6-K 1 a52316191.htm GRANA Y MONTERO S.A.A. 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15b-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of October 2020

 Commission File Number 001-35991

GRAÑA Y MONTERO S.A.A.
(Exact name of registrant as specified in its charter)
 
N/A
(Translation of registrant’s name into English)
 
Republic of Peru
(Jurisdiction of incorporation or organization)
 
Avenida Paseo de la República 4667, Lima 34,
Surquillo, Lima
Peru
(Address of principal executive offices)
 


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
 
Form 20-F ___X____ Form 40-F _______
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes _______ No ___X____
 
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable.

October 29, 2020

Sincerely yours,


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GRAÑA Y MONTERO S.A.A.

By: /s/ LUIS FRANCISCO DIAZ OLIVERO
Name: Luis Francisco Diaz Olivero
Title: Chief Executive Officer
Date: October 29, 2020

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES



CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT
DECEMBER 31, 2019 AND SEPTEMBER 30 2020 (UNAUDITED)


GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES


CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2019 AND SEPTEMBER 30, 2020 (UNAUDITED)



CONTENTS
Page
   
   
Consolidated Statement of Financial Position
1
   
Consolidated Statement of Income
2
   
Consolidated Statement of Comprehensive Income
3
   
Consolidated Statement of Changes in Equity
4
   
Consolidated Statement of Cash Flows
5
   
Notes to the Consolidated Financial Statements
6 - 40

S/ 
= 
Peruvian Sol
US$
= 
United States dollar

 


GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
 
                                         
                                         
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
 
(All amounts are expressed in thousands of S/ unless otherwise stated)
 
                                         
ASSETS
                   
LIABILITIES AND EQUITY
                 
         
As at
   
As at
             
As at
   
As at
 
         
December 31,
   
September 30,
             
December 31,
   
September 30,
 
   
Note
   
2019
   
2020
       
Note
   
2019
   
2020
 
         
(as restated)
                   
(as restated)
       
Current assets
                   
Current liabilities
                 
Cash and cash equivalents
 
8
     
950,701
     
820,163
   
Borrowings
 
15
     
481,529
     
404,098
 
Trade accounts receivables, net
 
9
     
914,204
     
680,913
   
Bonds
 
16
     
44,737
     
56,701
 
Work in progress, net
 
10
     
49,457
     
145,102
   
Trade accounts payable
 
17
     
1,159,075
     
959,738
 
Accounts receivable from related parties
 
11
     
36,658
     
26,959
   
Accounts payable to related parties
 
11
     
38,916
     
41,219
 
Other accounts receivable
 
12
     
454,474
     
412,143
   
Current income tax
         
51,169
     
32,054
 
Inventories, net
         
555,401
     
621,444
   
Other accounts payable
 
18
     
669,674
     
754,889
 
Prepaid expenses
         
16,478
     
19,317
   
Provisions
 
19
     
113,483
     
128,329
 
           
2,977,373
     
2,726,041
   
Total current liabilities
         
2,558,583
     
2,377,028
 
                                                 
Non-current assets as held for sale
         
2,398
     
-
   
Non-current liabilities as held for sale
         
-
     
-
 
                                                 
Total current assets
         
2,979,771
     
2,726,041
   
Total current liabilities
         
2,558,583
     
2,377,028
 
                                                 
Non-current assets
                       
Non-current liabilities
                     
Trade accounts receivable, net
 
9
     
779,609
     
790,144
   
Borrowings
 
15
     
409,066
     
454,749
 
Work in progress, net
 
10
     
23,117
     
37,227
   
Bonds
 
16
     
879,305
     
881,169
 
Accounts receivable from related parties
 
11
     
574,723
     
616,858
   
Trade accounts payable
 
17
     
34,814
     
33,928
 
Prepaid expenses
         
27,934
     
24,020
   
Other accounts payable
 
18
     
296,290
     
262,616
 
Other accounts receivable
 
12
     
273,432
     
271,568
   
Accounts payable to related parties
 
11
     
22,583
     
35,959
 
Investments in associates and joint ventures
 
13
     
37,035
     
38,296
   
Provisions
 
19
     
214,952
     
229,433
 
Investment property
         
28,326
     
26,437
   
Derivative financial instruments
         
52
     
-
 
Property, plant and equipment, net
 
14
     
463,990
     
414,602
   
Deferred income tax liability
         
112,734
     
93,846
 
Intangible assets, net
 
14
     
854,227
     
795,655
   
Total non-current liabilities
         
1,969,796
     
1,991,700
 
Right-of-use assets, net
 
14
     
90,581
     
70,394
   
Total liabilities
         
4,528,379
     
4,368,728
 
Deferred income tax asset
         
271,719
     
295,699
                           
Total non-current assets
         
3,424,693
     
3,380,900
   
Equity
                     
                         
Capital
 
20
     
871,918
     
871,918
 
                         
Legal reserve
         
132,011
     
132,011
 
                         
Voluntary reserve
         
29,974
     
29,974
 
                         
Share Premium
         
1,132,179
     
1,131,574
 
                         
Other reserves
         
(177,506
)
   
(188,213
)
                         
Retained earnings
         
(510,766
)
   
(565,909
)
                         
Equity attributable to controlling interest in the Company
         
1,477,810
     
1,411,355
 
                         
Non-controlling interest
         
398,275
     
326,858
 
                         
Total equity
         
1,876,085
     
1,738,213
 
Total assets
         
6,404,464
     
6,106,941
   
Total liabilities and equity
         
6,404,464
     
6,106,941
 
                                                 
                                                 
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements.
                           
- 1 -

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                 
                   
                   
CONSOLIDATED STATEMENT OF INCOME
                 
(All amounts are expressed in thousands of S/ unless otherwise stated)
                 
                   
         
For the period
 
         
ended September 30,
 
   
Note
   
2019
   
2020
 
         
(as restated)
       
                   
Revenues from construction activities
         
1,621,429
     
1,218,445
 
Revenues from services provided
         
845,780
     
747,447
 
Revenue from real estate and sale of goods
         
564,730
     
257,145
 
           
3,031,939
     
2,223,037
 
                       
Cost of construction activities
         
(1,537,103
)
   
(1,149,551
)
Cost of services provided
         
(669,073
)
   
(658,657
)
Cost of real estate and  sale of goods
         
(446,389
)
   
(202,286
)
   
21
     
(2,652,565
)
   
(2,010,494
)
Gross profit
         
379,374
     
212,543
 
                       
Administrative expenses
 
21
     
(164,313
)
   
(121,444
)
Other income and expenses
 
22
     
42,142
     
(36,100
)
Operating profit
         
257,203
     
54,999
 
                       
Financial expenses
         
(157,514
)
   
(102,205
)
Financial income
         
53,593
     
13,961
 
Share of the profit or loss of associates and joint ventures accounted for using the equity method
 
13
     
(1,387
)
   
1,945
 
Profit (loss) before income tax
         
151,895
     
(31,300
)
Income tax expense
         
(82,775
)
   
(14,796
)
Profit (loss) for the period
         
69,120
     
(46,096
)
                       
Profit (loss) attributable to:
                     
Owners of the Company
         
34,944
     
(55,143
)
Non-controlling interest
         
34,176
     
9,047
 
           
69,120
     
(46,096
)
                       
                       
Earnings (loss) per share attributable to owners of the
                     
Company during the period
 
26
     
0.043
     
(0.063
)
                       
                       
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements.
         
- 2 -

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
           
             
             
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
           
(All amounts are expressed in thousands of S/ unless otherwise stated)
           
             
   
For the period
 
   
ended September 30,
 
   
2019
   
2020
 
             
             
Profit (loss) for the period
   
69,120
     
(46,096
)
Other comprehensive income:
               
Items that may be subsequently reclassified to profit or loss
               
Cash flow hedge, net of tax
   
(13
)
   
(626
)
Foreign currency translation adjustment, net of tax
   
(16,624
)
   
(14,465
)
Exchange difference from net investment in a foreign operation, net of tax
   
(223
)
   
144
 
Other comprehensive income for the period, net of tax
   
(16,860
)
   
(14,947
)
Total comprehensive income for the period
   
52,260
     
(61,043
)
                 
Comprehensive income attributable to:
               
Owners of  the Company
   
21,158
     
(65,850
)
Non-controlling interest
   
31,102
     
4,807
 
     
52,260
     
(61,043
)
                 
                 
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements.
               
- 3 -

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                                     
                                                             
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                     
FOR THE PERIOD ENDED SEPTEMBER 30, 2019 AND 2020
                                     
(All amounts are expressed in thousands of S/ unless otherwise stated)
                                     
                                       
   
Attributable to the controlling interests of the Company
             
   
Number
                                                       
   
of shares
         
Legal
   
Voluntary
   
Share
   
Other
   
Retained
         
Non-controlling
       
   
In thousands
   
Capital
   
reserve
   
reserve
   
premium
   
reserves
   
earnings
   
Total
   
interest
   
Total
 
                                                             
                                                             
Balances as of January 1, 2019
   
729,434
     
729,434
     
132,011
     
29,974
     
992,144
     
(170,620
)
   
375,417
     
2,088,360
     
401,571
     
2,489,931
 
Profit for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
34,944
     
34,944
     
34,176
     
69,120
 
Cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
(12
)
   
-
     
(12
)
   
(1
)
   
(13
)
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(13,555
)
   
-
     
(13,555
)
   
(3,069
)
   
(16,624
)
Exchange difference from net investment in a foreign operation
   
-
     
-
     
-
     
-
     
-
     
(219
)
   
-
     
(219
)
   
(4
)
   
(223
)
Comprehensive income of the period
   
-
     
-
     
-
     
-
     
-
     
(13,786
)
   
34,944
     
21,158
     
31,102
     
52,260
 
Transactions with shareholders:
                                                                               
- Dividend distribution
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(7,975
)
   
(7,975
)
- Contributions (devolution) of non-controlling shareholders, net
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(20,876
)
   
(20,876
)
- Capital Increase
   
142,484
     
142,484
     
-
     
-
     
138,907
     
-
     
-
     
281,391
     
-
     
281,391
 
Total transactions with shareholders
   
142,484
     
142,484
     
-
     
-
     
138,907
     
-
     
-
     
281,391
     
(28,851
)
   
252,540
 
Balances as of September 30, 2019
   
871,918
     
871,918
     
132,011
     
29,974
     
1,131,051
     
(184,406
)
   
410,361
     
2,390,909
     
403,822
     
2,794,731
 
                                                                                 
Balances as of January 1, 2020
   
871,918
     
871,918
     
132,011
     
29,974
     
1,132,179
     
(177,506
)
   
(510,766
)
   
1,477,810
     
398,275
     
1,876,085
 
                                                                                 
Loss for the period
   
-
     
-
     
-
     
-
     
-
     
-
     
(55,143
)
   
(55,143
)
   
9,047
     
(46,096
)
Cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
(594
)
   
-
     
(594
)
   
(32
)
   
(626
)
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(10,257
)
   
-
     
(10,257
)
   
(4,208
)
   
(14,465
)
Exchange difference from net investment in a foreign operation
   
-
     
-
     
-
     
-
     
-
     
144
     
-
     
144
     
-
     
144
 
Comprehensive income of the period
   
-
     
-
     
-
     
-
     
-
     
(10,707
)
   
(55,143
)
   
(65,850
)
   
4,807
     
(61,043
)
Transactions with shareholders:
                                                                               
- Dividend distribution
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(64,716
)
   
(64,716
)
- Contributions (devolution) of non-controlling shareholders, net
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(11,419
)
   
(11,419
)
- Additional acquisition of non-controlling
   
-
     
-
     
-
     
-
     
(605
)
   
-
     
-
     
(605
)
   
(89
)
   
(694
)
Total transactions with shareholders
   
-
     
-
     
-
     
-
     
(605
)
   
-
     
-
     
(605
)
   
(76,224
)
   
(76,829
)
Balances as of September 30, 2020
   
871,918
     
871,918
     
132,011
     
29,974
     
1,131,574
     
(188,213
)
   
(565,909
)
   
1,411,355
     
326,858
     
1,738,213
 
                                                                                 
                                                                                 
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements.
 
- 4 -


GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                 
                   
                   
CONSOLIDATED STATEMENT OF CASH FLOWS
                 
(All amounts are expressed in thousands of S/ unless otherwise stated)
                 
                   
         
For the period
 
         
ended September 30,
 
   
Note
   
2019
   
2020
 
                   
OPERATING ACTIVITIES
                 
Profit (loss) before income tax
         
151,895
     
(31,300
)
Adjustments to  profit not affecting cash flows from
                     
operating activities:
                     
Depreciation
   
21
     
81,043
     
79,167
 
Amortization
   
21
     
80,482
     
75,164
 
Impairment of inventories
           
-
     
107
 
Impairment of accounts receivable and other accounts receivable
           
(1,519
)
   
28,886
 
Reversal of impairment of inventories
           
(305
)
   
(1,567
)
Debt condonation
           
-
     
(205
)
Impairment (reversal) of property, plant and equipment
           
15,120
     
(319
)
Impairment of intangible assets
           
3,257
     
8
 
Change in the fair value of the liability for put option
           
-
     
969
 
Other provisions
           
6,704
     
31,093
 
Financial expense,net
           
134,748
     
160,282
 
Impairment of work in progress
           
-
     
13,595
 
Share of the profit and loss of associates and joint ventures accounted for using the equity method
   
13
     
1,387
     
(1,945
)
Reversal of provisions
           
(3,107
)
   
(7,108
)
Disposal (reversal) of assets
           
1,039
     
2,322
 
Profit on sale of property, plant and equipment
           
(687
)
   
(9
)
Profit on remeasurement of accounts receivable
           
(12,963
)
   
(9,778
)
Net variations in assets and liabilities:
                       
Trade accounts receivable and working in progress
           
228,184
     
114,478
 
Other accounts receivable
           
69,935
     
42,885
 
Other accounts receivable from related parties
           
(13,720
)
   
(30,836
)
Inventories
           
(67,235
)
   
(50,485
)
Pre-paid expenses and other assets
           
(5,075
)
   
1,076
 
Trade accounts payable
           
111,626
     
(169,619
)
Other accounts payable
           
(133,315
)
   
68,456
 
Other accounts payable to related parties
           
(913
)
   
15,823
 
Other provisions
           
477
     
(5,347
)
Interest payment
           
(117,009
)
   
(99,912
)
Payments for purchases of intangibles - Concessions
           
(15,871
)
   
(890
)
Payment of income tax
           
(79,677
)
   
(83,799
)
Net cash provided by operating activities
           
434,501
     
141,192
 
                         
INVESTING ACTIVITIES
                       
Sale of property, plant and equipment
           
6,932
     
5,563
 
Interest received
           
4,108
     
3,163
 
Dividends received
           
332
     
701
 
Payment for purchase of investments properties
           
(57
)
   
(40
)
Payments for intangible purchase
           
(79,426
)
   
(39,498
)
Payments for property, plant and equipment purchase
           
(50,307
)
   
(24,746
)
Net cash applied to investing activities
           
(118,418
)
   
(54,857
)
                         
FINANCING ACTIVITIES
                       
Loans received
           
506,591
     
66,466
 
Amortization of loans received
           
(1,034,485
)
   
(194,079
)
Amortization of bonds issued
           
(23,088
)
   
(28,022
)
Payment for transaction costs for debt
           
(4,007
)
   
-
 
Dividends paid to non-controlling interest
           
(7,975
)
   
(55,085
)
Cash received (return of contributions) from non-controlling shareholders
           
260,515
     
(11,419
)
Net cash applied to financing activities
           
(302,449
)
   
(222,139
)
Net increase (net decrease) in cash
           
13,634
     
(135,804
)
Exchange difference
           
(10,451
)
   
5,182
 
Cash and cash equivalents at the beginning of the period
           
801,021
     
950,701
 
Cash and cash equivalents at the end of the period
   
8
     
804,204
     
820,079
 
                         
NON-CASH TRANSACTIONS:
                       
Capitalization of interests
           
5,088
     
5,129
 
Acquisition of assets through finance leases
           
1,696
     
55
 
Dividends declared to non-controlling interest
           
-
     
9,631
 
Acquisition of right-of-use assets
           
115,668
     
9,673
 
Acquisition of supplier bonds
           
-
     
25,871
 
                         
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements.
         


- 5 -

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2019 AND SEPTEMBER 30, 2020 (UNAUDITED)

1.   GENERAL INFORMATION

a)
Incorporation and operations

Graña y Montero S.A.A. (hereinafter the “Company”) is the parent Company of the Graña y Montero Group that includes the Company and its subsidiaries (hereinafter, the “Group”) and is mainly engaged in holding investments in Group companies. Additionally, the Company provides services of strategic and functional advice and office leases space to the Group companies.

The Group is a conglomerate of companies with operations including different business activities, the most significant are engineering and construction, infrastructure (public concession ownership and operation) and real estate businesses. See details of operating segments in Note 7.

b)
Authorization for the issue of the financial statements

The condensed interim consolidated financial statements for the period ended September 30, 2020 were authorized preliminary by Management and Board of Directors on October 29, 2020.

The consolidated financial statements for the year ended December 31, 2019 were approved on the Annual General Mandatory Shareholder’s Meeting on July 13, 2020.

c)
The Impact of the Ongoing Novel Coronavirus (COVID-19)

The ongoing COVID-19 pandemic and government measures to contain the spread of the virus are disrupting economic activity, and consequently adversely affecting our business, results of operations and financial condition, mainly during second quarter.

Countries around the world—including Peru as well as Chile and Colombia—have adopted extraordinary measures to contain the spread of COVID-19, including imposing travel restrictions, requiring closures of non-essential businesses, establishing restrictions on public gatherings, instructing residents to practice social distancing, issuing stay-at-home orders, implementing quarantines and similar actions.

The COVID-19 pandemic and the related government measures have significantly increased economic uncertainty and caused a global recession. According to recent projections from the International Monetary Fund, during 2020, the global economy is expected to contract by 4.4%, with Latin America expected to contract 8.1% and Peru, Chile and Colombia, in particular, expected to contract 13.9%, 6% and 8.2%, respectively. Moreover, the impact of the pandemic on economic activity has been sudden and severe, and we cannot predict the extent to which the economies in the countries where we operate will ultimately be impacted.

Since mid-March, substantially all of our engineering and construction and real estate projects were mandatorily shut down.  However, since July projects have resumed their operations to normal with COVID-19 protocols Our infrastructure operations, which have for the most part been declared essential businesses, have continued to operate; however, certain of our infrastructure businesses have been adversely affected, in particular, by the sharp decline in traffic volumes and oil and gas prices between March and May.
- 6 -


Regarding the extent of the COVID-19 pandemic and its impact on the industries in which we operate, the full extent to which COVID-19 impact our business, results of operations and financial condition is currently under evaluation. We believe that the severity of the impact on the Company will depend, to a large extent, on how long the crisis continues.

The Company has been taking significant measures to mitigate the impact of the crisis on the Group. Among other measures, we are prioritizing the health and safety of our employees, as well as the medium-term sustainability of their employment. Certain actions we are taking include: the design and implementation of protocols to return to project sites, the creation of new office layouts to be compliant with social distancing guidelines, the development of telecommuting schemes, and other major cost-saving initiatives in operation and in support offices.

d)
Current situation of the Company

As a result of decisions of a previous administration, the Group is involved in a series of criminal investigations and administrative procedures conducted by the Public Ministry that are based on events that occurred between 2004 and 2015. Such situations led to organizational changes at Group´s corporate governance structure, the initiation of independent investigations and the adoption of measures to address and clarify such situations, as explained below:
On January 9, 2017, the Board of Directors approved the performance of an independent investigation related to six projects developed in association with companies of the Odebrecht Group.
On March 30, 2017, the Board of Directors created a Risk, Compliance and Sustainability Committee, who was in charge of the oversight of the investigation independently of Management. The external investigation was performed by the law firm Simpson Thacher & Bartlett LLP, with the assistance of forensic accountants, who reported exclusively to the Risk, Compliance and Sustainability Committee.
The external investigation concluded on November 2, 2017 and identified no evidence to conclude that any company personnel engaged in bribery in connection with any of our Company’s public projects in Peru with Odebrecht or its subsidiaries, or that any Company personnel was aware of, or knowingly participated in, any corrupt payments made in relation to such projects.
Subsequently, in August 2019, José Graña Miró Quesada, a shareholder and the former chairman of our Company, indicated in public statements to the media that he and Hernando Graña Acuña, a shareholder and former board member of our Company, had initiated a process of plea bargaining to cooperate with Peruvian prosecutors in respect of multiple projects in which our Company participated with Odebrecht and in respect of the alleged “Construction Club”. Due to the confidential nature of the plea bargain process, the reported information is limited and difficult to verify. Any admission or other evidence of wrongdoing would be inconsistent with information gathered during the internal investigation and would have a material impact on the findings of the prior internal investigation.

- 7 -

As new information about the various Peruvian criminal investigations of the Company emerged, and news that the Company’s former chairman and director were plea bargaining with Peruvian authorities, the Company's Board of Directors continued to investigate the allegations that were the subject of the investigations, including matters relating to the “Construction Club”, which was beyond the scope of the internal investigation conducted by Simpson Thacher & Bartlett LLP. After an extensive and detailed review process, the Company shared information relevant to the investigations with the Peruvian authorities within the framework of a plea bargain process.
As a result of its contribution to the investigations, on December 27, 2019, the Company signed a preliminary settlement and cooperation agreement whereby the Anti-Corruption Prosecutor and the Ad hoc Prosecutor's Office promise to execute a final plea bargain agreement with the Company that would provide the Company with certainty regarding the contingencies it faces as a result of the above-mentioned processes. Additionally, in the aforementioned preliminary agreement, the Anti-Corruption Prosecutor and the Ad Hoc Attorney General's Office authorize the Company to disclose its existence but maintain its content confidential.

At the same time, over the last three years, the new administration together with the new board initiated a transformation process based on the principles of Truth, Transparency and Integrity, making profound changes in the organization of the Company, such as the reconfiguration of the Board of Directors with an independent majority, new shareholding composition, as well as the creation of new governance practices, such as the Corporate Risk Management and autonomous Compliance function, with direct report to the Board of Directors, among other actions.

Criminal investigations derived from projects developed in partnership with companies of the Odebrecht group

In connection with the Lava Jato case, the Company participated directly or through its subsidiaries as minority partner in certain entities that developed six infrastructure projects in Peru with companies belonging to the Odebrecht group (hereinafter Odebrecht).

In 2016, Odebrecht entered into a Plea Agreement with the authorities of the United States Department of Justice and the Office of the District Attorney for the Eastern District of New York by which it admitted corruption acts in connection with some of these projects in which the Company participate as minority partner.

IIRSA Sur

In relation to investigations on IIRSA Sur, the former Chairman of the Board of Directors was included as a subject of an investigation for collusion, and a former director and a former executive was included as a subject of an investigation for money laundering. Subsequently, Graña y Montero S.A.A. and GyM S.A.  have been included as third-party civilians responsible in the process, which means that it will be assessed whether the obligation to indemnify Governement for damages resulting from the facts under investigation will be imposed on these entities.

Electric Train construction project

The first Preparatory Investigation Court of the Judiciary decided to incorporate GyM S.A. as civil third-party responsible in the process related to the construction of the Electric train construction Project, tranches 1 and 2. In this investigation the former Chairman of the Board, a former director and a former manager have been charged.

- 8 -

Gasoducto Sur Peruano (GSP)

In 2019, the Company concluded that it may have exposure with respect to the preliminary investigation process conducted in relation to GSP (the South Peruvian Gas Pipeline project), even though as of the date hereof, it has not been indicted or incorporated as a civilly liable third-party, although the former Chairman of the Board of Directors and a former director are seeking plea bargain agreements in relation to this process, among others.

Criminal investigations in conection to the Construction Club case

GyM S.A. has been incorporated, along with other construction companies, in the criminal investigation that the Public Ministry has been carrying out for the alleged crime of corruption of officials in relation to the so-called Construction Club. Similarly, at the end of February 2020, the Public Ministry has requested the incorporation of Concar S.A., the latter is pending judicial decision. Like officials of other construction companies, a former commercial manager of GyM S.A., the former president of the Board of Directors, a former director and the former Corporate General Manager of the Company have been included in the criminal investigation.

Anticorruption Law - effects on the Group

Law 30737 and its regulation issued by Supreme Decree 096-2018-EF have mitigated the Company and subsidiaries exposure to the corruption cases. These rules set clear guidelines to estimate the potential compensation reducing the uncertainty derived from the legal proceedings, by among other things, preventing the imposition of liens or attachments of assets that would impair its ability to operate.

The benefits of the mentioned rules are subject to the fulfillment of the following obligations:

a.
The obligation to set up a trust that will guarantee any eventual payment obligation of an eventual civil compensation in favor of the Peruvian Government;
b.
The obligation not to transfer funds abroad without the prior consent of the Ministry of Justice;
c.
The implementation of a compliance program; and
d.
The obligation to disclose information to the authorities and to collaborate in the investigation.

The Group has designed a compliance program which is currently under implementation, it fully cooperates with the authorities in its investigations and has executed a trust agreement with the Ministry of Justice, under which the Company has established for an approximate amount of S/80 million (equivalent to US$24 million).

On the other hand, based on the standards indicated and their guidelines, Management has estimated that the value of the civil damages for the cases described above is S/280 million (US$83.6 million)  and has registered as of September 30, 2020 S/165.3 million (equivalent to US$45.9 million) as net present value.

On the other hand, in cases where a provision for civil reparation has been registered, there are two projects carried out in partnership with Odebrecht that to date are not under investigation. If this is started and some evidence is found, the maximum possible exposure for civil reparation estimated according to Law 30737 for both projects would be S/52.7 million (approximately US$15.7 million).

However, the Company, through its external legal advisors, continues to conduct an ongoing evaluation of the information related to the criminal investigations described in this note in order to keep its defense prepared in the event any new charges may arise during those investigations. In conducting the aforementioned evaluation, the Company does not rule out the possibility of finding new incriminating evidence that is not known to date.

- 9 -

Investigations and administrative process initiated by INDECOPI in conection to the Construction Club case

On July 11, 2017, the Peruvian National Institute for the Defense of Free Competition and the Protection of Intellectual Property (“INDECOPI”) initiated an investigation against several construction companies, including GyM S.A., about the existence of an alleged cartel called the Construction Club. Throughout the investigation, GyM S.A. has provided to INDECOPI with all the information requested and continues collaborating with the ongoing investigation.

On February 11, 2020, GyM S.A. was notified by the Technical Secretariat of the Commission for the Defense of Free Competition (“INDECOPI”) with the resolution that begins a sanctioning administrative procedure involving a total of 35 companies and 28 natural persons, for  alleged anticompetitive conduct in the market of Public Works. The resolution does not include the assignment of responsibilities or the result of the administrative disciplinary procedure, which will be determined at the end of the said procedure. The procedure is in a probatory stage, therefore, INDECOPI has not carried out actions in order to quantifying the possible penalties that could result.

2. IMPACT OF THE COVID-19 PANDEMIC

The recent outbreak of the Novel Coronavirus 2019 (COVID-19) pandemic, which has been declared by the World Health Organization to be a “public health emergency of international concern”, has spread across the world since the end of 2019. In response to the decline in economic activity, the governments of Perú, Chile and Colombia have announced large stimulus programs to assist families and businesses.

As a result of the outbreak, the Group’s results of operations, financial positions and cash flows have been adversely affected during second quarter, however as of the date of this report and as a result of the gradual normalization of activities since July, the results of the three months period between July and September show a significant recovery in activity.

From the analysis made the different business of the Group have been impacted as follows:

1)
In the engineering and construction business we estimated figures revised 2020, considering a conservative scenario in which no new contracts are awarded in the rest of the year, therefore revenues for the year will be equivalent to the remaining backlog.   Revenues could be increased as a result of negotiations on going with our clients regarding higher costs due to stoppages and new operating standards due to the COVID-19 situation.  However, at the end of the third quarter, the backlog has increased with the award of the contract for the construction of the second runway at Jorge Chavez airport and the contract for the construction of the Piura gas pipeline.

2)
In the real estate business the shut down of projects has impacted the delivery of real estate units during the year, which impacts the revenues and results of the year.

3)
The infrastructure businesses continue operating because they were declared esencial services.  However, there were some impacts on the different businesses:

a.
Line 1 of the Metro operates with less passengers but revenues are not impacted due to the fact that revenues don’t depend on traffic but on the amount of kms travelled by each train.
b.
Oil and gas business has been impacted by the reduction of the oil Price to levels below the estimations considered for 2020.  In response to the sanitary crisis, Lots III and IV are in force majeure and due to this situation, further investments on new wells have been cancelled and suppliers obligations are being renegotiated as well as a new schedule for investment commitments are under review.
- 10 -


c.
The sanitary emergency situation caused an impact on Norvial S.A. revenues and on the results of 2020 as a result of traffic reduction. However, the level of traffic carried has been gradually recovered.  In addition, in May the Republic Congress approved a law in order suspending the collection of toll, a measure that was in effect from May 9 to June 30, 2020. The Concession Contract clause 9.9, about operator contract guarantee, establishes Grantor’s obligation to recognize and pay the Concessionaire the corresponding rate difference in the event that any public entity does not allow the Concessionaire to collect the rate in accordance to the Concession Contract.  The estimate compensation in application of the aforementioned clause will be claimed to the Government.
d.
In the case of the other two road concessions, Survial S.A. and Concesion Canchaque S.A., the suspension in the collection of tolls will not impact the results of the year because the revenues do not depend on traffic.

In general terms, we have not been affected by interruptions in the supply chain of personnel, services or materials, and despite the shut down of some of our projects, we do not estimate penalties or breach of our agreements.

The most important goodwill of the Group are the result of acquisitions in Colombia and Chile. Considering that in both countries the impacts of the pandemic did not lead to major projects shut downs, our estimates of the value of the goodwill have not been affected. Based on our impairment assessment as of September 30, 2020, we have determined that our goodwill is not impaired.

On the liquidity side, the Group has implemented a plan that includes several measures to reduce expenses and preserve cash in response to the ongoing COVID-19 pandemic, including the following: (i) developing a twelve-week cash plan, project-by-project, to ensure that Group subsidiaries will continue to meet its critical obligations during that period, which plan is monitored and updated weekly; (ii) preparing a cash plan for the remainder of the 2020 fiscal year, to identify in advance key liquidity issues that may arise; (iii) renegotiating certain of the Group’s subsidiaries obligations with respect to suppliers, banks and other third parties; (iv) identifying and reducing non-essential general expenses across the Group; (v) reducing headcount, and temporarily reducing salaries of senior management and Directors’ allowances, across the Group’s three segments; and (vi) reducing capital expenditures across the Group’s subsidiaries. In addition, the Group is evaluating the selling of non-strategic assets to finance any cash flow deficit during the year. This plan was approved by the Board of Directors on April and May 2020. The Group will continue to closely monitor the impacts of COVID-19 through the course of the year 2020. Therefore, the accompanying financial statements have been prepared assuming that the Group and subsidiaries will continue as a going concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 Basis of preparation

The condensed interim consolidated financial statements for the period ended September 30, 2020 have been prepared in accordance with IAS 34 "Interim Financial Reporting". The condensed interim consolidated financial statements provide comparative information regarding prior periods; however, they do not include all the information and disclosures required in the annual consolidated financial statements, so they must be read together with the audited consolidated financial statements for the year ended December 31, 2019, which have been prepared in accordance with International Standards. of Financial Information (hereinafter "IFRS").

The condensed interim consolidated financial statements are presented in thousands of Peruvian Soles, unless otherwise stated.

- 11 -


3.1.1.
Account balance reclassified as of December 31, 2019

a)
The receivable balance to Consorcio Constructor Ductos del Sur amounting to S/27.8 million as of December 31, 2019 was reclassified from “other accounts receivable” to “accounts receivable from related parties”. See reclassification performed:

b)
Information on the subsidiary Adexus S.A. is presented. (hereinafter “Adexus”), whose main activity is to provide information technology solutions mainly in Chile and Peru, as of December 31, 2019 the subsidiary was recognized as a non-current asset held for sale; However, as of September 30, 2020, it was reclassified as a continuing operation for the reasons set forth in note 27.

As a result of this process, the balances in the consolidated statement of financial position are reclassified as follows:

   
As at
         
As at
   
December 31,
         
December 31,
   
2019
 
Reclassified (a)
 
Adexus (b)
 
2019
ASSETS
 
Audited
         
As restated
Current assets
               
Cash and cash equivalents
 
              948,978
 
                        -
 
                  1,723
 
              950,701
Trade accounts receivables, net
 
              821,737
 
                        -
 
                92,467
 
              914,204
Work in progress, net
 
                49,457
 
                        -
 
                        -
 
                49,457
Accounts receivable from related parties
 
                36,658
 
                        -
 
                        -
 
                36,658
Other accounts receivable
 
              444,500
 
                        -
 
                  9,974
 
              454,474
Inventories, net
 
              552,573
 
                        -
 
                  2,828
 
              555,401
Prepaid expenses
 
                11,348
 
                        -
 
                  5,130
 
                16,478
   
           2,865,251
 
                        -
 
              112,122
 
           2,977,373
                 
Non-current assets as held for sale
 
              205,418
 
                        -
 
(203,020)
 
                  2,398
                 
Total current assets
 
           3,070,669
 
                        -
 
(90,898)
 
           2,979,771
                 
Non-current assets
               
Trade accounts receivable, net
 
              753,202
 
                        -
 
                26,407
 
              779,609
Work in progress, net
 
                23,117
 
                        -
 
                        -
 
                23,117
Accounts receivable from related parties
 
              546,941
 
                27,782
 
                        -
 
              574,723
Prepaid expenses
 
                27,934
 
                        -
 
                        -
 
                27,934
Other accounts receivable
 
              300,323
 
(27,782)
 
                     891
 
              273,432
Investments in associates and joint ventures
 
                37,035
 
                        -
 
                        -
 
                37,035
Investment property
 
                28,326
 
                        -
 
                        -
 
                28,326
Property, plant and equipment, net
 
              443,870
 
                        -
 
                20,120
 
              463,990
Intangible assets, net
 
              853,315
 
                        -
 
                     912
 
              854,227
Right-of-use assets, net
 
                78,813
 
                        -
 
                11,768
 
                90,581
Deferred income tax asset
 
              240,919
 
                        -
 
                30,800
 
              271,719
Total non-current assets
 
           3,333,795
 
                        -
 
                90,898
 
           3,424,693
                 
Total assets
 
           6,404,464
 
                        -
 
                        -
 
           6,404,464

- 12 -

   
As at
         
As at
   
December 31,
         
December 31,
   
2019
 
Reclassified (a)
 
Adexus (b)
 
2019
   
Audited
         
As restated
LIABILITIES AND EQUITY
               
Current liabilities
               
Borrowings
 
              454,260
 
                        -
 
                27,269
 
              481,529
Bonds
 
                44,737
 
                        -
 
                        -
 
                44,737
Trade accounts payable
 
           1,136,121
 
                        -
 
                22,954
 
           1,159,075
Accounts payable to related parties
 
                38,916
 
                        -
 
                        -
 
                38,916
Current income tax
 
                47,999
 
                        -
 
                  3,170
 
                51,169
Other accounts payable
 
              635,305
 
                        -
 
                34,369
 
              669,674
Provisions
 
              113,483
 
                        -
 
                        -
 
              113,483
Total current liabilities
 
           2,470,821
 
                        -
 
                87,762
 
           2,558,583
                 
Non-current liabilities as held for sale
 
              210,025
 
                        -
 
(210,025)
 
                        -
                 
Total current liabilities
 
           2,680,846
 
                        -
 
(122,263)
 
           2,558,583
                 
Non-current liabilities
               
Borrowings
 
              344,806
 
                        -
 
                64,260
 
              409,066
Bonds
 
              879,305
 
                        -
 
                        -
 
              879,305
Trade accounts payable
 
                        -
 
                        -
 
                34,814
 
                34,814
Other accounts payable
 
              273,101
 
                        -
 
                23,189
 
              296,290
Accounts payable to related parties
 
                22,583
 
                        -
 
                        -
 
                22,583
Provisions
 
              214,952
 
                        -
 
                        -
 
              214,952
Derivative financial instruments
 
                       52
 
                        -
 
                        -
 
                       52
Deferred income tax liability
 
              112,734
 
                        -
 
                        -
 
              112,734
Total non-current liabilities
 
           1,847,533
 
                        -
 
              122,263
 
           1,969,796
Total liabilities
 
           4,528,379
 
                        -
 
                        -
 
           4,528,379
                 
Equity
               
Capital
 
              871,918
 
                        -
 
                        -
 
              871,918
Legal reserve
 
              132,011
 
                        -
 
                        -
 
              132,011
Voluntary reserve
 
                29,974
 
                        -
 
                        -
 
                29,974
Share Premium
 
           1,132,179
 
                        -
 
                        -
 
           1,132,179
Other reserves
 
(177,506)
 
                        -
 
                        -
 
(177,506)
Retained earnings
 
(510,766)
 
                        -
 
                        -
 
(510,766)
Equity attributable to controlling interest in the Company
 
           1,477,810
 
                        -
 
                        -
 
           1,477,810
Non-controlling interest
 
              398,275
 
                        -
 
                        -
 
              398,275
Total equity
 
           1,876,085
 
                        -
 
                        -
 
           1,876,085
Total liabilities and equity
 
           6,404,464
 
                        -
 
                        -
 
           6,404,464

As a result of this process, the amounts in the consolidated statement of income are reclassified as follows:

- 13 -

   
For the period ended
   
September 30, 2019
   
Reported
 
Adexus
 
As restated
             
             
Revenues from construction activities
 
          1,621,429
 
                     -
 
             1,621,429
Revenues from services provided
 
            803,999
 
              41,781
 
                845,780
Revenue from real estate and sale of goods
 
            407,691
 
            157,039
 
                564,730
   
          2,833,119
 
            198,820
 
             3,031,939
             
Cost of construction activities
 
(1,537,103)
 
                     -
 
(1,537,103)
Cost of services provided
 
(632,162)
 
(36,911)
 
(669,073)
Cost of real estate and  sale of goods
 
(295,986)
 
(150,403)
 
(446,389)
   
(2,465,251)
 
(187,314)
 
(2,652,565)
Gross profit
 
            367,868
 
              11,506
 
                379,374
             
Administrative expenses
 
(143,735)
 
(20,578)
 
(164,313)
Other income and expenses
 
              40,866
 
                1,276
 
                  42,142
Operating profit (loss)
 
            264,999
 
(7,796)
 
                257,203
             
Financial expenses
 
(144,182)
 
(13,332)
 
(157,514)
Financial income
 
              52,903
 
                   690
 
                  53,593
Share of the profit or loss of associates and joint ventures accounted for using the equity method
 
(1,387)
 
                     -
 
(1,387)
Profit (loss) before income tax
 
            172,333
 
(20,438)
 
                151,895
Income tax expense
 
(88,170)
 
                5,395
 
(82,775)
Profit (loss) from continuing operations
 
              84,163
 
(15,043)
 
                  69,120
             
(Loss) profit from discontinued operations
 
(15,043)
 
              15,043
 
                        -
Profit for the period
 
              69,120
 
                     -
 
                  69,120
             
Profit attributable to:
           
Owners of the Company
 
              34,944
 
                     -
 
                  34,944
Non-controlling interest
 
              34,176
 
                     -
 
                  34,176
   
              69,120
 
                     -
 
                  69,120

3.2 Significant accounting policies

The accounting policies used in the preparation of these condensed interim consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements at December 31, 2019.

4. FINANCIAL RISK MANAGEMENT

Financial risk management is carried out by the Group’s Management. Management oversees the general management of risks in specific areas, such as foreign exchange rate risk, price risk, cash flow and fair value interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investment of excess liquidity, which are supervised and monitored periodically.

4.1  Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures in one of its subsidiaries and considers the use of other derivatives in the event that it identifies risks that may generate an adverse effect for the Group in the short and medium-term.

- 14 -

a)
Market risks

i)
Foreign exchange risk

The Group is exposed to exchange rate risk as a result of the transactions carried out locally in foreign currency and due to its operations abroad.  As of December 31, 2019 and September 30, 2020, this exposure is mainly concentrated in fluctuations of U.S. dollar, the Chilean and Colombian Pesos.

ii)
Price risk

Management considers that the exposure of the Group to the price risk of its investments in mutual funds, bonds, and equity securities is low since the invested amounts are not significant. Any fluctuation in their fair value will not have any significant impact on the balances reported in the consolidated financial statements.

iii)
Cash flow and fair value interest rate risk

The Group’s interest rate risk mainly arises from its long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.

b)
Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as customer credit counterparties, including the outstanding balance of accounts receivable and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

Concerning to loans to related parties, the Group has measures in place to ensure the recovery of these loans through the controls maintained by the Corporate Finance Management and the performance evaluation conducted by the Board of Directors.

Management does not expect the Group to incur any losses from the performance by these counterparties, except for the ones already recorded at the financial statements.


c)
Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. Historically, the Group cash flows enabled it to meet its obligations. However, since 2017, the Group experienced liquidity problems due to the early termination of the GSP concession agreement and the obligations assumed. As a consequence, the Group started a disinvestment plan to be able to meet the obligations resulting from this scenario. This plan was met and the GSP debt was terminated. Due to the COVID-19 pandemic (Note 2), the Group has considered diverse measures to reduce its liquidity risk exposure and has developed a financial plan with the objective to be able to meet its obligations at the corporate as well as the subsidiary level.

The Group’s Corporate Finance Officemonitors rolling forecasts of the Group’s liquidity requirements to ensure it exists sufficient cash to meet operational needs so that the Group does not breach borrowing limits or covenants, where applicable, on any of its borrowing facilities.  Less significant financing transactions are controlled by the Finance Management of each subsidiary.

Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal ratio targets in the statement of financial position and, if applicable, external regulatory or legal requirements, for example, foreign currency restrictions.

- 15 -

Surplus cash held by the operating entities over the balance required for working capital management is invested in interest-bearing checking accounts or time deposits, selecting instruments with appropriate maturities and sufficient liquidity.

The table below analyzes the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the date of the consolidated statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, which include interest to be applied according to the established schedule.

   
Less than
 
1-2
 
2-5
 
More than
   
At December 31, 2019
 
1 year
 
years
 
years
 
5 years
 
Total
                     
Other financial liabilities (except
                   
  for finance leases and lease
                   
  liability for right-of-use asset)
 
        501,864
 
        147,473
 
        235,222
 
                 -
 
        884,559
Finance leases
 
          11,438
 
            3,531
 
          13,346
 
                 -
 
          28,315
Lease liability for right-of-use asset
 
          31,036
 
          40,808
 
          32,562
 
          11,551
 
        115,957
Bonds
 
        115,690
 
        157,516
 
        358,461
 
     1,077,960
 
     1,709,627
Trade accounts payables (except
                   
  non-financial liabilities)
 
        989,574
 
                 -
 
          34,814
 
                 -
 
     1,024,388
Accounts payables to related parties
 
          38,916
 
          21,747
 
                 -
 
               836
 
          61,499
Other accounts payables (except
                   
  non-financial liabilities)
 
        200,098
 
            2,505
 
        194,908
 
                 -
 
        397,511
Other non-financial liabilities
 
                 -
 
                52
 
                 -
 
                 -
 
                52
   
     1,888,616
 
        373,632
 
        869,313
 
     1,090,347
 
     4,221,908

                     
   
Less than
 
1-2
 
2-5
 
More than
   
At September 30, 2020
 
1 year
 
years
 
years
 
5 years
 
Total
                     
                     
Other financial liabilities (except
                   
  for finance leases and lease
 
       
 
       
 
       
 
        
 
       
  liability for right-of-use asset)
 
          392,198
 
        207,684
 
193,906
 
 20,447
 
814,235
Finance leases
   15,743    10,132    26,098  
  9,347    61,320
Lease liability for right-of-use asset
 
          28,838
 
          34,829
 
          18,568
 
          12,729
 
          94,964
Bonds
 
        127,715
 
        166,431
 
        382,737
 
     1,001,773
 
     1,678,656
Trade accounts payables (except
                   
  non-financial liabilities)
 
        868,892
 
          33,928
 
                 -
 
                 -
 
        902,820
Accounts payables to related parties
 
          41,219
 
          35,123
 
                 -
 
               836
 
          77,178
Other accounts payables (except
                   
  non-financial liabilities)
 
        273,714
 
            3,924
 
        182,869
 
                 -
 
        460,507
   
     1,748,319
 
        492,051
 
        804,178
 
     1,045,132
 
     4,089,680

4.2
Capital management risk

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to minimize the cost of capital.  In 2017 the situation of the Group had lead Management to monitor deviations that might cause the non-compliance of covenants and may hinder the renegotiation of liabilities (Note15). In extraordinary events as explained in Note 2, the Group identifies the possible deviations and requirements and establishes a plan.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital based on the gearing ratio.  This ratio is calculated as net debt divided by total capital.  Net debt is calculated as total borrowings (including current and non-current borrowings), less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated statement of financial position plus net debt.

- 16 -

As of December 31, 2019 and September 30, 2020, the gearing ratio is presented below indicating the Group’s strategy to keep it in a range from 0.10 to 0.70.

   
At
 
At
   
December 31,
 
September 30,
   
2019
 
2020
Total financial liabilities and bonds (Note 15 and Note 16)
 
         1,814,637
 
         1,796,717
Less: Cash and cash equivalents (Note 8)
 
          (950,701)
 
          (820,163)
Net debt
 
            863,936
 
            976,554
Total equity
 
         1,876,085
 
         1,738,213
Total capital
 
         2,740,021
 
         2,714,767
         
Gearing ratio
 
                  0.32
 
                  0.36

4.3
Fair value estimation

For the classification of the type of valuation used by the Group for its financial instruments at fair value, the following levels of measurement have been established.

- Level 1:
Measurement based on quoted prices in active markets for identical assets or liabilities.
- Level 2:
Measurement based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
- Level 3:
Measurement based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs, generally based on internal estimates and assumptions of the Group).

The table below shows the Group’s liabilities measured at fair value:

   
Level 2
At December 31, 2019
   
     
Financial liabilities
   
Derivatives used for hedging
 
                   52

As of September 30, 2020, this financial liability was settled.
- 17 -


5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In preparing these condensed interim consolidated financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of uncertainty were the same as those that applied to the consolidated financial statements for the year ended  December 31, 2019.

6. SEASONALITY OF OPERATIONS

The Group does not present seasonality in the operations of any of its subsidiaries; however, economic activities temporarily restricted during last seven months, due to COVID-19 pandemic and government measures implemented to contain the spread of the virus. As a result,  this situation affected negatively Group's revenues and financial position (Note 2).

7.
 OPERATING SEGMENTS

Operating segments are reported consistently with the internal reports that are reviewed by the Group’ chief decision-maker; that is, the Executive Committee, which is led by the Chief Executive Officer. This Committee acts as the highest authority in making operational decisions, responsible for allocating resources and evaluating the performance of each operating segment.

The Group's operating segments are assessed by the activities of the following business units: (i) engineering and construction, (ii) infrastructure, and (iii) real estate.

As set forth under IFRS 8, reportable segments by significance of income are: ‘engineering and construction’ and ‘infraestructure’. However, the Group has voluntarily decided to report on all its operating segments.

Inter-segmental sales transactions are entered into at prices that are similar to those that would have been agreed to with unrelated third parties. Revenues from external customers reported are measured in a manner consistent with the basis of preparation of the financial statements.

Group sales and receivables are not concentrated on a few customers. There is no external customer that represents 10% or more of the Goup’s revenue.

- 18 -

The table below shows the Group’s financial statements by operating segments:

Operating segments financial position
                                 
Segment reporting
                                 
                 
Infrastructure
               
As of December 31, 2019
Engineering and construction
 
Energy
 
Toll roads
 
Transportation
 
Water treatment
 
Real estate
 
Parent Company operations
Eliminations
 
Consolidated
                                   
Assets.-
                                 
Cash and cash equivalent
                    372,991
 
             53,118
 
          123,020
 
          300,896
 
               6,388
 
             60,718
 
             33,570
 
                        -
 
               950,701
Trade accounts receivables, net
                    531,591
 
             63,402
 
             44,513
 
             97,059
 
               1,168
 
             83,019
 
             93,452
 
                        -
 
               914,204
Work in progress, net
                      49,457
 
                      -
 
                      -
 
                      -
 
                      -
 
                      -
 
                      -
 
                        -
 
                 49,457
Accounts receivable from related parties
                    202,181
 
                  369
 
             43,852
 
               1,853
 
                      -
 
               1,144
 
             99,794
 
           (312,535)
 
                 36,658
Other accounts receivable
                    327,977
 
             30,853
 
             30,228
 
             18,548
 
                  109
 
               9,509
 
             37,248
 
                         2
 
               454,474
Inventories, net
                      57,093
 
             32,366
 
               7,109
 
             30,594
 
                      -
 
          437,012
 
               2,828
 
             (11,601)
 
               555,401
Prepaid expenses
                         6,812
 
               1,271
 
               2,779
 
                  231
 
                  133
 
                      -
 
               5,252
 
                        -
 
                 16,478
 
                 1,548,102
 
          181,379
 
          251,501
 
          449,181
 
               7,798
 
          591,402
 
          272,144
 
           (324,134)
 
           2,977,373
Non-current assets classified as held for sale
                         2,398
 
                      -
 
                      -
 
                      -
 
                      -
 
                      -
 
                      -
 
                        -
 
                   2,398
Total current assets
                 1,550,500
 
          181,379
 
          251,501
 
          449,181
 
               7,798
 
          591,402
 
          272,144
 
           (324,134)
 
           2,979,771
                                   
Long-term trade accounts receivable, net
                      97,256
 
                      -
 
             36,273
 
          619,086
 
                      -
 
                  587
 
             26,407
 
                        -
 
               779,609
Long-term work in progress, net
                                -
 
                      -
 
             23,117
 
                      -
 
                      -
 
                      -
 
                      -
 
                        -
 
                 23,117
Long-term accounts receivable from related parties
                    318,748
 
                      -
 
                  836
 
                      -
 
             10,475
 
                      -
 
          552,687
 
           (308,023)
 
               574,723
Prepaid expenses
                                -
 
                  887
 
             24,462
 
               2,307
 
                  788
 
                      -
 
                      -
 
                   (510)
 
                 27,934
Other long-term accounts receivable
                      86,097
 
             63,649
 
               5,156
 
                      -
 
               7,346
 
             50,449
 
             60,735
 
                        -
 
               273,432
Investments in associates and joint ventures
                    109,839
 
               8,006
 
                      -
 
                      -
 
                      -
 
               6,062
 
       1,495,422
 
        (1,582,294)
 
                 37,035
Investment property
                         1,450
 
                      -
 
                      -
 
                      -
 
                      -
 
             26,876
 
                      -
 
                        -
 
                 28,326
Property, plant and equipment, net
                    186,589
 
          184,819
 
             11,106
 
                  841
 
                  153
 
             11,742
 
             69,899
 
                (1,159)
 
               463,990
Intangible assets, net
                    136,547
 
          244,901
 
          443,420
 
                  794
 
                      -
 
               1,029
 
             20,402
 
                 7,134
 
               854,227
Right-of-use assets, net
                         5,638
 
             24,038
 
               3,860
 
                       5
 
                       7
 
               5,048
 
             67,300
 
             (15,315)
 
                 90,581
Deferred income tax asset
                    176,740
 
               4,741
 
             13,054
 
                      -
 
                  720
 
             19,736
 
             51,552
 
                 5,176
 
               271,719
Total non-current assets
                 1,118,904
 
          531,041
 
          561,284
 
          623,033
 
             19,489
 
          121,529
 
       2,344,404
 
        (1,894,991)
 
           3,424,693
Total assets
                 2,669,404
 
          712,420
 
          812,785
 
       1,072,214
 
             27,287
 
          712,931
 
       2,616,548
 
        (2,219,125)
 
           6,404,464
                                   
Liabilities.-