Drive Heater Panel Colour Board
Rate
% % %% %% % %% %

Depreciation rate % % %% % % % % % %
Desktop Computer
Laptop Computer - 25 25 25 25 - - - - -
Photocopy Machine
25 - 25 25 25 - - - - -

- 25 -- - 25 25 25 25 25

Depreciation rate for Building Useful Life Deprecation Rate
25 years 2.5%
Components 20 years 5%
Roof 50 years 2%
Ceiling 20 years 5%
Civil Works (Wall) 20 years 5%
Floor/Tiles 10 years 10%
Doors/Window
Fence Useful Life Deprecation Rate
100 years 1%
Depreciation rate for Land

Components
Land

Office Furniture and Equipment
Office furniture is not componentised and it is depreciated at 20% for a useful life of 5 years.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 51

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Plant Tools and Equipment

Engine Body Camaya Electrical Gear Pump Alter Operating Control Water
% % Belt Sail Interior Motor Mixer Cable Box /jack Chassis Host Bucket -nator Stand Roller Panel room tank
% % %
JCB Machine 25 % % % % % % % % % % % % % %
Mixer 25
Double Drum Roller 25 20 - - - - - - - - 20 20 - - - - - - -
Generator 25 - -
Leveling Instrument 50 - - - - - - - - - - - - 15 - - 10 - -
Power Fluting Machine 50 - -
Battery Charging machine 50 20 - - - - - - 25 - 20 - - - - 20 - - -
Scaffolding 20 - -
Jack Hammer 25 - - - - - - - - - - - - 25 - - - - -
Vibrator Machine 25 - -
Dumber 25 25 - - - - - - - - - - - - - - - - -
Tower Crane - -
Mobile Crane 25 - - - - - - - - - - - - - - - - -
Batching Plant 25 - 25
25 - - - - - - - - - - - - - - - - -
- 20 -
- - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - -

20 - - - - 25 - 25 - 20 - - - - - ‒

20 - - - 25 - - - - - - - - 25 - -

20 - - 20 - 50 - - 25 - - - - - - -

- 25 20 - - - 25 20 - - - 20 - - 25 25

52 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

3.4.3 Derecognition (retirements and disposals)

Assets are derecognised on disposal or when it is withdrawn from use and no future economic benefits are expected
from its disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and
should be recognised in the profit or loss.

3.4.4 Intangible assets

An intangible asset is an identifiable non-monetary asset that has no physical substance. An intangible asset is
recognised when it is identifiable and the Group has control proceeds and the carrying amount of the asset, and are
recognised in profit or loss when the asset is derecognised.

3.5 Revaluation of asset

A revaluation surplus is recorded in OCI and credited to the asset revaluation reserve in equity. However, to the
extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is
recognised in profit or loss. A revaluation deficit is recognised in the statement of profit or loss, except to the extent
that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

An annual transfer from the asset revaluation reserve to retained earnings is made for the difference between
depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost.
Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of
the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve
relating to the particular asset being sold is transferred to retained earnings.

3.6 Financial Instruments - Initial recognition and subsequent measurement

Policy effective subsequent to 1 January 2018

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.

i) Financial Assets

Initial recognition and measurement
Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, fair value through
other comprehensive income (OCI), and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow
characteristics and the Group’s business model for managing them. With the exception of trade receivables that do
not contain a significant financing component or for which the Group has applied the practical expedient, 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. Trade receivables that do not contain a significant financing component or for which the
Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to
the accounting policies in Revenue from contracts with customers above.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, 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.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 53

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or
convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group
commits to purchase or sell the asset.

Subsequent Measurement
For purposes of subsequent measurement, financial assets are classified into:

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:
Ÿ The financial asset is held within a business model with the objective to hold financial assets in order to collect

contractual cash flows

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

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are
subject to impairment. 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 includes trade receivables, cash and cash equivalents and related
parties receivables.

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 statement of financial position) when:
Ÿ The rights to receive cash flows from the asset have expired: Or
Ÿ 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.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the Group could be required
to repay.

Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
Ÿ Disclosures for significant assumptions Note 4
Ÿ Trade receivables Note 20

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

54 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

effective interest rate. 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.

ECLs are recognised in two stages. 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 trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. Therefore, the
Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each
reporting date. The Group has established a provision matrix that is based on its historical credit loss experience,
adjusted for forward-looking factors specific to the debtors and the economic environment using the loss rate
model.

For receivables from related parties (non-trade), lease receivables and short-term deposits, the Group applies general
approach in calculating ECLs. It is the Group’s policy to measure ECLs on such asset on a 12-month basis. However,
when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime
ECL.

The group considers a financial asset in default when contractual payments are I year 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.

ii) Financial Liabilities

Initial recognition and measurement
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.

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

Trade and other payables
Trade payables classified as financial liabilities are initially measured at fair value, and are subsequently measured at
amortized cost, using the effective interest rate method. Other payables that are within the scope of IAS 39 are
subsequently measured at amortized cost.

Derecognition

A financial liability is derecognised when the obligation under the liability 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 the statement of profit or loss.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 55

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position
if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a
net basis, to realise the assets and settle the liabilities simultaneously.

3.6.1.4 Cash and short-term deposit

Cash and Short-term deposit include cash in hand, deposits held at call with banks, other short-term highly liquid
investments with original maturities of three months. Bank overdrafts are shown within borrowings in current
liabilities in the statement of financial position. For the purpose of cash flows, cash and cash equivalents consist of
cash and short - term deposits as defined above, net of outstanding bank overdrafts (if any). Cash and Cash
equivalents are measured at amortised cost.

3.7 Employees Benefits

3.7.1 Pension Fund Obligations

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity.
The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating to employee service in the current and prior period.

The group in line with the provisions of the Pension Reform Act, 2014 has instituted a defined contribution pension
scheme for its employees.

3.7.2 Short-term employee benefits

The cost of short-term employee benefits (those payable within 12 months after service is rendered) such as paid
vacation, leave pay, sick leave and bonuses are recognised in the period in which the service is rendered and is not
discounted. The expected cost of short-term accumulating compensated absences is recognised as an expense as
the employees render service that increases their entitlement or, in the case of non-accumulating absences, when
the absences occur. The expected cost of bonus payments is recognised as an expense when there is a legal or
constructive obligation to make such payments as a result of past performance. Provisions for leave pay and bonuses
are recognised as a liability in the consolidated and separate financial statements.

3.8 Taxation

3.8.1 Current income tax

Current income tax and education tax for the current period are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates
taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in
profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

3.8.2 Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

Ÿ When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss.

56 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits
and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences, and the carry forward of unused tax credits and
unused tax losses can be utilised, except: When the deferred tax asset relating to the deductible temporary
difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be
utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that
it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at
the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss.
Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income
or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current income
tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same
taxation authority.

3.8.3 Value added tax

Expenses and assets are recognised net of the amount of value added tax, except:

Ÿ When the value added tax incurred on a purchase of assets or services is not recoverable from the taxation
authority, in which case, the value added tax is recognised as part of the cost of acquisition of the asset or as part
of the expense item, as applicable

Ÿ When receivables and payables are stated with the amount of value added tax included

The net amount of value added tax recoverable from, or payable to, the taxation authority is included as part of
receivables or payables in the statement of financial position.

3.9 Leases

Policy prior to 1 January 2019
Leases are classified as finance leases whenever the terms of the lease transfers substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases
are charged to profit or loss on a straight-line basis over the term of the lease. Benefits received and receivable as an
incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Group as a Lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are
classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added
to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.
Contingent rents are recognised as revenue in the period in which they are earned.

Policy from 1 January 2019
The group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration.

The group applies a single recognition and measurement approach for its lease. The group recognises lease liabilities
to make lease payments and right-of-use asset representing the right to use the underlying asset.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 57

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Group as a lessee
The Group applies a single recognition and measurement approach for its lease. The group recognises lease liabilities
to make lease payments and right-of-use assets representing the right to use the underlying assets.

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

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset, as shown below:

Residential buildings 4 Years

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of
a purchase option, depreciation is calculated using the estimated useful life of the asset.

The right-of-use assets are also subject to impairment. Refer to the accounting policies on Impairment of non-
financial assets.

ii) Lease Liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and
amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a
purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the
lease, if the lease term reflects the Group exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which
the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease
commencement date where the interest rate implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for
the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification,
a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a
change in an index or rate used to determine such lease payments) or a change in the assessment of an option to
purchase the underlying asset.

iii) Short-term leases and leases of low-value assets
The group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment
(i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a
purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment
that are considered to be low value. Lease payments on short-term leases and leases of low value assets are
recognised as expense on a straight-line basis over the lease term.

Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset
are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms
and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in
negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised
over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in
which they are earned.

58 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

3.10 Inventories

Inventories which comprise construction materials are recognised at lower of cost and net realizable value after
making adequate provision for obsolescence and damaged items. Net realisable value is the estimated selling price in
the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the
sale.

3.11 Provision and contingency liability

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to
be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset, but
only when the reimbursement is virtually certain. The expense relating to any provision is presented in the profit or
loss net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects,
where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to
the passage of time is recognised as a finance cost.

3.12 Impairment of non-financial assets

The group assesses assets or group of assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If any such indication of impairment exists, the Group
makes an estimate of the asset’s recoverable amount. Individual assets are grouped for impairment assessment
purposes at the lowest level (Cash generating unit) at which there are identifiable cash flows that are largely
independent of the cash flows of other group of assets. An asset’s recoverable amount is the higher of its fair value
less costs of disposal and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the
asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated
future cash flows are adjusted for the risks specific to the asset and are discounted to their present value using a pre-
tax discount rate that reflects current market assessments of the time value of money. Impairment losses are
recognised in profit or loss.

Impairment losses recognised in prior periods can be reversed up to the original carrying amount, had the
impairment loss not been recognised. Such reversal is recognised in profit or loss. After such a reversal, the
depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual
value, on a systematic basis over its remaining useful life.

3b. Changes in accounting policies and disclosures

New and amended standards and interpretations
The group applied IFRS 16 Leases for the first time. The nature and effect of the changes as a result of adoption of this
new accounting standard is described below.

i) IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The
standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires
lessees to recognise most leases on the balance sheet.

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as
either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 does not have an impact for
leases where the Group is the lessor.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 59

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application
of 1 January 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially
applying the standard recognised at the date of initial application. The group elected to use the transition practical
expedient to not reassess whether a contract is or contains a lease at 1 January 2019. Instead, the Group applied the
standard only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial
application.

The effect of adoption of IFRS 16 as at 1 January 2019 (increase/(decrease)) is, as follows:

Assets N'000

Property, Plant and Equipment (right-of-use assets) 26,912
Prepayments (26,912)

Total Assets -

The group has lease contract for residential building. Before the adoption of IFRS 16, the Group classified its lease (as
lessee) at the inception date as an operating lease.

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases. The
standard provides specific transition requirements and practical expedients, which have been applied by the Group.

Leases previously accounted for as operating leases

The group recognised right-of-use asset for the lease previously classified as operating lease. The right-of-use asset
for the lease were recognised based on the carrying amount as if the standard had always been applied, apart from
the use of incremental borrowing rate at the date of initial application.

The group also applied the available practical expedients wherein it:

Ÿ Applied the short-term lease recognition exemption to its short-term leases of buildings and equipment (i.e.,
those leases that have a lease term of 12 months or less from the commencement date and do not contain a
purchase option). It also applies the lease of low-value assets recognition exemption to leases of service contracts
that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are
recognised as expense on a straight - line basis over the lease term.

Ÿ Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application
Ÿ Used hindsight in determining the lease term where the contract contained options to extend or terminate the

lease

Based on the above, as at 1 January 2019:
Right-of-use assets of N26,912,000 were recognised and presented with property, plant and equipment in the
statement of financial position.

Prepayments of N26,912,000 related to previous operating leases were derecognised. There was no adjustment to
retained earnings.

ii) IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects
the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it
specifically include requirements relating to interest and penalties associated with uncertain tax treatments.

60 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The Interpretation specifically addresses the following:

Ÿ Whether an entity considers uncertain tax treatments separately
Ÿ The assumptions an entity makes about the examination of tax treatments by taxation authorities
Ÿ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
Ÿ How an entity considers changes in facts and circumstances

The group applies significant judgement in identifying uncertainties over income tax treatments. Since the Group
operates in a complex multinational environment, it assessed whether the Interpretation had an impact on its
consolidated and separate financial statements.

Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions, particularly
those relating to transfer pricing. The group’s and the subsidiaries’ tax filings in different jurisdictions include
deductions related to transfer pricing and the taxation authorities may challenge those tax treatments. The group
determined, based on its tax compliance and transfer pricing study, that it is probable that its tax treatments
(including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have an
impact on the consolidated and separate financial statements of the Group.

iii) Amendments to IFRS 9: Prepayment Features with Negative Compensation
Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive
income, provided that the contractual cash flows are solely payments of principal and interest on the principal
amount outstanding (the SPPI criterion) and the instrument is held within the appropriate business model for that
classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event
or circumstance that causes the early termination of the contract and irrespective of which party pays or receives
reasonable compensation for the early termination of the contract. These amendments had no impact on the
consolidated and separate financial statements of the Group.

The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs
during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs
during the annual reporting period, an entity is required to determine the current service cost for the remainder of
the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure
the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that
event. An entity is also required to determine the net interest for the remainder of the period after the plan
amendment, curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered
under the plan and the plan assets after that event, and the discount rate used to remeasure that net defined benefit
liability (asset).

iv) Amendments to IAS 19: Plan Amendment, Curtailment or Settlement
The amendments had no impact on the consolidated and separate financial statements of the Group as it did not
have any plan amendments, curtailments, or settlements during the period.

v) Amendments to IAS 28: Long-term interests in associates and joint ventures
The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which
the equity method is not applied but that, in substance, form part of the net investment in the associate or joint
venture (long- term interests). This clarification is relevant because it implies that the expected credit loss model in
IFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate
or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in
the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures. These
amendments had no impact on the consolidated and separate financial statements as the Group does not have long-
term interests in associates and joint ventures.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 61

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Other amendments and interpretations relating to annual improvements 2015-2017 cycle, but do not have an
impact on the financial statements of the Group are listed below:
Ÿ IFRS 3 Business Combinations
Ÿ IAS 23 Borrowing Costs
Ÿ IAS 12 Income Taxes
Ÿ IFRS 11 Joint Arrangement

4. Significant accounting judgements, estimates and assumptions

The preparation of the Group’s consolidated financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the
accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and
estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities
affected in future periods.

Other disclosures relating to the Group’s exposure to risks and uncertainties includes:

Ÿ Capital management Note 29

Ÿ Financial instruments risk management and policies Note 28

Ÿ Sensitivity analyses disclosures Note 28

Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, which
have the most significant effect on the amounts recognised in the consolidated financial statements:

Determining the lease term of contracts with renewal and termination options – Group as lessee
The group determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to
terminate the lease, if it is reasonably certain not to be exercised.

The group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to
renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to
exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if
there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not
to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements).

The group included the renewal period as part of the lease term for leases of office building with shorter non-
cancellable period (i.e., less than two years). The group typically exercises its option to renew for these leases because
there will be a significant negative effect on operation if a replacement asset is not readily available. Furthermore, the
periods covered by termination options are included as part of the lease term only when they are reasonably certain
not to be exercised.

Revenue from contracts with customers
The group applied the following judgements that significantly affect the determination of the amount and timing of
revenue from contracts with customers:

Determining the timing of satisfaction
The group, with respect to engineering and construction services, the Group concluded the goods and services
transferred in each contract constitute a single performance obligation. In particular, the promised goods and
services in the contracts mainly include planning, design work, procurement of materials and construction.
Generally, the Group is responsible for all these services and the overall management of the project. Although these
services are capable of being distinct, the Group accounts for them as a single performance obligation because they
are not distinct in the context of the contract. The group uses those services as inputs and provides a significant
service of integrating them into a combined output i.e., the completed construction project for which the customer
has contracted.

62 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The group concluded that revenue from engineering and construction services rendered will be recognised
overtime because, as the Group performs, the customer simultaneously receives and consumes the benefits
provided by the Group. The fact that another entity would not need to re-perform the service that the Group has
provided to date demonstrates that the customer simultaneously receives and consumes the benefits of the Group’s
performance as it performs.

The group has determined that the input method is the best method in measuring progress for the engineering and
construction contracts because there is a direct relationship between the costs incurred by the Group and the
transfer of goods and services to the customer.

Provision for expected credit losses of trade receivables
For some contracts, the Group is entitled to receive an initial deposit. The group concluded that this is not considered
a significant financing component because it is for reasons other than the provision of financing to the Group. The
initial deposits are used to protect the Group from the other party failing to adequately complete some or all of its
obligations under the contract.

Estimates and assumptions

Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount,
which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal
calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or
observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a
DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring
activities that the Group is not yet committed to or significant future investments that will enhance the performance
of the assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF
model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These
estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognised by the Group.
The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity
analysis, are disclosed and further explained in Note 28.

5. Standards issued but not yet effective

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance
of the Group’s financial statements are disclosed below. The group intends to adopt these new and amended
standards and interpretations, if applicable, when they become effective.

IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for
insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17
will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance
contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as
well as to certain guarantees and financial instruments with discretionary participation features. A few scope
exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that
is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on
grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts,
covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:

Ÿ A specific adaptation for contracts with direct participation features (the variable fee approach)
Ÿ A simplified approach (the premium allocation approach) mainly for short-duration contracts

IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required.
Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies
IFRS 17. This standard is not applicable to the Group.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 63

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Amendments to IFRS 3: Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help
entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum
requirements for a business, remove the assessment of whether market participants are capable of replacing any
missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the
definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative
examples were provided along with the amendments.

Since the amendments apply prospectively to transactions or other events that occur on or after the date of first
application, the Group will not be affected by these amendments on the date of transition.

Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors to align the definition of material across the standards and to
clarify certain aspects of the definition. The new definition states that, Information is material if omitting, misstating
or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements, which provide financial information about a
specific reporting entity. The amendments to the definition of material is not expected to have a significant impact
on the Group’s consolidated financial statements.

Ÿ Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7
In September 2019, the IASB issued amendments to IFRS 9, IAS 39 and IFRS 7, which concludes phase one of its work
to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting.

The amendments provide temporary reliefs which enable hedge accounting to continue during the period of
uncertainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest
rate (an RFR).

The amendments must be applied retrospectively. However, any hedge relationships that have previously been de -
designated cannot be reinstated upon application, nor can any hedge relationships be designated with the benefit
of hindsight. Early application is permitted and must be disclosed. The group will not be affected by these
amendments on the date of transition. Effective for annual periods beginning on or after 1 January 2020.

Ÿ The Conceptual Framework for Financial Reporting
Effective immediately for the IASB and the IFRS IC. For preparers who develop accounting policies based on the
Conceptual Framework, it is effective for annual periods beginning on or after 1 January 2020.

The revised Conceptual Framework for Financial Reporting (the Conceptual Framework) is not a standard, and none
of the concepts override those in any standard or any requirements in a standard. The purpose of the Conceptual
Framework is to assist the Board in developing standards, to help preparers develop consistent accounting policies if
there is no applicable standard in place and to assist all parties to understand and interpret the standards.

The changes to the Conceptual Framework may affect the application of IFRS in situations where no standard applies
to a particular transaction or event. Thus, no impact to the Group.

6 Investment in subsidiaries

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Arbico FZE -- 27,104 27,104
-- 27,104 27,104

The investment in subsidiary was carried at cost. There was no impairment loss on the subsidiary.

64 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

6b. Group information

The consolidated financial statements of the Group include:

% EQUITY INTEREST

Name Principal activities Year of Country of 2019 2018
Incorporation Incorporation 99% 99%
Arbico FZE Building Contructions of Non-Plant
and Balance Buildings for Dangote April 2018 Nigeria
Oil Refinery Projects Site

7. Material partly-owned subsidiary

Financial information of subsidiary that have non-controlling interests are provided below:

Proportion of equity interest held by non-controlling interests:

Name 2019 2018
Arbico FZE 1% 1%

Accumulated balances of material non-controlling interest: 2019 2018
Arbico FZE N’000 N’000

Loss allocated to non-controlling interest: 271 271
Non-controlling interest
(519) (1,041)

Summarised statement of profit or loss and other 2019 2018
comprehensive income for the year ended: N’000 N’000

Revenue 209,012 -
Cost of sales (146,203) -
Gross profit
Administrative expenses 62,809 -
Loss before income tax (114,687) (104,108)
Income tax expense
Loss for the year (51,878) (104,108)
Total comprehensive loss for the year, net of tax - -

(51,878) (104,108)

(51,878) (104,108)

Loss for the year attributable to: (51,359) (103,067)
Ordinary equity holders of the parent (519) (1,041)
Non-controlling interest
(51,878) (104,108)
Total comprehensive loss attributable to:
Equity holders of the parent (51,359) (103,067)
Non-controlling interest (519) (1,041)

Basic loss per share (Naira) (51,878) (104,108)
Attributable to:
Ordinary equity holders of the parent (1.94) (3.84)

Arbico FZEwas incorporated in April 2018 and commence business in May 2018 hence no prior year information.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 65

NOTES TO THE FINANCIAL STATEMENTS 2019 2018
FOR THE YEAR ENDED DECEMBER 31, 2019 N’000 N’000

7. Material partly-owned subsidiary- contʼd 111,552 2,216
295,239 -
Summarised statement of financial position -
as at 31 December: 4,611
93,459 17,299
Property, plant and equipment (non-current) (633,743) (96,519)
Trade and other receivables
Prepayments (128,882) (77,004)
Cash and cash equivalents (current)
Trade and other payables 27,104 27,104
Total equity (155,986) (104,108)

Attributable to: (128,882) (77,004)
Share capital
Accumulated losses 271 271
Total equity (1,560) (1,041)

Non-Controlling Interest (1,289) (770)
Share capital
Accumulated losses 2019 2018
N’000 N’000
Summarised cash flow information for year ended
31 December 2019 185,496 (104,108)
(109,336) (2,437)
Operating 27,104
Investing -
Financing (79,441)
Net decrease in cash and cash equivalents 76,160

66 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

8 Revenue from contracts with customer

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Type of goods or service 6,080,294 4,171,470 5,871,282 4,171,470
Construction contracts 6,080,294 4,171,470 5,871,282 4,171,470

Total revenue from contract with customers

Geographical markets 6,080,294 4,171,470 5,871,282 4,171,470
Within Nigeria - - - -
Outside Nigeria
6,080,294 4,171,470 5,871,282 4,171,470
Total revenue from contract with customers

Timing of revenue recognition - - - -
Service transferred at a point in time 6,080,294 4,171,470 5,871,282 4,171,470
Services transferred over time
6,080,294 4,171,470 5,871,282 4,171,470
Total revenue from contract with customers

Performance obligations
Information about the Group’s performance obligations are summarised below:

Construction of building or civil works
The performance obligation is satisfied over time by transferring control of the building or the civil work based on the
surveys of completions to date payment is generally due within 30 to 90 days from dates of the survey of completion
issued.

Contract balances
Contract Assets, Trade Receivables and Contract Liabilities

Contract balances consisted of the following at December 31

Group 2019 2018 Change Change
N’000 N’000 N’000 %

Trade and other receivables 837,266 1,471,658 (634,392) (43%)
Retention 395,064 429,143 (34,079) (8%)

Contract assets 2,835,828 1,854,127 981,701 53%
Contract liabilities (3,262,209) (2,983,912) (278,297) (9%)

Net contract balance 805,949 771,016 34,933

Contract assets consisted of the following at December 31:

Unbilled 5,358,844 4,760,120
Progress payment (2,523,016) (2,905,993)

2,835,828 1,854,127

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 67

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

8 Revenue from contracts with customer - contʼd 2019 2018 Change Change
N’000 N’000 N’000 %
Contract balances continued
689,899 1,471,658 (781,759) (53%)
Company 395,064 429,143 (34,079) (8%)
2,687,956 833,829 45%
Contract receivables (2,628,466) 1,854,127 355,446
Retention (2,983,912) (12%)
Contract assets 1,424,265
Contract liabilities 1,144,453 771,016

Net contract balance

Contract assets consisted of the following at December 31:

2019 2018
N’000 N’000

Unbilled 5,210,972 4,760,120
Progress payment (2,521,831) (2,905,993)

2,689,141 1,854,127

The Group has title to the assets related to unbilled amounts on contracts that provide progress payments.

Group 2019 2018 Change Change
N’000 N’000 N’000 %
Contract assets
Contract liabilities 2,835,828 1,854,127 981,701 53%
(2,628,466) (2,983,912) 355,446 (12%)
Revenue recognized in the period from:
Amount included in contract liabilities at the 2,983,912 1,243,065
beginning of the period 395,064 429,143
Performance obligation satisfied in previous years

Company 2019 2018 Change Change
N’000 N’000 N’000 %
Contract assets
Contract liabilities 2,687,956 1,854,127 833,829 45%
(2,628,466) (2,983,912) 355,446 (12%)
Revenue recognized in the period from:
Amount included in contract liabilities at the 2,983,912 1,243,065
beginning of the period 395,064 429,143
Performance obligation satisfied in previous years

68 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Contract liabilities
Contract liabilities consists of advance payments from customers.

Movements in contract liabilities for the year ended December 31, 2019 and 2018 are as follows:

Group 2019 2018
N’000 N’000

1 January 2,983,912 1,243,065
Advance payment received from customers 5,362,894 4,854,475

Performance obligations recognized in the period 395,064 429,143
Revenue recognized in the period:
Amount included in contract liabilities at the (2,983,912) (1,243,065)
beginning of the period (2,495,749) (2,299,706)
Advance payment applied to current period
3,262,209 2,983,912
31 December

Company 2019 2018
N’000 N’000
1 January
Advance payment received from customers 2,983,912 1,243,065
Performance obligations recognized in the period 4,729,151 4,854,475

395,064 429,143

Revenue recognized in the period: (2,983,912) (1,243,065)
Amount included in contract liabilities at the (2,495,749) (2,299,706)
beginning of the period
Advance payment applied to current period 2,628,466 2,983,912

31 December

Trade receivables are non-interest bearing and are generally on terms of 0 to 90days.
Contract liabilities include advances received from customers in respect of projects

9 Cost of sales

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Contract expenses 3,289,869 2,914,066 3,225,012 2,873,469
Depreciation of plant, tools and equipment (Note 16) 321,699 220,303 313,513 220,303
Project technical expenses 224,764 110,559 224,764 110,599
Expatriate salaries 258,745 150,486 185,584 150,086

4,095,077 3,395,414 3,948,873 3,354,457

Contract expenses are direct are cost incurred on construction materials for all contract. Project technical expenses
refer to expenses relating to overseas technical expenses.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 69

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

10 Other operating income The Group The Company

Profit on sale of property, plant and equipment 2019 2018 2019 2018
Insurance claim N’000 N’000 N’000 N’000
Other income
Rent income 1,929 6,873 1,929 6,873
Sale of scraps 11,437 762 11,437 762
Exchange gain unrealised 13,956 13,956
10,918 10,918
Other income refers to sale of diesel. 7,382 8,602 7,382 8,602
747 3,402 747 3,402
11. Administrative expenses 55 55
17,430 17,430
Advertisement and communication 35,506 35,506
Amortization of intangible asset (Note 17) 47,987 47,987
Audit fee
Bank charges The Group The Company
Court Case settlement
Depreciation of property, plant & equipment 2019 2018 2019 2018
Directors expenses N’000 N’000 N’000 N’000
Donations and sponsorship
Employee benefits expense (Note 11a) 21,783 9,541 15,173 9,491
Entertainment expenses 950 210 950 210
Equipment rentals
Exchange loss realised 10,000 10,000 10,000 10,000
Legal and professional charges 50,936 107,263 50,299 107,263
Lighting & heating
Office expenses 3,010 - 3,010 -
Printing & Stationary 95,094 56,699 94,159 56,488
Rent, rates and insurance
Repairs and maintenance 259 4,611 259 4,611
Tender expenses 10,197 13,291 10,197 13,291
Traveling and accommodation 411,741 280,002 336,255 264,264
Vehicle running costs
Write off of investment 1,098 1,465 1,098 1,465
- 9,417 - 9,417

83,602 - 83,497 -
21,902 45,684 20,092 27,847
62,207 78,654 58,871 73,493
68,010 150,957 59,738 147,837
20,621 20,257
6,997 37,883 6,689 37,883
49,164 91,711 43,050 88,765
42,745 42,729
9,009 9,009
900 104,027 900 89,059
120,873 110,267
9,885 7,129
23,677 2,000 23,225 2,000
- -
1,042,930 979,779
1,085,145 970,458

70 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS The Group The Company
FOR THE YEAR ENDED DECEMBER 31, 2019
2019 2018 2019 2018
11a Employee benefit expense N’000 N’000 N’000 N’000

Salaries and wages 238,642 221,088 165,558 205,798
Pension 60,493 15,986 60,493 15,986
Medical 15,381 12,991 12,979 12,782
Staff training 3,478 1,698 3,478 1,698
Industrial training cost 1,469 4,521 1,469 4,521
Labour 64,457 15,808 64,457 15,808
Staff welfare 27,821 7,910 27,821 7,670
Employee benefit expenses in
administrative expenses 411,741 280,002 336,255 262,264
Cost of sales (Note 9) 258,745 150,486 185,584 150,086
Total employee benefit expense 670,486 430,488 521,839 414,350

11b Expected credit losses 34,747 - 34,747 -
Depreciation expense of right-of-use assets 9.822 - 9,822 -
Expense relating to short-term lease 7,693 - 7,693 -
Expense relating to leases of low valued items
The Group The Company
12 Expected credit loss
2019 2018 2019 2018
Contract assets (Note 20.1) N’000 N’000 N’000 N’000
Trade and other receivable (Note 20.2)
Intercompany receivables (Note 20.3a) 331,670 430,662 331,670 430,662
546,304 155,034 546,304 155,034
13 Finance Income
- 2,632 - 2,632
Interest on short term deposits
877,974 588,328 877,974 588,328

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

16,586 4,609 16,586 4,609

16,586 4,609 16,586 4,609

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 71

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

13.1 Profit/ (loss) before tax

This is stated after charging/ (crediting):

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Auditor’s remuneration 10,000 10,000 10,000 10,000
Depreciations of property, plant and equipment 416,793 277,002 407,672 276,791
Amortisation of intangibles
Exchange loss 950 210 950 210
Exchange gain 83,602 - 83,497 -
Staff cost
(55) (17,430) (55) (17,430)
670,486 430,488 521,839 414,350

14. Income tax

The major components of income tax expense for the years ended 31 December 2019 and 2018 are:

14.1a Consolidated and Separate Statements of profit or loss

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Current income tax: 141,072 17,650 141,072 17,650
Company income tax 28,194 3,352 28,194 3,352
Education tax
169,266 21,002 169,266 21,002
Deferred tax
Relating to origination and reversal of (622,697) 254,171 (622,697) 254,171
temporary differences (453,431) 275,173 (453,431) 275,173
Income tax expense reported in the
profit or loss account

14.1b Consolidated and Separate Statements of financial position

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

As at 1 January 21,300 45,828 21,300 45,828

Charge for the year 169,266 21,002 169,266 21,002
Payment during the year - (7,586) - (7,586)
Withholding tax off-set - (37,944) - (37,944)

Income tax liabilities at 31 December 190,566 21,300 190,566 21,300

72 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

14.2 Reconciliation between tax expense and the product of accounting profit
for the year ended 31 December 2019 is as follows:

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Accounting Profit/ (loss) before tax 74,190 (802,606) 126,069 (698,498)

At Nigeria’s statutory income tax rate of 22,257 (240,782) 37,821 (209,549)
30% (2019: 30%) 28,194 3,352 28,194 3,352
Education tax 401,587 386,023
Non-deductible expenses for tax purpose (282,143) 298,352 (282,143) 267,119
Effect of tax incentives – utilised capital allowance (35,300) (35,300)
Balancing charge 306 306
Effect of tax loss 12,727 (7,291) - (7,291)
Non-taxable income - -
Deferred tax assets derecognized** (935) (935)
(622,697) 2,671 (622,697) 2,671
Income tax expense reported in profit or loss 254,171 254,171
(453,431) (453,431)
The effective tax rate 275,173 275,173
611% 360%
(34%) (39%)

14.3 Deferred tax Statement of Profit or loss
financial position
The Group
2019 2018 2019 2018
Accelerated depreciation for tax purpose N’000 N’000 N’000 N’000
Unrealised FX
Expected credit losses of financial assets (373,555) (102,557) (270,998) 49,154
Unutilised tax credit (132) (40,159) 40,027 -
Deferred tax credit not recognised** 205,017 -
Effect of adoption of IFRS 9 653,400 191,870 448,383 -
Deferred tax expense 342,984 151,114 -
Deferred tax liabilities (254,171) 254,171
- - 205,017
- -

622,697 254,17

622,697 -

The Company N’000 N’000 N’000 N’000

Accelerated depreciation for tax purpose (357,991) (102,557) (225,231) 49,154
Unrealised FX (132) (40,159) 40,027 -
Expected credit losses of financial assets 205,017 -
Unutilised tax credit 653,400 191,870 448,383 -
Deferred tax credit not recognised** 327,419 135,549 -
Effect of adoption of IFRS 9 (254,171) 254,171
- - 205,017
Deferred tax expense - -
- 254,171
Deferred tax liabilities 622,697 622,697

**Deferred tax asset recognized on ECL adjustment as at 1 January 2018 was derecognized as at 31 December
2018 because it is not probable that the Company will generate enough taxable profit in future to recoup the
deferred tax asset.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 73

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

14.3 Deferred tax ‒ Contʼd The Group The Company
Reconciliation of deferred tax liabilities, net
2019 2018 2019 2018
As at 1 January N’000 N’000 N’000 N’000
Effect of adoption of IFRS 9
As at 1 January (Restated) - (49,154) - (49,154)
Tax expense during the period recognised - (205,017) - (205,017)
in profit or loss
As at 31 December - (254,171) - (254,171)

12,478 254,171 12478 254,171
12,478 - 12,478 -

Deferred tax liabilities are recognised for all taxable temporary differences, except:
Ÿ When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction

that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss
Ÿ In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in
joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits
and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will
be available against which the deductible temporary differences, and the carry forward of unused tax credits and
unused tax losses can be utilized.

The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set
off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income
taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend
either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities
simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to
be settled or recovered.

74 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

15 Basic earnings/ (loss) per Share

Basic earnings/(loss) per share amounts are calculated by dividing net profit/(loss) for the year attributable to ordinary
equity holders of the parent by the average number of ordinary shares outstanding during the year.

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting
date and the date of authorisation of these financial statements.

The following reflects the income and share data used in the basic earnings per share computations:

Group 2019 2018
N’000 N’000

Net profit/ (loss) attributable to ordinary equity holders for basic 528,140 (1,076,738)
Profit/ (loss) per share
2019 2018
Thousand Thousand

Average number of ordinary shares for basic earnings/(loss) per share 148,500 148,500
Basic/diluted loss per share (Naira) Parent 3.56 (7.25)

Company 2019 2018
N’000 N’000

Net profit/ (loss) attributable to ordinary equity holders for 579,500 (973,671)
basic loss per share
2019 2018
Thousand Thousand

Average number of ordinary shares for basic earnings/(loss) per share 148,500 148,500
Basic/diluted earnings/ (loss) per share (Naira) 3.90 (6.56)

16 Property, plant and equipment and right-of-use asset

The Group Right- Land Plant, Motor Office IT Total
of-Use and tool and Vehicles furniture Infra- N'000
Cost: assets building equipment -structure
At 1 January 2018 N'000 N'000 N'000 and N'000
Additions during the year N'000 equipment
Disposals during the year
N'000

- 733,500 1,381,942 386,594 2,616 32,832 2,537,484
-- 398,009 60,267 3,757 14,505 476,538
-- - (23,100)
- - (23,100)

At 31 December 2018 - 733,500 1,779,951 423,761 6,373 47,337 2,990,922
- - 26,912
Effect of adoption of IFRS 16 26,912 - --

1 January 2019 (Restated) 26,912 733,500 1,779,951 423,761 6,373 47,337 3,017,834
Additions during the year 383,733 63,541 1,084 5,223 499,781
Disposals during the year 46,200 - - (6,359) - (6,359)
-
--

At 31 December 2019 73,112 733,500 2,163,684 480,943 7,457 52,560 3,511,256

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 75

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The Group (cont’d) Right- Land Plant, Motor Office IT Total
of-Use and tool and Vehicles furniture Infra- N'000
Depreciation assets equipment -structure
At 1 January 2018 N'000 building N'000 and N'000
Charge for the year N'000 N'000 equipment
Disposals for the year
N'000
At 31 December 2018
Charge for the year - 51,345 855,570 297,243 1,393 27,709 1,233,260
Disposals for the year - 7,335 220,003 44,959 709 3,996 277,002
At 31 December 2019 -- - - (21,071)
Carrying value: - (21,071)
At 31 December 2019 2,102 31,705 1,489,191
At 31 December 2018 - 58,680 1,075,573 321,131 1,442 5,997 416,793
34,747 7,335 321,699 45,573 - (6,358)
- - (6,358) -
- 37,702 1,899,626
66,015 1,397,272 360,346 3,544
34,747

38,365 667,485 766,412 120,597 3,913 14,858 1,611,630
- 674,820 704,378 102,630 4,271 15,632 1,501,731

The Company N'000 N'000 N'000 N'000 N'000 N'000 N'000

Cost: - 733,500 1,381,942 386,594 2,616 32,832 2,537,484
At 1 January 2018 -- 398,009 60,267 1330 14,505 474,111
Additions during the year -- - (23,100)
Disposals during the year - - (23,100)

At 31 December 2018 - 733,500 1,779,951 423,761 3,946 47,337 2,988,495
- - 26,912
Effect of adoption of IFRS 16 26,912 - --
3,946 47,337 3,015,407
1 January 2019 (Restated) 26,912 733,500 1,779,951 423,761 200 5,223 381,324
Additions during the year 266,521 63,180 - - (6,359)
Disposals during the year 46,200 - - (6,359)
4,146 52,560 3,390,372
-- 2,046,472 480,582

At 31 December 2019 73,112 733,500

Depreciation - 51,345 855,570 297,243 1,393 27,709 1,233,260
At 1 January 2018 - 7,335 220,303 44,959 498 3,996 276,791
Charge for the year -- - - (21,071)
Disposals for the year - (21,071)
1,891 31,705 1,489,980
At 31 December 2018 - 58,680 1,075,573 321,131 630 5,874 407,672
Charge for the year 34,747 7,335 313,513 45,573 - - (6,358)
Disposals for the year - - (6,358)
- 2,521 37,579 1,890,294
At 31 December 2019 66,015 1,389,086 360,346
34,747
Carrying value:
At 31 December 2019 38,365 667,485 657,386 120,236 1,625 14,981 1,500,078
- 674,820 704,378 102,630 2,055 15,632 1,499,515
At 31 December 2018

There are no restrictions on title to the items of property, plant and equipment. Property, plant and equipment with a
carrying amount of are subject to a floating charge to secure the Group's mortgage debenture loan from Guaranty
Trust Bank.

76 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The group’s land and buildings are recognised at fair value based on periodic, but at least triennial, valuations by
external independent valuers, less subsequent depreciation for buildings. A revaluation surplus is credited to other
reserves in shareholders’ equity. The last valuation carried out was in 2012 and none has been carried out recently as
management is of the opinion that the market factors has not indicated any material change in fair value of the land
and buildings.

If land and buildings were measured using the cost model, the carrying amounts would be as follows:

The Group 2019 2018
N’000 N’000

Cost 1,651,517 1,651,517
Accumulated depreciation (1,150,935) (1,134,253)

Net carrying amount 500,582 517,264

The Company 2019 2018
N’000 N’000

Cost 1,651,517 1,651,517
Accumulated depreciation (1,150,935) (1,134,253)

Net carrying amount 500,582 517,264

17 Intangible assets Computer
software
Cost:
At 1 January 2018 N’000
Additions during the year
11,489
-

At 31 December 2018 11,489
Additions during the year 4,780

At 31 December 2019 16,269

Amortisation 11,029
At 1 January 2018 210
Charge for the year

At 31 December 2018 11,239
Charge for the year 950

At 31 December 2019 12,189

Carrying value: 250
At 31 December 2018 4,080

At 31 December 2019

The information in respect of note 17 is the same for both the Group and the Company.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 77

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

18. Inventories

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Construction materials 231,126 203,023 231,126 203,023
231,126 203,023 231,126 203,023

Inventories are measured at the lower of cost and net realisable value. The group uses WACC (weighted average
cost), for valuation of inventory. There was no inventory write-off during the year ended 31 December 2019 (2018:
Nil).

19. Contract assets

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Receivable from third party customer 3,936,212 2,622,841 3,788,340 2,622,841
Allowance for expected credit losses (Note 20.1) (1,100,384) (768,714) (1,100,384) (768,714)

2,835,828 1,854,127 2,687,956 1,854,127

20. Trade and other receivables The Group The Company

Contract receivables 2019 2018 2019 2018
Retention receivable N’000 N’000 N’000 N’000

Allowance for expected credit losses (Note 20.2) 1,912,551 2,000,639 1,765,184 2,000,639
395,064 429,143 395,064 429,143
Due from related parties (Note 20.3)
Other receivables (Note 20.4) 2,307,615 2,429,782 2,160,248 2,429,782

(1,075,285) (528,981) (1,075,285) (528,981)
1,232,330 1,900,801 1,084,963 1,900,801

187,575 85,408 281,671 181,928
670,600 814,065 670,329 813,794

2,090,505 2,800,274 2,036,963 2,896,523

Trade receivables are non-interest bearing and are generally on 30 – 365 day terms. For terms and conditions relating
to receivables from related parties, see Note 28.

As at 31 December 2019, the Group has trade and other receivables and contract assets of 7.1 billion (2018: 5.95
billion) which is gross of an allowance for expected credit losses of 2.178 billion (2018: 1.30 billion)

As at 31 December 2019, the Company has trade and other receivables and contract assets of 6.90 billion
(2018: 6.05 billion) which is gross of an allowance for expected credit losses of 2.178 million (2018: 1.30 billion).

78 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

20.1 Set out below is the movement in the allowance for expected credit losses of contract assets:

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

At 1 January 768,714 338,052 768,714 338,052
Expected credit losses - charge (Note 12) 331,670 430,662 331,670 430,662

1,100,384 768,714 1,100,384 768,714

20.2 Set out below is the movement in the allowance for expected credit losses of trade receivables:

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

At 1 January 528,981 373,947 528,981 373,947
Expected credit losses - charge (Note 12) 546,304 155,034 546,304 155,034

1,075,285 528,981 1,075,285 528,981

The significant changes in the balances of trade and other receivables and contract assets are disclosed in Note 4
while the information about the credit exposures are disclosed in Note 28.

20.3 Due from related parties

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Arbico FZE - - 94,096 96,520
Biswal - 14,856 - 14,856
ComEnergy Managed Services Limited - -
FIDC 190,425 8,794 8,794
Tranos Contracting Limited - 42,172 190,425 42,172
22,436 - 22,436
Allowance for expected credit losses (Note 20.3a) 190,425
88,258 284,521 184,778
(2,850)
(2,850) (2,850) (2,850)
187,575
85,408 281,671 181,928

For terms and conditions relating to due from related party, refer to Note 27.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 79

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

20.3a Set out below is the movement in the allowance for expected credit losses of inter-company
receivables and contract assets:

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

At 1 January 2,850 218 2,850 218
Expected credit losses - charge (Note 12) - 2,632 - 2,632

At 31 December 2,850 2,850 2,850 2,850

20.4 Other receivables The Group The Company

Staff receivable 2019 2018 2019 2018
Withholding tax receivable N’000 N’000 N’000 N’000
Deposit for materials
2,754 3,946 2,483 3,675
667,846 532,373 667,846 532,373
277,746 277,746
- -
814,065 813,794
670,600 670,329

Staff receivables relates to short-term advances granted to employees of the Group for travelling and business
expenses. The advances are expected to be retired within one year.

Withholding tax receivable (WHT) represent amount deducted at source by customers from payment to the Group in
line the withholding tax law. The customer is expected to remit the amount withheld to the relevant tax authority
and obtain withholding tax credit note in the name of Arbico plc. The WHT credit note can be used to offset future
tax liability.

Deposit for materials relate to letter of credit for Wema Bank relates to deposit made by the Group to Wema bank to
open an I&E foreign exchange window with the bank for the purpose of purchasing heavy duty equipment.

21 Prepayments

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Insurance 8,609 7,749 8,609 7,749
Rent 8,881 29,748 4,270 29,748
Service charges 1,749 1,749
Other assets 8,555 - 8,555 -
- -
Current 27,794 23,183
37,497 37,497

Service charges are non-lease components.
Rent for the current year relates to lease payments on short-term leases and leases of low value assets.

80 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

22 Cash and short-term deposits The Group The Company

Cash in hand 2019 2018 2019 2018
Cash at bank N’000 N’000 N’000 N’000
Short-term deposits
Restricted cash 5,960 2,963 5,875 2,963
29,564 187,816 22,875 170,517

- 11,932 - 11,932
315,586 277,127 228,902 277,127

351,110 479,838 257,652 462,539

Impairment allowance on short-term deposit and restricted cash are not material.

Cash at banks earns interest at floating rates based on daily bank deposit rates which ranges from 2% to 2.5%.
Short - term deposits are made for varying periods of between one day and three months, depending on the
immediate cash requirements of the Company, and earn interest at the respective short-term rates.

Restricted cash relates to amount withheld by banks as security for advance payment guarantee provided by the
two banks for contractual advance received from customers. The restriction on this amount is lifted when the
advance payment guarantee is released on achievement of certain milestones on the contracts.

For the purpose of statement of cash flows, cash and cash equivalents comprise of following:

Cash and cash equivalent

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Cash in hand 5,960 2,963 5,875 2,963
Cash at bank 29,564 187,816 22,875 170,517
Bank overdraft (161,792) (217,096) (161,792) (217,096)
Short-term deposits
- 11,932 - 11,932

(126,268) (14,385) (133,042) (31,684)

Bank overdraft represents the outstanding commitment on short-term borrowings for working capital
management. The bank overdraft is secured against mortgage debenture, 20% cash backing on Advance Payment
Guarantees (APG) upon the receipts of the APG proceed and personal guarantee of the Managing Director. The
lender is Guaranty Trust Bank. The interest on the overdraft is 21% per annum.

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 81

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

23 Issued capital and reserves The Group The Company

Authorised 2019 2018 2019 2018
150,000,000 Ordinary shares of 50K each
Thousands Thousands Thousands Thousands
Issued and fully paid
148,500,000 Ordinary shares of 50k each 75,000 75,000 75,000 75,000
Share Premium N’000 N’000 N’000 N’000
As at 31 December
Asset revaluation reserve 74,250 74,250 74,250 74,250
As at 31 December
141,184 141,184 141,184 141,184

861,934 861,934 861,934 861,934

Asset revaluation reserve surplus is used to recognize surplus or deficit on revaluation of property, plant and
equipment. Land and buildings are recognised at fair value based on periodic, but at least triennial, valuations by
external independent valuers, less subsequent depreciation for buildings. A revaluation surplus is credited to other
reserves in shareholders’ equity.

24 Share deposit

In 2014, a decision was taken by the Directors of Biswal Limited to convert 1,950,000,000 of the amount due from
Arbico Plc into equity through acquisition of more share capital in the later. However, due to the inability of Arbico
Plc to meet necessary regulatory requirement such as increase in authorised share capital, registration of increase in
share capital and allotment of shares, the amount was recognised as deposit for shares in the book of Arbico Plc.

Share deposit The Group The Company
Share deposit
2019 2018 2019 2018
N’000 N’000 N’000 N’000

1,950,000 1,950,000 1,950,000 1,950,000

25 Trade and other payables The Group The Company

Trade payables 2019 2018 2019 2018
Other payables (Note 25.1) N’000 N’000 N’000 N’000
Due to related parties (Note 25.2)
As at 31 December 862,624 185,379 862,624 185,379
502,588 600,033 416,480 600,033
1,746,315 2,347,965 1,926,518 2,347,965

3,111,527 3,133,377 3,205,622 3,133,377

Terms and conditions of the above financial liabilities:
Trade payables are non-interest bearing and are normally settled on 60-day terms.
Other payables are non-interest bearing and have an average term of six months.
For terms and conditions relating to due to related parties, refer to Note 27.

82 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

25.1 Other payables The Group The Company

Pension payable 2019 2018 2019 2018
Statutory payable N’000 N’000 N’000 N’000
Industrial training fund
Service providers payable 632 27,386 632 27,386
Accruals 365,833 430,987 365,833 430,987

1,469 5,419 1,469 5,419
23,880 50,669 23,880 50,669
110,774 85,572 24,666 85,572

502,588 600,033 416,480 600,033

Statutory payable includes Pay-As-You-Earn (PAYE), value added tax payable and withholding tax payable.
Accruals relates to payables to the Directors for working capital provided to finance the business.

25.2 Due to related parties

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

R28 Limited 307,982 307,258 307,982 307,258
Biswal Limited 1,361,347 2,040,707 1,361,347 2,040,707
Arbico EPZ
Aiyeola Afolabi - - 180,203 -
Alkimos Makaronidis 24,852 - 24,852 -
Eyo Asuquo 27,282 - 27,282 -
24,852 - 24,852 -

1,746,315 2,347,965 1,926,518 2,347,965

For terms and conditions relating to due to related parties, refer to Note 27.
26 Contract liabilities

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Advance from customers 3,262,209 2,983,912 2,628,466 2,983,912

Current 3,262,209 2,983,912 2,628,466 2,983,912
Non-current - - - -

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 83

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

27 Related party transactions

The following table provides the total amount of transactions that have been entered into with related parties for the
relevant financial year (for information regarding outstanding balances at 31 December 2019 and 2018, refer to
Notes 20.3 and 25.2.

Amounts due Rent/service Amounts
from/(owed to) charge owed to related
related parties N’000
parties
N’000 N’000

Arbico FTZE 2019 94,096 - -
2018 96,520 - -

R28 Limited 2019 - - (307,982)
2018 - - (307,258)

Biswal Limited 2019 - - (1,361,347)
2018 14,856 - (2,040,707)

Tranos Contracting 2019 - - -
Limited 2018 22,436 9,127 -

ComEnergy Managed 2019 - - -
Services Limited 2018 8,794 - -

FIDC 2019 190,425 - -
2018 42,172 - -

Nature of related party transactions
At the start of the re-engineering process in August 2010, the board of Directors approved that intervention fund be
received from Biswal Ltd and R28 both being related parties’ companies. The Board decision was based on the fact
that at that time the Company lacked pedigree and goodwill to approach financial institutions and the capital
market was not an option because the Company was then on technical suspension. However, there was urgent
need to procure modern equipment to meet current trends in the construction industry. As at reporting date, 31
December 2019 total intervention fund received for purchase of equipment and settlement of bank loans from both
parties stood at N2.3billion (2018: N2.3 billion). Of this amount, N1.950billion received from Biswal Limited is meant
to be deposit for shares (See Note 24).

Biswal Limited
Biswal Limited is owned by one of the Directors of Arbico Plc, Adebisi Adebutu.

Tranos Contracting Limited
One of the Directors of Arbico Plc has a non-controlling interest in Tranos Contracting Limited.

ComEnergy
Biswal Limited is owned by one of the Directors of Arbico Plc, Adebisi Adebutu.

Arbico FZE
Arbico FZE is a subsidiary of Arbico FZE. It was incorporated in April 2018 and commenced operations in May 2018.
Arbico owned 99% shares in Arbico Plc while the ramianing 1% is owned by Adebisi Adebutu.

84 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Entity with control over the Company
R28 Limited
R28 Limited owns 69.97% of the ordinary shares in Arbico Plc (2018: 69.97%).

Terms and conditions of transactions with related party
Outstanding balances at the year-end are unsecured and interest free and settlement occurs in cash. There have
been no guarantees provided for any related party payables.

Compensation of key management personnel of the entity

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Short-term employee benefits - -- -
Post-employment pension and Gratuity - -- -

Total compensation paid to key management - -- -
personnel

28 Financial Risk Management objectives and policies

Overview
The group's principal financial liabilities comprise of loans and borrowings, amount due to customers for contract
work and trade and other payables. The main purpose of these financial liabilities is to finance the Group's
operations. The Company's financial assets include trade and other receivables, amount due from customers on
contract work, investments and cash and short-term deposits.

The group has exposure to the following risks from its use of financial instruments:
Ÿ Credit Risk
Ÿ Liquidity Risk
Ÿ Market Risk

The group's senior management oversees the management of these risks. The Board of Directors reviews and agrees
policies for managing each of these risks. This note presents information about the Group’s exposure to each of the
above risks, the Group’s objectives, policies and processes for measuring and managing risk.

Further quantitative disclosures are included throughout these financial statements.

Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to
the Group.

The group is exposed to credit risk from its operating activities primarily trade receivables and deposits with banks
and other financial institution. The company has a credit control function that weekly monitors trade receivables and
resolves credit related matters.

Trade receivables
Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and
control relating to customer credit risk management. The group has adopted a policy of only dealing with
creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. A sales representative is
attached to each customer and outstanding customer receivables are regularly monitored by the representative. The
requirement for impairment is analysed at each reporting date on an individual basis for all customers. The company

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 85

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

evaluates the concentration of risk with respect to trade receivables as Medium as customers consists of large and
reputable financial institutions that are subjected to financial scrutiny by various regulatory bodies. The group’s
maximum exposure to credit risk for the components of the statement of financial position is its carrying amount.

Deposits with banks and other financial institutions
Credit risk from balances with banks and financial institutions is managed by the Company’s treasury department in
accordance with the Group’s policy. Surplus funds are spread amongst reputable 1commercial banks and funds
must be within treasury limits assigned to each of the counterparty. Counterparty treasury limits are reviewed by the
Group’s Financial Controller periodically and may be updated throughout the year subject to approval of the
Financial Controller. The limits are set to minimize the concentration of risks and therefore mitigate financial loss
through potential counterparty’s failure. The company’s maximum exposure to credit risk for the components of the
statement of financial position is its carrying amount.

Global- scale long National scale long National Agusto Implied S&P Implied S&P
term local currency term rating scale short term rating rating class rating categories
rating rating (without modifiers) (with modifiers)
ngA-1 B
ngAAA ngAA+ AAA AA B+ B
BB ngAA, ngAA- ngA-1 AA B B
BB - ngA+, ngA, ngA- ngA-1 A B B
B+ ngBBB+, ngBBB, ngBBB- ngA-1, ngA-2 BBB B B-
B ngBB+, ngBB ngA-2, ngA-3 BB B B-
B- ngBB-, ngB+ ngB B B CCC +
CCC + ngB, ngB-, ngCCC+ ngB B CCC CCC
CCC ngCCC, ngCCC- ngC CCC CCC CCC -
CCC - ngCC ngC CC CCC CC
CC ngC ngC C CC C
C R ngC D C D
R SD R D D D
SD D SD D D D
D D D

i Trade receivables
For trade receivables, the Group applied the simplified approach in computing ECL. Therefore, the Group does not
track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. An
impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses
(ECL). The provision rates are based on days past due for groupings of various customer segments with similar loss
patterns (i.e. customer type and rating). The calculation reflects the probability-weighted outcome, the time value of
money and reasonable and supportable information that is available at the reporting date about past events, current
conditions and forecasts of future economic conditions. Generally, trade receivables are written-off if past due for
more than one year and are not subject to enforcement activity. The maximum exposure to credit risk at the
reporting date is the carrying value of each class of financial assets disclosed in Note 20. Group does not hold
collateral as security.

86 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Set out below is the information about the credit risk exposure on the Groups’ contract assets and trade receivables
as at 31 December 2019 using a provision matrix:

Group

Set out below is the movement in the allowance for expected credit losses of trade receivables:

31 December 2019 0 - 1 year 1 – 3 years 4 years Total
N’000 N’000 N’000 N’000

Expected credit loss rate 10.63% 100% 100
Estimated total gross carrying amount at default 1,215,440 946,043 - 2,307,615
Expected credit loss 946,043 - 1,075,285
129,242

31 December 2018 24.79% 21.04% 16.13% 2,429,783
Expected credit loss rate 1,118,487 818,663 492,633 528,981
Estimated total gross carrying amount at default 172,247
Expected credit loss 277,273 79,462

Set out below is the movement in the allowance for expected credit losses of contract assets:

31 December 2019 0 - 1 year 1 – 3 years 4 years Total
N’000 N’000 N’000 N’000

Expected credit loss rate 10.14% 100% 100% 3,936,212
Estimated total gross carrying amount at default 3,155,656 780,556 - 1,100,384
Expected credit loss 780,556 -
319,828 2,622,841
768,714
31 December 2018 24.79% 21.04% 16.13%
Expected credit loss rate 2,010,617 612,225 -
Estimated total gross carrying amount at default 238,696 -
Expected credit loss 530,018

Company

Set out below is the movement in the allowance for expected credit losses of trade receivables:

31 December 2019 0 - 1 year 1 – 3 years 4 years Total
N’000 N’000 N’000 N’000

Expected credit loss rate 10.73% 100% 100% 2,160,248
Estimated total gross carrying amount at default 1,215,440 944,808 - 1,075,285
Expected credit loss 944,808 -
130,477 2,429,782
528,981
31 December 2018 21.3% 22.04% 16.53%
Expected credit loss rate 1,118,487 818,663 492,633
Estimated total gross carrying amount at default 172,247
Expected credit loss 172,247 79,462

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 87

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Set out below is the movement in the allowance for expected credit losses of contract assets:

31 December 2019 0 - 1 year 1 – 3 years 4 years Total
N’000 N’000 N’000 N’000

Expected credit loss rate 10.63% 100% 100% 3,788,340
Estimated total gross carrying amount at default 3,007,783 780,557 - 1,100,384
Expected credit loss 780,557 -
319,827 2,622,841
768,714
31 December 2018 24.79% 21.04% 16.13%
Expected credit loss rate 2,010,617 612,225 -
Estimated total gross carrying amount at default 238,696 -
Expected credit loss 530,018

i Trade receivables
Loss rate are calculated using a 'roll rate' method based on the probability of a receivable progressing through
successive stage delinquency to write-off. These rates are multiplied by scalar factors to reflect differences
between economic conditions during the period over which the historical data has been collected, current
conditions and the Company's view of economic conditions over the expected lives of the receivables

ii Expected credit loss measurement - other financial assets
The group applied the general approach in computing expected credit losses (ECL) for intercompany receivables
and short-term deposits. 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 Company expects to
receive, discounted at an approximation of the original effective interest rate.

ECLs are recognised in two stages. 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).

The ECL is determined by projecting the PD, LGD and EAD for each future month and for each individual
exposure. These three components are multiplied together and adjusted for the likelihood of survival (i.e. the
exposure has not prepaid or defaulted in an earlier month). This effectively calculates an ECL for each future
month, which is then discounted back to the reporting date and summed. The discount rate used in the ECL
calculation is the original effective interest rate or an approximation thereof.

The 12-month and Lifetime PDs are derived by mapping the internal rating grade of the obligors to the PD term
structure of an external rating agency for all asset classes. The 12-month and lifetime EADs are determined
based on the expected payment profile, which varies by product type. The assumptions underlying the ECL
calculation – such as how the maturity profile of the PDs, etc. – are monitored and reviewed on a regular basis.
There have been no significant changes in estimation techniques or significant assumptions made during the
reporting period. The significant changes in the balances of the other financial assets including information
about their impairment allowance are disclosed below respectively.

The group considers a financial asset in default when contractual payments are 90 days past due. However, in
certain cases, the Company may also consider a financial asset to be in default when internal or external
information indicates that the Company is unlikely to receive the outstanding contractual amounts in full
before taking into account any credit enhancements held by the Company. A financial asset is written off when
there is no reasonable expectation of recovering the contractual cash flows.

88 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Analysis of inputs to the ECL model under multiple economic scenarios
An overview of the approach to estimating ECLs is set out in Note 3(ii) Summary of significant accounting policies
and in Note 4 Significant accounting judgements, estimates and assumptions. To ensure completeness and
accuracy, the Company obtains the data used from third party sources (Central Bank of Nigeria, Standards and
Poor's etc.) and a team of expert within its credit risk department verifies the accuracy of inputs to the Company's
ECL models including determining the weights attributable to the multiple scenarios. The following tables set out
the key drivers of expected loss and the assumptions used for the Company’s base case estimate, ECLs based on the
base case, plus the effect of the use of multiple economic scenarios as at 1 January 2019 and 31 December 2019.

The tables show the values of the key forward looking economic variables/assumptions used in each of the economic
scenarios for the ECL calculations. The figures for “Subsequent years” represent a long-term average and so are the
same for each scenario.

Group and Company

31 December 2019 Assigned ECL 2020 2021 2022
Key drivers probabilities scenarios

Oil Price 10% Upturn 55.61 57.07 57.07
80% Base 53.50 54.96 54.96
10% Downturn 51.18 52.64 52.64

Unemployment rate 10% Upturn 0.26 0.26 0.26
80% Base 0.34 0.34 0.34
10% Downturn 0.36 0.36 0.36

Inflation rate 10% Upturn 0.12 0.12 0.12
80% Base 0.11 0.11 0.11
10% Downturn 0.10 0.10 0.10

31 December 2018 Assigned ECL 2019 2020 2021
Key drivers probabilities scenarios

Oil Price Upturn 11% 56.00 59.00 62.00
Base 80% 55.00 57.00 62.00
Downturn 9% 44.00 41.00 38.00

Unemployment rate Upturn 11% 0.26 0.26 0.26
Base 80% 0.33 0.34 0.34
Downturn 9% 0.36 0.36 0.36

Inflation rate Upturn 11% 26.00 24.00 22.00
Base 80% 31.00 32.00 33.00
Downturn 9% 34.00 36.00 38.00

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 89

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The following tables outline the impact of multiple scenarios on the ECL allowance:

31 December 2019 Inter-
company
Short-term receivables Total
deposit N’000
N’000 N’000
285
Upturn (10%) - 285 2,280
Base (80%) - 2,280
Downturn (10%) - 285
285 2,850
Total -
2,850 Total
31 December 2018 N’000
Inter-
Short-term company 285
deposit receivables 2,280
N’000
N’000 285
Upturn (10%) - 2,850
Base (80%) - 285
Downturn (10%) - 2,280

Total - 285

2,850

Short-term deposits
An analysis of changes in the gross carrying amount and the corresponding ECL allowances is, as follows:

Step 1 Step 2 Step 3 Total
N’000 N’000 N’000 N’000

Gross carrying amount as at 1 January 2019 - -- -
-
New asset purchased - --
-
Asset derecognised or repaid (excluding write offs) - - - -

At 31 December 2019 - --

Group Step 1 Step 2 Step 3 Total
N’000 N’000 N’000 N’000
Intercompany receivables
31 December 2019 88,258 - - 88,258
102,167 - - 102,167
Gross carrying amount as at 1 January - -
Additions - -
Asset derecognised or repaid (excluding write offs) - -
At 31 December 190,425 190,425
- -
ECL allowance as at 1 January 2,850 - - 2,850
Charged for the year - - - -
Asset derecognised or repaid (excluding write offs) - -
At 31 December - -
2,850 2,850

90 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Group Step 1 Step 2 Step 3 Total
N’000 N’000 N’000 N’000
Intercompany receivables
31 December 2018 22,436 - - 22,436
162,342 - - 162,342
Gross carrying amount as at 1 January (96,520) - - (96,520)
Additions -
Asset derecognised or repaid (excluding write offs) 88,258 - 88,258
At 31 December -
217 - - 217
ECL allowance as at 1 January 2,633 - - 2,633
Charged for the year - -
Asset derecognised or repaid (excluding write offs) - - 2,850
At 31 December 2,850 Step 2 -
N’000
Short-term deposits Step 1 Step 3 Total
31 December 2019 N’000 - N’000 N’000
-
Gross carrying amount as at 1 January 11,932 - - 11,932
Additions - - - -
Asset derecognised or repaid (excluding write offs) -
At 31 December (11,932) - (11,932)
- - -
ECL allowance as at 1 January - -
Charged for the year` - - -
Asset derecognised or repaid (excluding write offs) - - -
At 31 December - Step 2 - -
- N’000 -
Short-term deposits -
31 December 2018 Step 1 - -
N’000 -
Gross carrying amount as at 1 January - Step 3 Total
Additions 11,097 - N’000 N’000
Asset derecognised or repaid (excluding write offs) 835
At 31 December - - - 11,097
- - 835
ECL allowance as at 1 January 11,932 - - -
Charged for the year -
Asset derecognised or repaid (excluding write offs) - - 11,932
At 31 December -
- - -
- - -
- -

- -

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 91

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Company Step 1 Step 2 Step 3 Total
N’000 N’000 N’000 N’000
Intercompany receivables
31 December 2019 184,778 - - 184,778
99,743 - - 99,743
Gross carrying amount as at 1 January - - - -
Additions -
Asset derecognised or repaid (excluding write offs) 284,521 - 284,521
At 31 December -
2,850 - - 2,850
ECL allowance as at 1 January - - - -
Charged for the year - - - -
Asset derecognised or repaid (excluding write offs)
At 31 December 2,850 Step 2 - 2,850
N’000
Intercompany receivables Step 1 Step 3 Total
31 December 2018 N’000 - N’000 N’000
-
Gross carrying amount as at 1 January 22,436 - - 22,436
Additions 162,342 - - 162,342
Asset derecognised or repaid (excluding write offs) -
At 31 December - - -
184,778 - -
ECL allowance as at 1 January - 184,778
Charged for the year 217 - -
Asset derecognised or repaid (excluding write offs) 2,633 - 217
At 31 December Step 2 - 2,633
- N’000
Short-term deposits 2,850 - -
31 December 2019 -
Step 1 - 2,850
Gross carrying amount as at 1 January N’000 -
Additions - Step 3 Total
Asset derecognised or repaid (excluding write offs) 11,932 N’000 N’000
At 31 December - -
- - 11,932
ECL allowance as at 1 January (11,932) - - -
Charged for the year - - -
Asset derecognised or repaid (excluding write offs) (11,932)
At 31 December - -
- -
- -
- - -
- -
-
-
-

92 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Company Step 1 Step 2 Step 3 Total
N’000 N’000 N’000 N’000
Short-term deposits
31 December 2018 11,097 - - 11,097
835 - - 835
Gross carrying amount as at 1 January - - - -
Additions
Asset derecognised or repaid (excluding write offs) 11,932 - - 11,932
At 31 December
- - - -
ECL allowance as at 1 January - - - -
Charged for the year - - - -
Asset derecognised or repaid (excluding write offs)
At 31 December - - - -

Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset.

The group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity
to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Company’s reputation.

The group's objective is to maintain a balance between continuity of funding and flexibility through the use of trade
payables and related party funding. The group assessed the concentration of risk with respect to refinancing its debt
and concluded it to be low.

Excessive risk concentration
The group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. The
group has access to a sufficient variety of sources of funding and debt maturing within 12 months can be rolled over
with existing lenders. Concentrations arise when a number of counterparties are engaged in similar business
activities, or activities in the same geographical region, or have economic features that would cause their ability to
meet contractual obligations to be similarly affected by changes in economic, political or other conditions.
Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular
industry.

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual
undiscounted payments

The Group On Less than 3 3 to 12 Total
Year ended 31 December 2019 demand 3 months months 1-5 years > 5 years

Trade and other payables - - 2,608,939 - - 2,608,939
- - 2,608,939 - - 2,608,939

Year ended 31 December 2018 On Less than 3 3 to 12 Total
demand 3 months months 1-5 years > 5 years

Trade and other payables - - 2,533,344 - - 2,533,344
- - 2,533,343 - - 2,533,343

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 93

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The Company On Less than 3 3 to 12 Total
Year ended 31 December 2019 demand 3 months months 1-5 years > 5 years
Trade and other payables
- - 2,789,142 - - 2,789,142
Year ended 31 December 2018 - - 2,789,142 - - 2,789,142
Trade and other payables
On Less than 3 3 to 12 Total
demand 3 months months 1-5 years > 5 years

- - 2,533,343 - - 2,533,343
- - 2,533,343 - - 2,533,343

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market prices. Market risk comprise three types of risk: interest rate risk, currency risk and other price risk,
such as equity price risk and commodity risk. The group is exposed to currency risk and insignificant interest rate risk.
Financial instruments affected by currency risk include cash and short term deposit, trade and other receivables and
trade and other payables.

Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates
relates primarily to the Group’s operating activities (when revenue or expense is denominated in a different currency
from the Group’s presentation currency). Management has set up a policy requiring the Company to manage its
foreign currency risk against its functional currency. To manage its foreign currency risk arising from future
commercial transaction and recognised asset and liabilities, the Company ensures that significant transaction is
contracted in the functional currency.

Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in USD, Euro and GBP exchange
rates, with all other variables held constant. The impact on the Company’s profit before tax is due to changes in the
fair value of monetary assets and liabilities.

2019 Change in Effect on Change in Effect on Change in Effect on
2018 USD rate profit before tax EURO rate profit before tax POUNDS rate profit before tax
N000 N000 N000
+5% +5% +5%
237 213 6
-5% -5% -5%
(237) (213) (6)

+5% 7,857 +5% 17 +5% 806
-5% (7,857) -5% (17) -5% (806)

94 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The table below show financial instruments by their measurement bases:

The Group

As at 31 December 2019 Amortised cost Fair value Carrying value
N’000
N’000 N’000

Trade and other receivables 2,281,973 - 2,281,973
Cash and short-term deposits 336,076 336,076
Contract assets
2,835,828 - 2,835,828
Total financial assets
5,453,877 - 5,453,877
Trade and other payables
2,608,939 - 2,608,939
Total financial liabilities
2,608,939 - 2,608,939

As at 31 December 2018 1,986,209 - 1,986,209
479,838 - 479,838
Trade and other receivables - 1,854,127
Cash and short-term deposits 1,854,127
Contract assets - 4,320,174
Total financial assets 4,320,174
Trade and other payables - 2,533,344
Total financial liabilities 2,533,344
- 2,533,344
2,533,344

The Company Amortised cost Fair value Carrying value
As at 31 December 2019 N’000
N’000 N’000
Trade and other receivables 2,228,701
Cash and short-term deposits 257,652 - 2,228,701
Contract assets - 257,652
Total financial assets 2,687,956 - 2,687,956
As at 31 December 2019 5,174,309
- 5,174,309
Trade and other payables Amortised cost
Total financial liabilities N’000 Fair value Carrying value

As at 31 December 2018 2,789,142 N’000 N’000
Trade and other receivables 2,789,142
Cash and short-term deposits - 2,789,142
Contract assets - 2,789,142
Total financial assets
Trade and other payables 2,082,729 - 2,082,729
Total financial liabilities 462,539 - 462,539
- 1,854,127
2019 ANNUAL REPORT & FINANCIAL STATEMENTS 1,854,127 - 4,399,395
- 2,533,344
4,399,395 - 2,533,344

2,533,344 95

2,533,344

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

29 Capital management

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and
healthy capital ratios in order to support its business and maximise shareholder value. The Company manages its
capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the
capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue
new shares.

The group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt. The group’s
policy is to keep the gearing ratio between 40% and 50%. The group includes within net debt, trade and other
payables less cash and short-term deposits.

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Trade and other payables (Note 25) 3,111,526 3,133,377 3,205,622 3,133,377
Bank overdrafts 161,792 217,096 161,792 217,096
Less cash and short-term deposits (Note 22)
(351,110) (479,838) (257,652) (462,539)

Net debt 2,922,208 2,870,635 3,109,762 2,887,934
Equity (1,540,081) (1,429,216) (1,384,093) (1,325,107)

Capital and net debt 1,382,127 1,441,419 1,725,669 1,562,827

Gearing ratio (%) 211% 199% 180% 185%

In order to achieve this overall objective, the Group’s capital management, amongst other things, aims to ensure
that it meets short term obligations to creditors and related parties providing funding support.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31
December 2019 and 31 December 2018.

30 Fair value measurement of financial assets and liabilities

The management assessed that cash and cash equivalents, trade and other receivables, trade and other payables
approximate their carrying amounts largely due to the short- term maturities of these instruments.

Other than items that are measured at fair value upon initial recognition, no assets or liabilities are subsequently
measured at fair value in the financial statements. In addition, the fair value of financial assets and liabilities
subsequently measured at amortised cost approximate their carrying value at the end of the reporting period.
Hence, no fair value disclosure is provided in the financial statements.

31 Segment Reporting

A segment is a distinguishable component of the company that is engaged either in providing related products or
services (business segment), or in providing products or services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are different from those of other segments. The
company’s activities are concentrated in one geographic region. The company's primary format for segment
reporting is based on business segments. The business segments are determined by management based on the
Group's internal reporting structure. Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.

96 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

The company does not have any major customer that amount to 10% or more of the revenue.

The company operates as a single reporting segment and information on these financial statements have been
reported for the Company as a whole.

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Revenue from external customers in Nigeria 6,080,294 4,171,470 5,871,282 4,171,470
Non – current operating assets in Nigeria 1,615,710 1,501,982 1,531,262 1,526,870

Non- current assets for this purpose consist of property, plant and equipment, investment in subsidiary unquoted
investment and intangible assets

32 Information relating to employees

The average number of persons employed by the Group during the financial year was as follows:

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

Management 17 10 15 9
Construction
Administrative staff 243 221 189 208

32 27 28 26

292 258 232 243

Employees of the Group, other than Directors, whose duties were wholly or mainly discharged in Nigeria, received
remuneration in the following ranges:

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

400,001 - 420,000 ----
420,001 - 500,000
500,001 - 600,000 4 11 4 11
600,001 - 650,000
650,001 - 750,000 2222
750,001 - 1,200,000
1,200,001 - 2,000,000 -2 -2
2,000,001 - 2,600,000
2,600,001 - 3,500,000 40 51 35 49
3,500,001- 4,500,000
4,500,000 and above 76 65 65 62

62 39 44 37

44 39 34 34

27 21 19 19

20 18 14 18

17 10 15 9

292 258 232 243

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 97

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Directors’ mix The Group The Company

Executive 2019 2018 2019 2018
Non-Executive N’000 N’000 N’000 N’000
33 Contingent liabilities
33 33
Advance payment guarantee – United Bank for Africa 44 44
Performance bond – Guaranty Trust Bank
77 77

The Group The Company

2019 2018 2019 2018
N’000 N’000 N’000 N’000

- 74,918 - 74,918

3,804,576 2,260,451 3,804,576 2,260,451

3,804,576 2,335,369 3,804,576 2,335,369

The above guarantees and performance bond are for the benefit of various customers and are held with the financial
institutions highlighted above.

34 Capital Commitment

In the opinion of the Directors, there were no capital commitments at 31 December 2019 (2018: Nil).

35 Events after the reporting period

The directors are of the opinion that there were no events after the reporting date that will could have a significant
effect on the financial statements of the Group and Company that had not been adequately provided for or
disclosed in these financial statements. However, the Directors have assessed the impact of COVID 19 on the
Group’s business and make the following disclosures;

Since 31 December 2019, the spread of COVID-19 has severely impacted many local economies around the globe. In
many countries, businesses are being forced to cease or limit operations for long or indefinite periods of time.
Measures taken to contain the spread of the virus, including travel bans, quarantines, social distancing, and closures
of non-essential services have triggered significant disruptions to businesses worldwide, resulting in an economic
slowdown. Global stock markets have also experienced great volatility and a significant weakening. Governments
and central banks have responded with monetary and fiscal interventions to stabilise economic conditions. In
response to the Federal Government and State Government directives on social distancing efforts, lockdown and
border closures related to spread of COVID-19, the Group announced temporary closure of its stores and office in
Ilupeju, Lagos, which is the point of mobilization for all projects undertaken by the Group thereby denying the Group
of revenue for some months approximately N2.5 billion.

The group also announced that it would continue to pay its staff for the period of the lock down. The salaries and
benefits expenses commitment estimated for this period is N300 million.

Also, subsequent to the reporting period, some of the Group’s major trade customers that were hard hit were
unable to make payment as promised as a result of continued spread of the COVID-19. Of the N765 million

98 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

receivable from these customers, the Group expects to recover N135 million. The allowance for expected credit
losses for this receivable was N765 million as 100% allowance was made as at 31 December 2019.

Protracted negative effects on investor confidence could require Arbico Plc to significantly cut its spending, which
may lead to a decline in the fair value of the Group’s investments and revenue.

The group has determined that these events are non-adjusting subsequent events. Accordingly, the financial
position and results of operations as of and for the year ended 31 December 2019 have not been adjusted to reflect
their impact. The duration and impact of the COVID-19 pandemic, as well as the effectiveness of government and
central bank responses, remains unclear at this time. It is not possible to reliably estimate the duration and severity of
these consequences, as well as their impact on the financial position and results of the Group for future periods.

The directors are of the opinion that there were no events after the reporting date that will could have a significant
effect on the financial statements of the Group and Company that had not been adequately provided for or
disclosed in these financial statements. However, the Directors have assessed the impact of COVID 19 on the
Group’s business and make the following disclosures;

Going Concern
The novel coronavirus (COVID-19) pandemic has adversely affected the global economy. Companies of all sizes in all
industries are faced with closures of specific locations or complete shutdowns; employee layoffs, furloughs or
restrictions on work; liquidity issues; and disruptions to their supply chains and customers. These negative impacts
have brought the “going concern” issue to the forefront. The COVID-19 pandemic has seriously affected the
Construction Industry with the lockdown directive of the Federal Government of Nigeria, and
suspension/cancelation of all construction works in the months of March and April.

Despite all these, the Group’s going-concern as an indigenous construction company is not under any threat. Arbico
has been operating skeletal services by handling some construction projects of isolation centers for some states like
Lagos, Oyo, Osun, Abuja, Kano, and Port-Harcourt.

We are in contact with most of our clients and customers. Many clients have indicated interest/intention for Arbico
to resume work in various project sites. It is our belief that we will continue to operate these skeletal services until
business returns to normalcy in the nearest future. In order to ensure safe return to various project sites, the Group
has put in place some measures to ensure the safety of the work force.

These include but not limited to the following;
Ÿ All construction projects must maintain hand washing and sanitizing stations for workers;
Ÿ Each project site must identify a "pandemic safety officer" for each project or jobsite;
Ÿ On large projects, we must have a safety officer on-site;
Ÿ Residential construction projects are limited to a maximum of four individuals on the jobsite at any time;
Ÿ On commercial projects, the number of people permitted depends on the size of the enclosed site;
Ÿ stablished written safety plan for each work location;
Ÿ Maintain a 6-foot minimum distance between all workers "unless the safety of the public or workers require

deviation";
Ÿ Limit all gatherings to no more than 10 people;
Ÿ Staggered shifts, breaks and work areas are required where possible;
Ÿ Employees to limit the use of co-workers’ tools and equipment. To the extent tools must be shared, the Company

will provide alcohol-based wipes to clean tools before and after use. When cleaning tools and equipment,
consult manufacturing recommendations for proper cleaning techniques and restrictions;
Ÿ In lieu of using a common source of drinking water, such as a cooler, employees should use individual water
bottles;
Ÿ The number of visitors to the job site, including the trailer or office, will be limited to only those necessary for the
work;
Ÿ Site deliveries will be permitted but should be properly coordinated in line with the employer’s minimal contact
and cleaning protocols. Delivery personnel should remain in their vehicles if at all possible;

2019 ANNUAL REPORT & FINANCIAL STATEMENTS 99

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019

Liquidity and funding risk
Revenue has drastically gone down since the beginning of COVID-19 pandemic thoughCOVID-19 is not, broadly
speaking, rendering projects altogether impossible to complete. But it is slowing them down, causing delay and
disruption, even if only because supply chains have been severally disrupted. Many projects have even stopped,
usually with the intention to resume work at a later date.

We have therefore developed strategies, and focused more on implementation of these strategies to manage the
situations:
Ÿ Prepare for increased liquidation and renegotiation of contracts;
Ÿ Prioritize cybersecurity and system resiliency in response to significantly higher levels of remote access to core

systems, and because employees and management could be more susceptible to social engineering efforts in the
midst of a crisis;
Ÿ Work on restructuring to weather the storm;
Ÿ Consider if the crisis can be used as a catalyst to rethink how work is done and to accelerate the adoption of
digital capabilities;
Ÿ Proactively communicate with lenders and other stakeholders to avoid surprises and enable potential
rescheduling of debt or alternative financing sources;
Ÿ Negotiated with banks for reduction in transfer charges;
Ÿ Suspended all non-operational expenses;
Ÿ Negotiated and agreed with some of our creditors to defer payment obligations until after the period;
Ÿ Negotiated with staff unions to reduce payroll costs and assess labor costs, consider workforce contingency
planning scenarios, including during a period of diminished demand and activity.;
Ÿ Negotiating with our Insurance Brokers for possible reduction in insurance premium for this period;
Ÿ Also agreed with management for a payroll cut, and reduction in Board sitting allowances;
Ÿ Review capital and corporate cost budgets to help identify not only marginal investments, but also discretionary
items that can be cut;
Ÿ Consider divesting non-core or possibly underperforming assets or assessing mergers and acquisitions
Ÿ (M&A) prospects as potential sources of cash;
Ÿ Consider which functions may be outsourced to help trim operating costs;
Ÿ Evaluated the use of automation solutions to reduce the number of workers on sites;
Ÿ Maintaining a regular bank balance and Investment of about Two hundred million naira (N200,000,000), and
Five hundred thousand US Dollars (US$500,000).

Management will continue to pursue these strategies until business returns to normalcy.

100 ARBICO PLC | BUILDING & CIVIL ENGINEERING CONTRACTORS