6-K 1 a52389450.htm AENZA S.A.A. FORM 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 March 2021

 Commission File Number 001-35991

AENZA 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.


March 5, 2021


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: March 5, 2021








 
AENZA S.A.A (FORMERLY  GRAÑA Y MONTERO S.A.A.) AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2020






AENZA S.A.A (FORMERLY GRAÑA Y MONTERO S.A.A.) AND SUBSIDIARIES


CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2020


CONTENTS
Page
   
   
Report of Independent Auditors
1 - 2
   
Consolidated Statement of Financial Position
3
   
Consolidated Statement of Income
4
   
Consolidated Statement of Comprehensive Income
5
   
Consolidated Statement of Changes in Equity
6
   
Consolidated Statement of Cash Flows
7
   
Notes to the Consolidated Financial Statements
8 – 113


S/ = Peruvian Sol
US$   = United States dollar




 
 
 (FREE TRANSLATION)


REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Members of the Board of AENZA S.A.A. (formerly Graña y Montero S.A.A.)

We have audited the accompanying consolidated financial statements of AENZA S.A.A. (antes Graña y Montero S.A.A.) and Subsidiaries, which comprise the consolidated statements of financial position as of December 31, 2020 and 2019, the consolidated statements of income, the consolidated statements of comprehensive income, the consolidated statements of changes in equity and the Consolidated statements of cash flows corresponding to the years ended on those dates, as well as the summary of significant accounting policies and other explanatory notes.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) in force internationally. This responsibility includes designing, implementing, and maintaining the internal control that Management considers pertinent to allow the preparation and fair presentation of financial statements free of material misstatements, whether as a result of fraud or error; select and apply the appropriate accounting policies; and make reasonable accounting estimates in accordance with the circumstances.

Responsibility of the auditors

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. Our audits were carried out in accordance with the International Auditing Standards (ISA), published by the International Auditing and Assurance Standards Board (IAASB), approved for application in Peru by the Board of Deans of Associations of Public Accountants of Peru. Such standards require that we comply with ethical requirements and that we plan and perform the audit to obtain reasonable assurance that the consolidated financial statements do not contain material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and information disclosed in the financial statements. The procedures selected depend on the auditor's judgment, which includes assessing the risk that the financial statements will contain material misstatements, whether as a result of fraud or error. In making this risk assessment, the auditor takes into consideration the relevant internal control of the Company in the preparation and fair presentation of the financial statements in order to design audit procedures in accordance with the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating whether the accounting principles applied are appropriate and whether the accounting estimates made by management are reasonable, as well as an evaluation of the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide us with a basis for our audit opinion.

 
- 1 -



 
 
 (FREE TRANSLATION)

In our opinion, the accompanying consolidated financial statements present fairly, in all their significant aspects, the consolidated financial position of AENZA S.A.A. (formerly Graña y Montero S.A.A) and Subsidiaries as of December 31, 2020 and 2019, as well as their financial performance and cash flows for the years ended on those dates, in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB) in force internationally.

Emphasis of Matters

As discussed in Note 1.c) to the consolidated financial statements, AENZA S.A.A. (formerly Graña y Montero S.A.A.) has been included as a responsible third party in the investigations related to the IIRSA Sur case and has an exposure to the preliminary investigation processes conducted in relation to the projects Gasoducto Sur Peruano and IIRSA Norte; GyM S.A. (a subsidiary of AENZA S.A.A.) has been included as a responsible third party in IIRSA Sur case, the Electric Train Construction and Construction Club and has also been included in a Sanctioning Administrative Process by a Peruvian regulatory entity for the existence of an alleged cartel called the Construction Club. Likewise, Concar S.A. (a subsidiary of AENZA S.A.A.) has been required to be included in the investigation process of the Construction Club. The aforementioned Note 1.c) also describes that the Company signed an agreement of understanding with the Peruvian authorities where they undertake to enter into a definitive plea agreement regarding the contingencies it faces as a consequence of the aforementioned processes. The Company's Management estimates that, according to the level of progress in the negotiations for the closure of the plea agreement, it is unlikely that new relevant information related to the process will appear; however, does not rule out the possibility of finding, in the future, adverse evidence, nor does it rule out that the authorities or third parties will find, in the future, adverse evidence not currently known to date during the investigations being conducted.

As indicated in the Notes 12 and 15 to the consolidated financial statements, the Company has an account receivable from Gasoducto Sur Peruano (an associate entity of AENZA S.A.A.) for S/ 620 million as of December 31, 2020. Gasoducto Sur Peruano entered into a bankruptcy process due to the early termination of the concession contract with the Peruvian government to build, operate and maintain the transportation system for natural gas pipelines, this process is in the creditors’ recognition stage that will form the creditors’ assembly. Based on the preliminary plea agreement signed with the Peruvian authorities, the Company desisted from requesting an arbitration for the collection of that debt; however, according to the opinion of its legal advisors, the Company considers that Gasoducto Sur Peruano can exercise its right to collect from the Peruvian State for the net book value of the concession assets and thus recover the corresponding accounts receivable.


Lima, Peru
March 5, 2021
Reprisal by:
Jaime E. Vizcarra Moscoso
Chartered Public Accountant
Registration Nº 06847
- 2 -


AENZA S.A.A. (FORMERLY  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
           
       
As of December 31,
   
Note
 
2019
 
2020
       
(as restated)
 
Current assets
           
Cash and cash equivalents
 
9
 
              950,701
 
              900,168
Trade accounts receivables, net
 
10
 
              914,204
 
              703,167
Work in progress, net
 
11
 
                49,457
 
              186,433
Accounts receivable from related parties
 
12
 
                36,658
 
                27,338
Other accounts receivable
 
13
 
              454,474
 
              477,165
Inventories, net
 
14
 
              555,401
 
              552,000
Prepaid expenses
     
                16,478
 
                22,972
       
           2,977,373
 
           2,869,243
             
Non-current assets as held for sale
     
                  2,398
 
                       -
             
Total current assets
     
           2,979,771
 
           2,869,243
             
Non-current assets
           
Trade accounts receivable, net
 
10
 
              779,609
 
              730,666
Work in progress, net
 
11
 
                23,117
 
                       -
Accounts receivable from related parties
 
12
 
              574,723
 
              620,071
Prepaid expenses
     
                27,934
 
                22,264
Other accounts receivable
 
13
 
              273,432
 
              328,223
Investments in associates and joint ventures
 
15
 
                37,035
 
                35,516
Investment property
     
                28,326
 
                26,073
Property, plant and equipment, net
 
16
 
              463,990
 
              405,469
Intangible assets, net
 
17
 
              854,227
 
              791,990
Right-of-use assets, net
 
16.2
 
                90,581
 
                64,518
Deferred income tax asset
 
24
 
              271,719
 
              262,623
Total non-current assets
     
           3,424,693
 
           3,287,413
             
             
             
             
             
Total assets
     
           6,404,464
 
           6,156,656
             
             
The accompanying notes on pages 8 to 113 are an integral part of the consolidated financial statements.
 
LIABILITIES AND EQUITY
           
       
As of December 31,
   
Note
 
2019
 
2020
       
(as restated)
 
Current liabilities
           
Borrowings
 
18
 
              481,529
 
              452,884
Bonds
 
19
 
                44,737
 
                58,446
Trade accounts payable
 
20
 
           1,159,075
 
           1,097,167
Accounts payable to related parties
 
12
 
                38,916
 
                43,818
Current income tax
     
                51,169
 
                34,494
Other accounts payable
 
21
 
              669,674
 
              718,406
Provisions
 
22
 
              113,483
 
              141,744
Total current liabilities
     
           2,558,583
 
           2,546,959
             
Non-current liabilities
           
Borrowings
 
18
 
              409,066
 
              445,436
Bonds
 
19
 
              879,305
 
              874,313
Trade accounts payable
 
20
 
                34,814
 
                40,502
Other accounts payable
 
21
 
              296,290
 
              183,230
Accounts payable to related parties
 
12
 
                22,583
 
                36,297
Provisions
 
22
 
              214,952
 
              237,836
Derivative financial instruments
     
                       52
 
                       -
Deferred income tax liability
 
24
 
              112,734
 
              102,907
Total non-current liabilities
     
           1,969,796
 
           1,920,521
Total liabilities
     
           4,528,379
 
           4,467,480
             
Equity
 
23
       
Capital
     
              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)
 
(169,234)
Retained earnings
     
(510,766)
 
(635,101)
Equity attributable to controlling interest in the Company
           1,477,810
 
           1,361,142
Non-controlling interest
     
              398,275
 
              328,034
Total equity
     
           1,876,085
 
           1,689,176
Total liabilities and equity
     
           6,404,464
 
           6,156,656
             
             
             


- 3 -



AENZA S.A.A. (FORMERLY 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 year
 
         
ended December 31,
 
   
Note
   
2019
   
2020
 
         
(as restated)
       
                   
Revenues from construction activities
         
2,411,880
     
1,815,671
 
Revenues from services provided
         
1,254,059
     
1,055,423
 
Revenue from real estate and sale of goods
         
671,922
     
442,935
 
           
4,337,861
     
3,314,029
 
                       
Cost of construction activities
         
(2,351,563
)
   
(1,716,309
)
Cost of services provided
         
(1,035,251
)
   
(929,206
)
Cost of real estate and  sale of goods
         
(500,610
)
   
(347,906
)
     
26
     
(3,887,424
)
   
(2,993,421
)
Gross profit
           
450,437
     
320,608
 
                         
Administrative expenses
   
26
     
(248,652
)
   
(152,909
)
Other income and expenses
   
28
     
(339,494
)
   
(87,232
)
Operating (loss) profit
           
(137,709
)
   
80,467
 
                         
Financial expenses
   
27
     
(253,134
)
   
(156,943
)
Financial income
   
27
     
74,346
     
37,231
 
Share of the profit or loss of associates and joint ventures accounted for using the equity method
   
15 a)-b)

   
(218,774
)
   
770
 
Loss before income tax
           
(535,271
)
   
(38,475
)
Income tax expense
   
29
     
(303,371
)
   
(57,989
)
Loss for the year
           
(838,642
)
   
(96,464
)
                         
(Loss) profit attributable to:
                       
Owners of the Company
           
(884,721
)
   
(124,335
)
Non-controlling interest
           
46,079
     
27,871
 
             
(838,642
)
   
(96,464
)
                         
                         
Loss per share attributable to owners of the
                       
Company during the year
   
34
     
(1.076
)
   
(0.143
)
                         
                         
The accompanying notes on pages 8 to 113 are an integral part of the consolidated financial statements.
 



- 4 -



AENZA S.A.A. (FORMERLY 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 year
 
         
ended December 31,
 
   
Note
   
2019
   
2020
 
                   
                   
Loss for the year
         
(838,642
)
   
(96,464
)
Other comprehensive income:
                     
                       
Items that may be subsequently  reclassified to profit or loss
                     
Cash flow hedge, net of tax
   
30
     
6
     
(626
)
Foreign currency translation adjustment, net of tax
   
30
     
(8,170
)
   
8,304
 
Exchange difference from net investment in a foreign operation, net of tax
   
30
     
(456
)
   
708
 
Other comprehensive income for the year, net of tax
           
(8,620
)
   
8,386
 
Total comprehensive income for the year
           
(847,262
)
   
(88,078
)
                         
Comprehensive income attributable to:
                       
Owners of  the Company
           
(891,607
)
   
(116,063
)
Non-controlling interest
           
44,345
     
27,985
 
             
(847,262
)
   
(88,078
)
                         
                         
The accompanying notes on pages 8 to 113 are an integral part of the consolidated financial statements.
 

- 5 -

AENZA S.A.A. (FORMERLY GRAÑA Y MONTERO S.A.A.) AND SUBSIDIARIES
                         
                                                             
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                       
FOR THE YEAR ENDED DECEMBER 31, 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
 
- IFRS adoption
   
-
     
-
     
-
     
-
     
-
     
-
     
(1,462
)
   
(1,462
)
   
-
     
(1,462
)
Initial balances restated
   
729,434
     
729,434
     
132,011
     
29,974
     
992,144
     
(170,620
)
   
373,955
     
2,086,898
     
401,571
     
2,488,469
 
(Loss) profit for the year
   
-
     
-
     
-
     
-
     
-
     
-
     
(884,721
)
   
(884,721
)
   
46,079
     
(838,642
)
Cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
6
     
-
     
6
     
-
     
6
 
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
(6,440
)
   
-
     
(6,440
)
   
(1,730
)
   
(8,170
)
Exchange difference from net investment in a foreign operation
   
-
     
-
     
-
     
-
     
-
     
(452
)
   
-
     
(452
)
   
(4
)
   
(456
)
Comprehensive income of the year
   
-
     
-
     
-
     
-
     
-
     
(6,886
)
   
(884,721
)
   
(891,607
)
   
44,345
     
(847,262
)
Transactions with shareholders:
                                                                               
- Dividend distribution
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(12,762
)
   
(12,762
)
- Contributions (devolution) of non-controlling shareholders, net
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(32,996
)
   
(32,996
)
- Additional acquisition of non-controlling
   
-
     
-
     
-
     
-
     
1,883
     
-
     
-
     
1,883
     
(1,883
)
   
-
 
- Capital Increase
   
142,484
     
142,484
     
-
     
-
     
138,152
     
-
     
-
     
280,636
     
-
     
280,636
 
Total transactions with shareholders
   
142,484
     
142,484
     
-
     
-
     
140,035
     
-
     
-
     
282,519
     
(47,641
)
   
234,878
 
Balances as of December 31, 2019
   
871,918
     
871,918
     
132,011
     
29,974
     
1,132,179
     
(177,506
)
   
(510,766
)
   
1,477,810
     
398,275
     
1,876,085
 
                                                                                 
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) profit for the year
   
-
     
-
     
-
     
-
     
-
     
-
     
(124,335
)
   
(124,335
)
   
27,871
     
(96,464
)
Cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
(594
)
   
-
     
(594
)
   
(32
)
   
(626
)
Foreign currency translation adjustment
   
-
     
-
     
-
     
-
     
-
     
8,158
     
-
     
8,158
     
146
     
8,304
 
Exchange difference from net investment in a foreign operation
   
-
     
-
     
-
     
-
     
-
     
708
     
-
     
708
     
-
     
708
 
Comprehensive income of the year
   
-
     
-
     
-
     
-
     
-
     
8,272
     
(124,335
)
   
(116,063
)
   
27,985
     
(88,078
)
Transactions with shareholders:
                                                                               
- Dividend distribution
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(82,412
)
   
(82,412
)
- Contributions (devolution) of non-controlling shareholders, net
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(15,725
)
   
(15,725
)
- Additional acquisition of non-controlling
   
-
     
-
     
-
     
-
     
(605
)
   
-
     
-
     
(605
)
   
(89
)
   
(694
)
Total transactions with shareholders
   
-
     
-
     
-
     
-
     
(605
)
   
-
     
-
     
(605
)
   
(98,226
)
   
(98,831
)
Balances as of December 31, 2020
   
871,918
     
871,918
     
132,011
     
29,974
     
1,131,574
     
(169,234
)
   
(635,101
)
   
1,361,142
     
328,034
     
1,689,176
 
                                                                                 
                                                                                 
The accompanying notes on pages 8 to 113 are an integral part of the consolidated financial statements.
                                                 


- 6 -

AENZA S.A.A. (FORMERLY 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 year
 
         
ended December 31,
 
   
Note
   
2019
   
2020
 
                   
OPERATING ACTIVITIES
                 
Loss before income tax
         
(535,271
)
   
(38,475
)
Adjustments to  profit not affecting cash flows from
                     
operating activities:
                     
Depreciation
   
26
     
112,318
     
98,504
 
Amortization
   
26
     
107,499
     
98,621
 
Impairment of inventories
   
26
     
4,503
     
791
 
Impairment of accounts receivable and other accounts receivable
   
26
     
290,491
     
91,330
 
Reversal of impairment of inventories
           
(4,752
)
   
(821
)
Debt condonation
           
(18,186
)
   
(9,451
)
Impairment (reversal) of property, plant and equipment
   
26
     
20,018
     
-
 
Impairment of intangible assets
   
28
     
45,821
     
-
 
Reversal of impairment of accounts receivable
           
(19,448
)
   
-
 
Reversal of impairment of intangible assets
           
(20,676
)
   
-
 
Change in the fair value of the liability for put option
   
28
     
4,697
     
245
 
Other provisions
   
22
     
186,894
     
80,673
 
Financial expense,net
           
167,872
     
225,212
 
Impairment of investment
           
384
     
38
 
Incremental cost accrued
           
-
     
8,875
 
Share of the profit and loss of associates and joint ventures accounted for using the equity method
   
15 a)-b)

   
218,774
     
(770
)
Reversal of provisions
   
22
     
(7,471
)
   
(36,827
)
Disposal (reversal) of assets
           
349
     
8,895
 
Profit on sale of property, plant and equipment
   
16
     
(11,892
)
   
(2,322
)
Profit on remeasurement of accounts receivable
           
45,363
     
(25,888
)
Net variations in assets and liabilities:
                       
Trade accounts receivable and working in progress
           
457,709
     
           131,674
 
Other accounts receivable
           
148,833
     
(46,120
)
Other accounts receivable from related parties
           
(11,178
)
   
(20,461
)
Inventories
           
(34,091
)
   
22,578
 
Pre-paid expenses and other assets
           
4,964
     
(823
)
Trade accounts payable
           
58,973
     
(42,062
)
Other accounts payable
           
(286,110
)
   
(58,013
)
Other accounts payable to related parties
           
(24,461
)
   
3,591
 
Other provisions
           
(1,134
)
   
(9,051
)
Interest payment
           
(172,377
)
   
(137,369
)
Payments for purchases of intangibles - Concessions
     
(25,917
)
   
(3,519
)
Payment of income tax
           
(94,669
)
   
(112,851
)
Net cash provided by operating activities
           
607,829
     
226,024
 
                         
INVESTING ACTIVITIES
                       
Sale of property, plant and equipment
           
18,607
     
9,118
 
Interest received
           
6,552
     
4,292
 
Dividends received
   
15 a)-b)

   
1,517
     
2,318
 
Payment for purchase of investments properties
           
(88
)
   
(98
)
Payments for intangible purchase
           
(84,201
)
   
(46,767
)
Payments for property, plant and equipment purchase
     
(93,017
)
   
(33,596
)
Net cash applied to investing activities
           
(150,630
)
   
(64,733
)
                         
FINANCING ACTIVITIES
                       
Loans received
           
644,312
     
185,644
 
Amortization of loans received
           
(1,130,301
)
   
(275,163
)
Amortization of bonds issued
           
(31,335
)
   
(37,981
)
Payment for transaction costs for debt
           
(4,770
)
   
-
 
Dividends paid to non-controlling interest
   
35 d)

   
(12,762
)
   
(82,412
)
Cash received (return of contributions) from non-controlling shareholders
     
(32,996
)
   
(15,725
)
Capital increase
   
23
     
280,636
     
-
 
Net cash applied to financing activities
           
(287,216
)
   
(225,637
)
Net increase (net decrease) in cash
           
169,983
     
(64,346
)
Exchange difference
           
(20,303
)
   
13,813
 
Cash and cash equivalents at the beginning of the year
     
801,021
     
950,701
 
Cash and cash equivalents at the end of the year
   
9
     
950,701
     
900,168
 
                         
NON-CASH TRANSACTIONS:
                       
Capitalization of interests
           
7,229
     
4,887
 
Acquisition of assets through finance leases
           
3,851
     
71
 
Acquisition of right-of-use assets
           
101,745
     
12,075
 
Reclassification to other accounts receivable by Concesionaria Vía Expresa Sur
     
-
     
24,157
 
Acquisition of supplier bonds
           
-
     
25,871
 
                         
The accompanying notes on pages 8 to 113 are an integral part of the consolidated financial statements.
 


- 7 -


AENZA S.A.A (FORMERLY GRAÑA Y MONTERO S.A.A.) AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2020


 GENERAL INFORMATION

   a)  Incorporation and operations

AENZA S.A.A., formerly Graña y Montero S.A.A. (hereinafter the “Company”) is the parent Company of the AENZA Corporation that includes the Company and its subsidiaries (hereinafter, the “Corporation”) and is mainly engaged in holding investments in Corporation companies. In addition, the Company provides strategic and functional services and office leases to the companies of the Corporation.

The General Shareholder’s Meeting on November 2, 2020 approved the modification of the Company’s name from Graña y Montero S.A.A. to AENZA S.A.A. which is effective as of February 4, 2021.

The Corporation is a conglomerate of companies whose operations encompass different business activities where, the most significant are engineering and construction, infrastructure (public concession ownership and operation) and development of real estate projects (Note 7).

   b)  Authorization for the issue of the financial statements

The consolidated financial statements for the year ended December 31, 2020, have been prepared and issued with authorization of Management and the Board of Directors’ on March 5, 2021, and will be submitted for approval consideration to the General Shareholders’ Meeting to be held within the term established by law. Management expects that the consolidated financial statements as of December 31, 2020, will be approved with no modifications.

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)  Current situation of the Company

The Corporation is involved in a series of criminal investigations conducted by the Public Ministry and administrative proceedings conducted by INDECOPI based on events that occurred between years 2003 and 2015.

Such situations led to significant changes at Corporation´s corporate governance structure, the opening of independent investigations and the adoption of measures to address and clarify these situations, as explained below:

On January 9, 2017, the Board of Directors approved the opening of an independent investigation related to six projects developed in association with companies of the Odebrecht Group.
   
On March 2, 2017, a new Corporate General Manager was appointed and on March 31, 2017, the shareholders appointed a new Board of Directors with an independent majority, all non-executive directors, introducing fundamental changes in the corporate governance and culture of the Corporation.
   
On March 30, 2017, the Board of Directors created the Risk and Compliance Committee, who was in charge of the oversight of the investigation independently from Management. The investigation was conducted by the law firm Simpson Thacher & Bartlett LLP, with the assistance of forensic accountants, who reported exclusively to the Risk and Compliance Committee.
   
The external investigation concluded on November 2, 2017 and found no evidence that the Company or its subsidiaries or any of its directors or officers, former or current, have intentionally or knowingly participated in acts of corruption related to the projects developed in association with Odebrecht.

- 8 -


Subsequently, in August 2019, José Graña Miró Quesada, a shareholder and former chairman of our Company's Board of Directors, publicly announced that he and Hernando Graña Acuña, a shareholder and former member of the Company's Board of Directors, had initiated a process of plea bargaining to cooperate with Peruvian prosecutors in relation to the investigations of “Lava Jato” case and others in progress. Due to the reserved nature of the plea bargain process, it is impossible for us to know of verify the statements made by the aforementioned persons within the scope of those processes. Any admission or other evidence provided that corroborate wrongdoing could be inconsistent with the investigations carried out and could have a significant impact on your conclusions.
   
As new information emerged, the Company's Board of Directors continued to investigate the facts that were the subject of the criminal investigations, including matters relating to the “Construction Club”, which scope was outside of the investigation carried out by Simpson Thacher & Bartlett LLP. After an extensive and detailed review process, it was decided to share all the findings with the Peruvian authorities within the framework of a plea bargain process, in line with the Company's committment to transparency and integrity.
   
As a result of its contribution to the investigations, on December 27, 2019, the Company signed a preliminary agreement whereby the Anti-Corruption Prosecutor Office 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 Office and the Ad Hoc Attorney General's Office authorize the Company to disclose the existence of the agreement but to maintain its content confidential.
   
At the same time, since the beginning of year 2017, the new administration together with the new Board of Directors began a transformation process based on the principles of Truth, Transparency and Integrity, making profound changes in the organization supported by a Board of Directors with an independent majority, 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 as a minority partner of Odebrecht Group companies, directly or through its subsidiaries, in entities or consortiums that developed six infrastructure projects.

In 2016, Odebrecht entered into an Agreement with 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, which are mentioned below:

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. were included as civilly liable third-party 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 civilly liable third-party responsible in the process related to the construction of the Electric train construction Project, tranches 1 and 2. In this investigation a former Chairman of the Board of Directors, a former Director and a former Manager have been charged.


- 9 -


Gasoducto Sur Peruano (GSP)

In year 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). As of the date hereof, the Company has not been indicted or incorporated as a civilly liable third-party or as an investigated legal person.

Subsequently, in 2020, the Company and its legal advisors concluded that there is exposure to the preliminary investigation process conducted in relation to the IIRSA Norte project. To date, the Company has not been incorporated either as a responsible civil third party or as an investigated legal person.

Criminal investigations in relation to the Construction Club case

GyM S.A. has been incorporated, along with other construction companies, as a legal entity investigated 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., a 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 into these events.

Anticorruption Law - effects on the Corporation

Law 30737 and its regulation issued by Supreme Decree 096-2018-EF have mitigated the Company and subsidiaries exposure on the corruption cases. These standards set guidelines for the calculation of potential indemnification, reducing uncertainty about the imposition of seizures on assets that could hinder the operation of the Company's business.

In the case of the Company and its subsidiary GyM, the benefits of the mentioned rules are subject to the fulfillment of the following obligations as a consequence of the association with Odebrecht in the IRSA Sur and construction of the Electric train construction Project, tranches 1 and 2:

-
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;
-
The obligation not to transfer funds abroad without the prior consent of the Ministry of Justice;
-
The implementation of a compliance program; and
-
The obligation to disclose information to the authorities and to collaborate in the investigation.

The Corporation 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/72 million (equivalent to US$20 million).

In 2020, the Company was included in the framework of Law 30737 for the IIRSA Norte and Chavimochic.  However, the Company has been in contact with the Ministry of Justice in order to clarify this information, given that the incorporation of the Company in the Category 2 is not in accordance with the provisions set forth in the law.  Based on the standards indicated and their guidelines, It is estimated that the value of the contingencies related to Odebrecht and the Construction Club described above is S/338 million (US$93.3 million) and was recorded at December 31, 2020 the equivalent to the corresponding present value that results in S/191 million (equivalent to US$52.7 million).

On the other hand, in addition to the cases where a provision for civil reparation has been recorded, there is a project carried out in partnership with Odebrecht that to date is 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 the project would be S/9.6 million (approximately US$2.6 million).

- 10 -

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. Management estimates that, given the progress achieved in the negotiations of a plea bargain agreement, it would be unlikely that new material information related to the process will appear. However, management cannot rule out the possibility of finding, in the future, adverse evidence, nor that the authorities or third parties find, in the future, adverse evidence not currently known during the investigations that are being carried out.

Investigations and administrative process initiated by INDECOPI in relation 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. GyM S.A. has provided to INDECOPI with all the information requested and continues collaborating with the investigation.

On February 11, 2020, the subsidiary GyM S.A. was notified by the Technical Secretariat of the Commission for the Defense of Free Competition of 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 sanctioning procedure, which will be determined at the end of said procedure. The proceeding is in its evidentiary stage, therefore, INDECOPI has not carried out the actions aimed at quantifying the possible sanctions that could result.

d)
Impact of the COVID-19 Pandemic

The outbreak of the COVID-19 pandemic, which the World Health Organization declared to be a “public health emergency of international concern”, has spread across the world since 2019. Throughout 2020, countries around the world, including Peru, Chile and Colombia, took extraordinary measures to contain the spread of COVID-19, including social immobilization, imposition of travel restrictions, temporary closure of non-essential businesses, restrictions on public gatherings and similar actions.

These measures led to a substantial reduction in economic activity, especially in the second quarter of 2020.  In response to this situation, the governments of Peru, Chile and Colombia implemented various stimulus programs to assist families and businesses.

In this context the results of operations, financial positions and cash flows of the Corporation have been adversely affected during second quarter of 2020. However as of the date of this report and as a result of the gradual normalization of activities since July 2020, the results of the following months show a significant recovery in activity.

From the analysis carried out by Management the different business of the Corporation have been impacted during 2020 as follows:

1) In the engineering and construction business the mandatory stoppage of activities, specially from March to June, caused total revenues to decrease 25% compared to 2019.  However, the gradual normalization of activities from July and the result of negotiations with our clients regarding higher costs due to the stoppages and new operating standards prevented gross and oerating margins from deteriorating substantially compared to 2019. Finally, it was very relevant the award of new contracts during the year, especially 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. However, despite these adverse circumstances, a positive result was achieved for this business in 2020.

- 11 -

3) The infrastructure businesses continue operating as they were declared essential services:

a.
Line 1 of the Metro operated with fewer passengers but revenues were not impacted due to the fact that revenues don’t depend on traffic but on the amount of kms travelled by each train.
b.
The oil and gas business was impacted by the reduction of the oil Price to levels below the estimations considered for 2020.  During the sanitary crisis, the enforceability of further investment obligation on new wells in Lots III and IV was suspended obligations with suppliers were renegotiated.
c.
The state emergency situation caused an impact on Norvial S.A. revenues and on the results of 2020 as a result of lower vehicle traffic until July. In addition, in May the Peruvian Congress approved a law in order suspending the collection of tolls, a measure that was in effect from May 9 to June 30, 2020. Norvial S.A. has claimed from the State the payment of a compensation foreseen in clause 9.9 of the Concession Contract, which establishes the obligation of the Grantor to recognize and pay the Concessionaire the corresponding tariff difference in the event that any public entity does not allow the Concessionaire to collect the tariff as stipulated in the same contract.
d.
In the road concessions Survial S.A. and Concesion Canchaque S.A. the suspension in the collection of tolls did not impact the results of the year as the revenues do not depend on vehicle traffic.

In general terms, we have not been affected by interruptions in the supply chain of personnel, services or materials, and despite the temporary stoppage of some of our projects, there we no penalties or non-compliance with our agreements with clients.

The most important goodwill of the Corporation is 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 December 31, 2020, we have determined that our goodwill is not impaired.

On the liquidity side, the Corporation 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 Corporation’s subsidiaries obligations with respect to suppliers, banks and other third parties; (iv) identifying and reducing non-essential general expenses across the Corporation; (v) reducing headcount, and temporarily reducing salaries of senior management and Directors’ allowances, across the Corporation’s three segments; and (vi) reducing capital expenditures across the Corporation’s subsidiaries.  This plan was approved by the Board of Directors on April and May 2020 sessions. In this regard, the accompanying financial statements have been prepared assuming that the Corporation and subsidiaries will continue as a going concern.

 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied in all the years presented, unless otherwise stated.

2.1  Basis of preparation

The consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRIC) applicable to companies reporting under IFRS.  The financial statements comply with IFRS as issued by the IASB in force as of December 31, 2019, and December 31, 2020, respectively.

- 12 -

The consolidated financial statements have been prepared under the historical cost convention, except for derivative financial instruments, financial assets at fair value through profit or loss, and available-for-sale financial assets measured at fair value.  The financial statements are presented in thousands of Peruvian Sol unless otherwise stated.

The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. Also requires that the Management exercise its critical judgment in the process of applying the Corporation's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

2.2  Consolidation of financial statements

   a)  Subsidiaries

Subsidiaries are entities over which the Company has control. Subsidiaries are fully consolidated from the date on which control is transferred to the Corporation. They are deconsolidated from the date that control ceases.

The Corporation applies the acquisition method to account for business combinations. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The Corporation evaluates the measurement of the non-controlling interest on an acquisition-by-acquisition basis.  As of December 31, 2019, and 2020, the measurements of the non-controlling interest in the Corporation´s acquisitions were made at the non-controlling interest´s proportionate share of the recognized amounts of the acquiree’s identifiable net assets.

Business acquisition-related costs are expensed as incurred.

Any contingent consideration assumed by the Corporation with the selling party is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognized in accordance with IFRS 9 “Financial Instruments” as profit or loss.

Goodwill is initially measured as the excess of the acquisition cost, the fair value at the acquisition date of any interest previously acquired plus the fair value of the non-controlling interest, over the net identifiable assets acquired and liabilities and contingent liabilities assumed. If the acquisition cost is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss at the time of acquisition.

For consolidating subsidiaries, balances, income, and expenses from transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognized as assets are also eliminated. Group companies use common accounting practices, except for those that are specifically required for specific businesses.

b)
Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions, in other words as transactions with owners in their capacity as owners. The difference between the fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interest are also recorded in equity at the time of disposal.

- 13 -

c)
Disposal of subsidiaries

When the Corporation ceases to have control over a subsidiary, any retained interest in the entity is re-measured at its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss at such date. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Corporation had directly disposed of the related assets or liabilities. This may mean that the amount previously recognized in other comprehensive income is reclassified to profit or loss.

d)
Joint arrangements

Contracts in which the Corporation and one or more of the contracting parties have joint control on the relevant joint activities are called joint arrangements.

Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Corporation has assessed the nature of its joint arrangements and determined them to be both joint ventures as well as joint operations.

Joint ventures are accounted for using the equity method. Under this method, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize the Corporation’s share of the post-acquisition profits or losses and movements in the comprehensive income statement.

The Corporation assesses on an annual basis whether there is any objective evidence that the investment in the joint ventures and associate is impaired. If this is the case, the Corporation calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the impairment loss in share of the profit or loss in associates and joint ventures under the equity method of accounting in the income statement. In addition, the Corporation stops the use of the equity method if the entity ceases to be an operating entity.

Joint operations are joint arrangements whereby the parties that have joint control of the arrangement, have rights over the assets, and obligations for the liabilities, relating to the arrangement. Each party recognizes its assets, liabilities, revenue and cost and its share of any asset or liability jointly held and, on any revenue, or cost arisen from the joint operation.

In the Corporation, joint operations mainly relate to consortiums (entities without legal personality) created exclusively for the development of a construction contract. Considering that the only objective of the consortium is to develop a specific project, all revenue and costs are included within revenue from construction activities and cost of construction activities, respectively.

e)
Associates

Associates are all entities over which the Corporation has significant influence but not control, generally accompanying a holding of between 20% and 50% of the voting rights.  Investments in associates are accounted for using the equity method (see section d) above).

Profits and losses resulting from transactions between the Corporation and its associates are recognized in the Corporation’s consolidated financial statements only to the extent of unrelated investor’s interests in the associates.  Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.  Accounting policies of associates are changed where necessary to ensure consistency with the policies adopted by the Corporation.

Impairment losses are measured and recorded in accordance with section d) above.


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2.3
Segment reporting

Operating segments are reported in a consistent manner with internal reporting provided to the Management of the Corporation.

If an entity changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change, the Corporation restates the information for earlier periods unless the information is not available.

2.4
Foreign currency translation

a)
Functional and presentation currency
  

The consolidated financial statements are presented in Peruvian soles, which is the functional and presentation currency of the Corporation. All subsidiaries, joint arrangements, and associates use the Peruvian Sol as their functional currency, except for foreign entities, for which the functional currency is the currency of the country in which they operate.

b)
Transactions and balances

Foreign currency transactions are translated into the functional currency using prevailing the exchange rates at the date of the transactions or valuation when items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated income statement, except when deferred in other comprehensive income.  Foreign exchange gains and losses of all monetary items are included in the income statement within financial income or expense.

Exchange differences arising on loans from the Company to its subsidiaries in foreign currencies are recognized in the separate financial statements of the Company and separate financial statements of the subsidiaries. In the consolidated financial statements, such exchange differences are recognized in other comprehensive income and are re-classified in the income statement on the disposal of the subsidiary or debt repayment to the extent such loans qualify as part of the “net investment in a foreign operation”.

c)
Corporation companies

The results and financial position of all the Corporation entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency of the Corporation are translated into the presentation currency as follows:

i)
Assets and liabilities for each statement of financial position are translated using the closing exchange rate prevailing at the date of the consolidated statement of financial position;
ii)
income and expenses for each income statement are translated at the average exchange rate (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rate on the date of the transaction);
iii)
capital is translated by using the historical exchange rate for each capital contribution made; and
iv)
all exchange differences are recognized as separate components in other comprehensive income, within foreign currency translations adjustment.

Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate.  Exchange differences are recognized in other comprehensive income.

2.5
Public services concession agreements

Concession agreements signed between the Corporation and the Peruvian Government entitle the Corporation, as a Concessionaire, to assume obligations for the construction or improvement of infrastructure and which qualify as public service concessions are accounted as defined by IFRIC 12 “Service Concession Arrangements”.  The consideration to be received from the Government for the services of constructing or improving public infrastructure is recognized as a financial asset, an intangible asset or both, as stated below:

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a)
It is recognized as a financial asset to the extent that it has a contractual right to receive cash or other financial assets either because the Government secures the payment of specified or determinable amounts or because the Government will cover any difference arising from the amounts actually received from public service users in relation with the specified or determinable amounts.  These financial assets are recognized initially at fair value and subsequently at amortized cost (financial asset model).
   
b)
It is recognized as an intangible asset to the extent that the service agreement grants the Corporation a contractual right to charge users of the public service. The resulting intangible asset is measured at cost and is amortized as described in Note 2.15 (intangible asset model).
   
c)
It is recognized as a financial asset and an intangible asset when the Corporation recovers its investment partially by a financial asset and partially by an intangible asset (bifurcated model).

2.6
Cash and cash equivalents

In the consolidated statements of financial position and cash flows, cash and cash equivalents include cash on hand, on-demand bank deposits, other highly liquid investments with original maturities of three months or less and bank overdrafts.  In the consolidated statement of financial position, bank overdrafts are included in the balance of borrowings as current liabilities.

2.7
Financial assets

2.7.1   Classification and measurement

The Corporation classifies its financial assets, according to its subsequent measurement, in the following categories: i) amortized cost; ii) financial assets at fair value through other comprehensive income and iii) financial assets at fair value through profit or loss. The classification depends on the purpose for which the financial assets were acquired on the basis of the Corporation's business model for managing the financial assets and the characteristics of the contractual cash flows of the financial asset.

Management determines the classification of its financial assets at the date of its initial recognition and re-evaluates this classification at the date of each closing of its consolidated financial statements. As of December 31, 2019, and 2020, the Corporation only maintains financial assets in the following categories:

a) Amortized cost

This category is the most relevant for the Corporation. The Corporation measures financial assets at amortized cost if the following conditions are met:

i) The financial asset is held within a business model with the objective of maintaining the financial assets to obtain the contractual cash flows; and

ii) The contractual terms of the financial asset generate cash flows, on specific dates, that are only payments of the principal and interest on the amount of the outstanding principal.

Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Profits and losses are recognized in profits or losses when the asset is written off, modified or impaired.

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Trade accounts receivable, accounts receivable from related companies, other accounts receivable, work in progress and cash and cash equivalents are included in current assets except for those over twelve months after the date of the consolidated statement of financial position. The latter are classified as non-current assets.

b) Financial assets at fair value through other comprehensive results

Financial assets at fair value through other comprehensive income of the Corporation are classified in this category when they meet the following conditions:

i) keep them within a business model whose objective is achieved by obtaining contractual cash flows and selling financial assets; and
ii) the contractual terms of the financial asset give rise, on specific dates, to cash flows that are only payments of the principal and interest on the outstanding principal amount.

The investment account at Inversiones en Autopistas S.A. is included in this category.

c) Financial assets at fair value through profit or loss

Financial assets that do not meet the criteria of amortized costs or fair value through other comprehensive income are measured at fair value through profit or loss. The result in a debt investment that is subsequently measured at fair value through gains and losses is recognized in the consolidated statement of comprehensive income in the period in which it occurs.

Financial assets at fair value through profit or loss are non-derivative financial assets designated by the Corporation at their fair value upon initial recognition and are held for sale. These are included in current assets.

2.7.2   Derecognition of financial assets

The Corporation derecognizes a financial asset when the contractual rights over the cash flows of the financial asset expire, or when it transfers the rights to receive the contractual cash flows in a transaction in which all the risks and benefits of ownership of the financial asset are substantially transferred, or does not transfer or retain substantially all the risks and benefits related to the property and does not retain control over the assets transferred.

The Corporation participates in transactions in which it transfers the assets recognized in its statement of financial position but retains all or substantially all the risks and advantages of the assets transferred, and/or control over them. In these cases, the assets transferred are not derecognized and are measured on a basis that reflects rights and obligations that the Corporation has retained.

2.8
Impairment of financial assets

IFRS 9 “Financial Instruments”, requires to register expected credit losses of all financial assets, except for those that are carried at fair value with an effect on results, estimating it over 12 months or for the entire life of the financial instrument ("lifetime"). In accordance with the provisions of the standard, the Corporation applies the simplified approach (which estimates the loss for the entire life of the financial instrument), for the commercial debtors of the rental business line of the real estate sector, and the general approach for the trade accounts receivables, and other accounts receivable; the same that requires evaluating whether or not a significant increase in risk exists to determine whether the loss should be estimated based on 12 months after the reporting date or during the entire life of the asset.

The Corporation has established a policy to conduct an evaluation, at the end of each reporting period, to identify whether the asset has suffered a significant increase in credit risk since the initial date. Both the credit losses expected at 12 months and the expected credit losses during the life of the asset are calculated individually or collectively, depending on the nature of the portfolio.

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For financial assets for which the Corporation has no reasonable expectation of recovering, either the entire outstanding amount or a portion thereof, the gross carrying amount of the financial asset is reduced. This is considered a decrease in (partial) accounts of the financial asset.

2.9
Derivative financial instruments and hedging activities

Derivatives are initially recognized at fair value on the date a derivative contract is signed into and are subsequently re-measured at their fair value at the end of each reporting period.  The method for recognizing the gain or loss resulting from changes in the fair value of the derivatives depends on whether they are designated as an  hedging instrument, and if so, the nature of the item being hedged.

The Corporation designates certain derivatives as hedges of a particular risk associated with a recognized asset or liability (fair value hedge) or a highly probable forecast transaction (cash flow hedge).  Derivatives are initially recognized at fair value on the date of subscription of the contract and are subsequently recognized at their fair value.

The Corporation documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedges transactions. The Corporation also documents its assessment, both at hedge inception as at the date of each subsequent statement of financial position, of whether the derivatives used in hedges transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair value of various derivative instruments used for hedging purposes and changes in the account reserves for hedges in equity are disclosed in Note 8.  The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity period of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity period of the hedged item is less than 12 months.  Trading derivatives are classified as a current asset or liability.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as fair value hedges is recognized as other comprehensive income.  The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecasted sale that is hedged takes place).

The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the income statement as “Financial income or Financial expenses”.

However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains or losses previously deferred in equity are transferred from equity and are included in the initial measurement of the cost of the non-financial asset.  The deferred amounts are finally recognized in cost of goods sold in the case of inventory or depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and will be reversed to income when the forecasted transaction is finally recognized in the statement of comprehensive income.  When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within “other income and expenses, net”.

2.10
Trade accounts receivables

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Trade receivables are amounts due from customers for goods or services sold by the Corporation.  If the collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. In the Infrastructure segment it includes the billing of the first purchase of trains as part of the model of the financial asset of the concessionaire GyM Ferrovias S.A. (Note 2.5).

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less any provision for impairment, except for receivables of less than one year that are stated at a nominal amount which is similar to their fair values since they are short term.

It includes Management estimates corresponding to the collection rights for services performed pending invoice and/or approval by client, which have been valued using the completion percentage method. It corresponds mainly to the Engineering and Construction segment (subsidiaries GyM S.A. and GMI S.A.). In the Infrastructure segment, for concessions it corresponds to future collections for public services, mainly represented by unconditional contractual rights to be received from the Grantor under the model of the financial asset (Note 2.5).

2.11
Work in progress

This account includes the balance of work in progress costs incurred that relates to future activities of the construction contracts (see Note 2.27 for detail on revenue recognition from construction activities and concessions services).

Changes in estimates of contract revenues and costs can increase or decrease the estimated margin. When a change in the estimate is known, the cumulative impact of the change is recorded in the period in which it is known, based on the progress completed.

2.12
Inventories

The inventories include land, works in progress and finished buildings related to the real estate activity, materials used in the construction activity and marketed supplies for exploration and extraction activities.

a)
Real estate activity

Land used for the execution of real estate projects is recognized at acquisition cost. Work in progress and finished real estate includes the costs of design, materials, direct labor, borrowing costs (directly attributable to the acquisition, construction, production of the asset), other indirect costs and general expenses related to the construction.

Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.  Annually, the Corporation reviews whether inventories have been impaired identifying three groups of inventories to measure their net realizable value: i) land bought for future real estate projects which are compared to their net appraisal value; if the acquisition value is higher, a provision of impairment is recognized; ii) land under construction, impairment is measured based on cost projections; if these costs are higher than selling prices of each real estate unit, an impairment estimated is recorded; and iii) completed real estate units; these inventory items are compared to the selling prices less selling expenses; if these selling expenses are higher, a provision for impairment is recorded.

For the reductions in the carrying amount of these inventories to their net realizable value, a provision is recognized for impairment of inventories with a charge to profit or loss for the year in which those reductions occur.

b)
Exploration and extraction activities
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Inventories are valued at production costs or net realizable value (NRV), the one with the lowest result, on the basis of the weighted average method. The NRV represents the value at which it is estimated to make oil, gas and its derivatives LPG and HAS, which is calculated on the basis of international prices at which discounts that are usually granted are deducted. Miscellaneous supplies, materials, and spare parts are valued at cost or replacement value, whichever is less based on the average method. The cost of inventories excludes financing expenses and exchange differences. Inventories to be received are recorded at cost by the specific identification method.

The Corporation constitutes a devaluation of materials charged to income for the year in cases in which the book value exceeds its recoverable value.

c)
Other activities

Materials and supplies are recorded at cost by the weighted average method or at their replacement value, the lower. The cost of these items includes freight and non-refundable applicable taxes.

The devaluation of these items is estimated on the basis of specific analysis made by the Management on its rotation. If it is identified that the book value of the stocks of materials and supplies exceeds their replacement value, the difference is charged to income in the year in which this situation is determined.

Management considers that as of the date of the consolidated financial statements it is not necessary to establish additional provisions to those recognized in the financial statements to cover losses due to obsolescence of these inventories.

2.13
Investment property

Investment properties are shown at cost less accumulated depreciation and impairment losses, if any. Subsequent costs attributable to investment properties are capitalized only if it is probable that future economic benefits will flow to the Company and the cost of these assets can be measured reliably; if not, they are recognized as expenses when incurred.

Repair and maintenance expenses are recognized in profit and loss when they are incurred.  If the property’s carrying amount is greater than its estimated recoverable amount, an adjustment to reduce the carrying amount to the recoverable amount is recognized.

Depreciation is determined by the straight-line method at a rate that is considered sufficient to absorb the cost of the assets and the end of the useful life and considered their significant components with useful lives substantially different (each component is treated separately for depreciation purposes). The estimated useful lives of those properties range from 5 to 50 years.

The investment properties held by the Corporation correspond to: (i) “Agustino Plaza” Shopping Center, located in the El Agustino District, and (ii) the stores situated within the stations of Line 1 of the Lima Metro; the properties owned by the subsidiary Viva GyM S.A. are represented by a fair value amount to US$14.16 million, equivalent to S/51.31 million as of December 31, 2020 (US$18.7 million, equivalent to S/62.6 million, as of December 31 of 2019).

These investment properties have been leased under the modality of an operating lease.

2.14
Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of these items.

Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Corporation and the cost of the item can be measured reliably. Repairs and maintenance expense are charged to the statement of income during the financial period in which they are incurred.

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Assets under construction are capitalized as a separate component. At their completion, the cost of such assets is transferred to their definitive category.

Replacement units are major spare parts in which depreciation starts when the units are installed for use within the related asset.

Depreciation of machinery, equipment and vehicles recognized as “Major equipment” are depreciated based on their hours of use. Under this method, the total number of work hours that machinery and equipment is capable of producing is estimated and a charge per hour is determined.  The depreciation of other assets that do not qualify as “Major equipment” is calculated under the straight-line method to allocate their cost less their residual values over their estimated useful lives, as follows:

   
 Years
Buildings and facilities
 
Between 3 and 50
Machinery and equipment
 
Between 2 and 10
Vehicles
 
Between 2 and 10
Furniture and fixtures
 
Between 2 and 10
Other equipment
 
Between 2 and 10

Residual values and useful lives are reviewed and adjusted as appropriate at each reporting date.  Gains and losses on disposals are recognized in “Other income and expenses, net” in the statement of income. Regarding joint operations that carry out construction activities, the difference between the proceeds from disposals of fixed assets and their carrying amount is shown within “revenue from construction activities” and “cost of construction activities”, respectively.

2.15
Intangible assets

i)
Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the purchase consideration, the amount of any non-controlling interest and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired.  If the payment made, the amount of the non-controlling interest recognized and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of income.

Goodwill acquired in a business combination is allocated to each cash-generating units (CGU), or group of CGUs, that is expected to benefit from the synergies of the combination. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are performed at least annually and when events or changes in circumstances indicate a potential impairment. Any impairment is recognized immediately as an expense in item “Other income and expenses, net” and cannot be reversed later.

ii)
Trademarks

Trademarks acquired separately are shown at historical cost. Trademarks acquired in a business combination are recognized at fair value at the acquisition date.  Management has determined that these trademarks have indefinite useful lives.

Trademark impairment reviews are performed at least annually and when events or changes in circumstances indicate a potential impairment. Any impairment is recognized immediately as an expense in item “Other income and expenses, net”. The carrying amount that has been subject to impairment is reviewed at each reporting date to verify possible reversals of the impairment and is recognized in the “other income and expenses, net” item.

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iii)
 Concession rights

The intangible asset consisting of the right to charge users for the services related to service concessions agreements (Note 2.5 and Note 6.b) is initially recorded at the fair value of construction or improvement services and before amortization is started, an impairment test is performed; it is amortized under the straight-line method, from the date revenue starts using the lower of its estimated expected useful life or effective period of the concession agreement.

iv)
Contractual relationships with customers

Contractual relationships with customers are assets resulting from business combinations that were initially recognized at fair value as determined based on the expected cash flows from those relations over a period of time based on the estimated permanent of the Corporation’s customer (the estimation of useful life is based on the term of contract with customers which fluctuate between 5 and 9 years). The useful life and the impairment of these assets are individually assessed.

v) Cost of development wells

Costs incurred in preparing wells to extract hydrocarbons in Blocks I, III, IV, and V, located in Talara, are capitalized as part of intangible assets.  These costs are amortized over the useful lives of the wells (estimated in remaining periods for Blocks I and V and the unit of production method for Blocks III and IV), until the end period of the agreements signed with Perupetro.

vi)
Software and development costs

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Corporation are recognized as intangible assets when the following criteria are met:

-
technically feasible to complete the software product so that it will be available for use;
-
management intends to complete the software product and use or sell it;
-
there is the ability to use or sell the software product;
-
it can be demonstrated how the software product will probably generate future economic benefits;
-
technical, financial and other resources are available to complete the development and to use or sell the software product; and
-
expenses incurred during its development can be reliably measured.

Other development costs that do not meet these criteria are reconized in the statement of income as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.  Computer software development costs recognized as assets are amortized over their estimated useful lives, which fluctuate between 2 to 15 years.

vii)  Land use rights

Refers to the rights maintained by the subsidiary Promotora Larcomar S.A. Land use of rights are stated at historical cost less amortization and any accumulated impairment losses. The useful life of this asset is based on the agreement signed (60 years) and may be extended if agreed by parties.  Amortization will begin when it becomes ready for its intended use by Management.

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2.16
Impairment of non-financial assets

Assets subject to amortization are subject to impairment tests when events or circumstances occur that indicate that their book value may not be recovered. Impairment losses are measured as the amount by which the book value of the asset exceeds its recoverable value. The recoverable value of the assets corresponds to the higher of its fair value and its value in use. For purposes of the impairment assessment, assets are grouped at the lowest levels in which they generate identifiable cash flows (cash-generating units). The book value of non-financial assets other than goodwill that have been subject to write-offs for impairment is reviewed at each reporting date to verify possible reversals of impairment.

2.17
Financial liabilities

The financial liabilities of the Corporation include trade accounts payable, accounts payable to related parties, remuneration and other accounts payable. All financial liabilities are initially recognized at fair value and subsequently valued at amortized cost using the effective interest rate method.

Financial liabilities are classified as current liabilities if the payment must be made within a year or less (or in the normal operating cycle of the business if it is greater), otherwise, they are presented as non-current liabilities.

2.18
Trade accounts payable

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer), if not, they are presented as non-current liabilities.

Accounts payable are initially recognized at their fair value and subsequently are amortized at amortized cost using the effective interest method, except for accounts payable within less than one year that are recorded at their nominal value that is similar to their fair value due to its maturity in the short term.

2.19
Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include liabilities designated at initial recognition as at fair value through profit or loss.

Financial liabilities designated at initial recognition at fair value through profit or loss are designated at the initial recognition date, and only if the criteria of IFRS 9 are met. The Company has only designated the obligation with BCI Peru as a financial liability at fair value through profit or loss, see note 18.

2.20
Other financial liabilities

Corresponds to the loans and bonds issued by the Corporation, which are initially recognized at their fair value, net of the costs incurred in the transaction. These financial liabilities are subsequently recorded at amortized cost; any difference between the funds received (net of transaction costs) and the redemption value is recognized in the statement of income during the period of the loan using the effective interest method.

The costs incurred to obtain these financial liabilities are recognized as transaction costs to the extent that it is probable that part or the entire loan will be received. In this case, these charges are deferred until the time the loan is received.

2.21
Borrowing costs

Debt costs are recognized at the statement of income in the period in which they have been incurred, except for intangible assets and inventories in which the borrowing costs are capitalized.

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualified assets, which are assets that necessarily take a substantial period (more than 12 months) to reach their condition of use or sale, are added to the cost of said assets until the period when the assets are substantially ready for use or sale. The Corporation suspends the capitalization of borrowing costs during the periods in which the development of activities of a qualified asset has been suspended. The income obtained from the temporary investment of specific loans that have not yet been invested in qualified assets is deducted from the borrowing costs eligible for capitalization.

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2.22
Current and deferred income tax

Income tax expense comprises current and deferred tax. Tax expense is recognized in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, tax is also recognized in the statement of comprehensive income or directly in equity, respectively.

The current income tax is calculated based on the tax laws enacted at the date of the statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management, where appropriate, establishes provisions based on amounts expected to be paid to the tax authorities.

Deferred tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is determined using tax rates (and legislation) that have been enacted as of the date of the statement of financial position and that are expected to be applicable when the deferred income tax is realized or paid.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Corporation, and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax arising from the initial recognition of goodwill is not recognized; likewise, the deferred tax is not recorded if it arises from the initial recognition of an asset or liability in a transaction that is not a business combination that does not affect the accounting or tax profit or loss at the time of the transaction.

2.23
Employee benefits

The Corporation recognizes a liability when the employee has rendered services in exchange for which is entitled to receive future payments and an expense when the Corporation has consumed the economic benefit from the service provided by the employee in exchange for the benefits in question.

The Corporation determines employee benefits in accordance with current labor and legal regulations and classifies them as short-term benefits, long-term benefits, and termination benefits.

Short-term benefits are those other than termination indemnities, whose payment is settled in the twelve months following the end of the period in which the employees have rendered the services; they correspond to current remunerations (salaries, wages and contributions to social security), annual paid and sick absences, participation in profits and incentives and other non-monetary benefits.

Long-term benefits are those benefits that must be paid more than twelve months after the end of the period in which the services were rendered. As of December 31, 2019, and 2020, the Corporation does not grant benefits in this category.

Termination benefits are those benefits payable as a result of (i) the entity’s decision to terminate the employee’s contract before the retirement date, and (ii) the employee’s decision to voluntarily accept the conclusion of the relationship of work.

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Short-term benefits:

a)
Current salaries and wages

The current remunerations are constituted by salaries, wages, contributions to social security, statutory bonuses and compensation for the time of services. Salaries, wages, and contributions to social security are settled on a monthly basis.

Entities of the Corporation recognize the expense and the related liability for statutory bonuses based on applicable laws and regulations effective in Peru, Chile, and Colombia. In Peru bonuses correspond to two monthly payments, settled one in July and one in December of each year, and accrue based on the consideration of the service.

The compensation for time of service corresponds to the indemnification rights of the staff, and is accrued based on the consideration of the service calculated according to the legislation in force in each country in which the entities of the Corporation operate and determine as follows: (i) in Peru it is equivalent to half the remuneration in force at the date of payment and this is effected by deposit in bank accounts designated by the workers in the months of May and November of each year; (ii) In Colombia, it is equivalent to 8.33% of the monthly remuneration, (iii) In Chile this benefit is not available.

b)
Annual paid absences

Annual holidays are recognized on an accrual basis. The provision for the estimated obligation for the annual vacations of personnel resulting from the services rendered by employees is recognized on the date of the consolidated statement of financial position and corresponds; (i) one month for personnel in Peru, (ii) fifteen days for personnel in Colombia, and (iii) in the case of Chile, they are subject to the worker’s seniority and range from fifteen to thirty days.

c)
Workers’ profit sharing and incentives

The workers’ profit sharing is determined on the basis of the legal provisions in force in each country where the entities of the Corporation operate, as follows: (i) in Peru it is equivalent to 5% of the taxable base determined by each entity of the Corporation, in accordance with current income tax legislation, (ii) in Chile, workers’ participation is a component of the remuneration (equivalent to 4.75 minimum wages per year) and not a determinable percentage of the profit, (iii) in Colombia these benefits are not provided to employees.

Termination benefits

The Corporation entities recognize the liability and expense for severance payments when they occur, based on the legal provisions in force in each country. In accordance with the legislation of Peru, the compensation for arbitrary dismissal for personnel with an indefinite contract amounts to 1.5 times the monthly remuneration for each year worked.

In Colombian legislation, for the first year worked, the equivalent of 30 days of salary is granted, and from the second year on, the compensation will be the equivalent of 20 days of salary for each additional year (or the proportion); in the legislation of Chile is granted compensation of thirty days of salary for each year worked with a maximum salary of 330 days.

2.24
Provisions

a) General

Provisions are recognized when i) the Corporation has a present, legal or constructive obligation as a result of past events; ii) it is probable that an outflow of resources will be required to settle the obligation; and iii) the amount has been reliably estimated.  Provisions are reviewed at year - end.  If the time value of money is significant, provisions are discounted using a pre-tax rate that reflects, when applicable, the specific risks related to the liability. Reversal of the discount due to the passage of time results in the obligation being recognized with a charge to the statement of income as a financial expense.

- 25 -


Contingent obligations when their existence will only be confirmed by future events or their amount cannot be reliably measured. Contingent assets are not recognized and are disclosed only if it is probable that the Corporation will generate an income from economic benefits in the future.

b) Provision for the closure of production wells

The subsidiary GMP S.A. recognizes a provision for the closure of operating units that correspond to the legal obligation to close oil production wells once the production phase has been completed. At the initial date of recognition, the liability that arises from this obligation measured at its fair value and discounted at its present value, according to the valuation techniques established by IFRS 13, “Fair Value Measurement”, and is simultaneously charged to the intangible account in the consolidated statement of financial position.

Subsequently, the liability is increased in each period to reflect the financial cost considered in the initial measurement of the discount, and the capitalized cost is depreciated based on the useful life of the related asset. When a liability is settled, the subsidiaries recognize any gain or loss that may arise. The fair value changes estimated for the initial obligation and the interest rates used to discount the flows they are recognized as an increase or decrease in the book value of the obligation and the asset to which they relate to, any decrease in the provision, and any decrease of the asset that may exceed the carrying amount of said asset is immediately recognized in the consolidated statement of income.

If the review of the estimated obligation results in the need to increase the provision and, accordingly, increase the carrying amount of the asset, the subsidiaries should also take into consideration if the said increase corresponds to an indicator that the asset has been impaired and, if so, impairment tests are to be carried out (Note 2.16).

2.25
Put option arrangement

The subsidiary GyM S.A. signed a sale option contract on the equity of its subsidiary Morelco SAS (Note 32) that allows the shareholder to reallocate its shares over a period of 10 years. The amount payable under the option is initially recognized at the present value of the reimbursement under “Other accounts payable”, directly charged to equity. The charge to equity is recorded separately as put options subscribed on the non-controlling interest, adjacent to the non-controlling interest in the net assets of the consolidated subsidiaries.

Subsequently, the financial liability is updated by changes in the assumptions on which the estimation of the expected cash flows is based and by the financial component due to the passage of time. The effects of this update are recognized in results. In the event that the option expires without being exercised, the liability is written off with the corresponding adjustment to equity.

2.26
Capital

Common shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity, as a deduction, of the proceeds, net of taxes.

2.27
Revenue recognition from contracts with customers

Revenues from contracts with customers are recognized, for each performance obligation, either during a period of time or at a specific time, depending on which method best reflects the transfer of control of the underlying products or services to the obligation of particular performance with the client.

- 26 -

The Corporation recognizes the income through the application of the five steps defined in the regulation i) identification of the contract with the client; ii) identification of performance obligations in the contract; iii) determination of the price of the transaction; iv) allocation of the transaction price for performance obligations; and v) recognition of income when (or as) a performance obligation is satisfied.

Subsequently, the Corporation policy of recognition of each type of income according to IFRS 15:

i)  Engineering and construction

Revenues from engineering and construction contracts are recognized over time as the Corporation performs its obligations because there is a continuous transfer of control of the deliverable to the customer pursuant to the terms of such contracts. For this reason, the Corporation accounts for revenue over time by measuring the progress towards complete satisfaction of its performance obligations under each contract. In this manner, revenues are accounted for using the percentage-of-completion method, based on surveys of performance by the Corporation’s experts who review the work performed to date under each contract.

The Corporation recognizes revenue based on surveys of work to date, using the output method, which is the direct measurement of the value to the customer of the construction services completed to date relative to the remaining services to be performed under the contract. The Corporation believes that the use of the output method based on surveys of performance provides a faithful depiction of the transfer of services by the Corporation to the customer because it reflects an enforceable right to payment from the Corporation for the work completed to date.

The contract generates assets when the costs incurred are greater than the cost associated with those revenues. Otherwise, liabilities are generated for the accrued costs not invoiced. When it is probable that the total costs of the contract will exceed the related revenue, the expected loss is immediately recognized.

Revenues for additional work resulting from a modification or an instruction received from the customer to make a change in the scope of work or the price, or both, will result in an increase in contract revenue. The Corporation does not account for contract modifications unless approved by the customer. In addition, the Corporation reviews the enforceability of changes to the rights and obligations in contract modifications.

As part of its evaluation of whether changes to the rights and obligations in a contract modification are enforceable, the Corporation considers whether one or more of the following factors has been satisfied: a) the contract, applicable law or other evidence provides a legal basis for the modification; b) additional costs were caused by circumstances that were unforeseen on the date of execution of the contract and not a result of deficiencies incurred by the Corporation’s performance; c) modification-related costs are identifiable and considered reasonable in view of the work performed; or d) evidence supporting the modification is objective and verifiable. When one or more of the foregoing factors is satisfied, the changes to the rights and obligations in the contract modification are considered by the Corporation to be enforceable.

The Corporation estimates the change in the transaction price arising from the contract modification if the transaction price has not yet been approved by the customer in accordance with the requirements of IFRS 15 to estimate variable consideration. In order to include variable consideration related to a contract modification in the estimated transaction price, the Corporation must conclude that it is ‘highly probable’ that a significant revenue reversal will not occur. The Corporation determines the probability that the revenue reversal will occur (and therefore whether such price will be recovered) based on an analysis of whether any of the following factors is present: i) contractual entitlement; ii) past practices with the customer; iii) specific discussions or preliminary negotiations with the customer; and iv) verbal approval by the customer. If, as a result of such analysis, the Corporation concludes that it is ‘highly probable’ that a significant reversal in the amount of revenue recognized will not occur, it recognizes the variable consideration relating to the contract modification.

When the contract profit cannot be estimated reliably, the associated revenue is recognized to the extent of costs incurred are recoverable. Revenue is billed once approval is received by the owners of the work in progress.

The nature of certain contracts, such us cost-plus fee contracts in its E&C segment and unit price or similar contracts in its E&C segment and certain services it provides in its Infrastructure segment, give rise to variable consideration. Depending on the type of contract, this variable consideration may include reimbursable or target costs; variable number of units; award and incentive fees; and penalties. The Corporation estimates the amount of revenue to be recognized as variable consideration using the expected value method or the most likely amount method, whichever is expected to better predict the amount of consideration to which the Corporation will be entitled. These methods require the Corporation to estimate costs, unit quantities, award/incentive fees and penalties. In making such estimates, judgments are required to evaluate potential variances in the cost of materials, the cost of labor, productivity levels, the impact of change orders, liability claims and contract disputes, the achievement of contractual performance standards, and other contingencies.”

ii)
Real-estate – Real estate, urban and industrial lots

Sale of Real estate

Revenue from sales of real estate properties is recognized when control over the property has been transferred to the client with the delivery record. Revenue is measured based on the price agreed under the contract. Until this is met, the incomes received will be counted as customer advances. These sales contracts have two performance obligations: i) the one corresponding to the transfer of the property, which includes the common areas of the building where these real estates are located, and ii) the one corresponding to the transfer of the common area outside the real estate assets but that are part of the real estate projects, which are recognized when the common area has been delivered.

Sale of urban lots

Revenue related to sales of urban lots is recognized when control over the property is transferred to the customer. Until this is met, the incomes received will be recognized as customer advances. Revenue is measured based on the transaction price agreed under the contract. These sales contracts have a single performance obligation for the sale of lots, which is executed upon delivery of the sale of the assets.

- 27 -

Sale of industrial lots

Revenue related to sales of industrial lots is recognized when control over the property has been transferred to the customer. Until this is met, the incomes received will be counted as customer advances. These sales contracts have two performance obligations: i) transfer of the industrial lot and ii) urban authorization of the industrial lot.

iii) Infrastructure

Income for provided services of oil and gas extraction, fuel dispatch and other services

The revenue from providing these services is recognized at the time the service is provided, calculating the service actually provided as a portion of the total services to be provided. This type of income has a single performance obligation; that is performed when the service is provided at a time moment.

Income from the sale of oil and derivative products

Revenue from the sale of goods is recognized when the control of the assets is transferred to the customer, which is when the goods are delivered. In this type of income there is only one performance obligation for the sale of oil; which is executed at the delivery of the goods.

Income from concession services

Revenues from concession services correspond to operation and maintenance services, and are recognized according to their nature in the period in which the service is provided. In this revenue there is only one performance obligation, executed when the service is provided.

2.28
Recognition of cost and expenses

Engineering and construction contracts

Contract costs include all direct costs such as materials, labor, subcontracting costs, manufacturing and supply costs of equipment, start-up costs, depreciation and amortization, and indirect costs. Periodically, the Group evaluates the reasonableness of the estimates used in the determination of the total estimated contract cost. If, as a result of this evaluation, there are modifications to the revenue or cost previously estimated, or if the total estimated cost of the project exceeds expected revenues, an adjustment is made in order to reflect the effect in results of the period in which the adjustment or loss is incurred.

Costs for sale of oil and derivative products

The costs of the services rendered and the costs of sales of petroleum and derivative products are recognized when they are incurred, simultaneously with the recognition of related revenues. Other costs and expenses are recognized as they accrue, regardless of when they are paid and are recorded in the accounting periods to which they relate.

Costs for concession operation services

The costs of the operation and maintenance services are recognized when they are incurred, simultaneously with the recognition of related revenues. Other costs and expenses are recognized as they are accrued, regardless of when they are paid and are recorded in the accounting periods with which they are related.

- 28 -


2.29
Leases

Lease contracts are analyzed for the purpose of identifying those containing the characterisctics according to IFRS 16 Leases (hereinafter “IFRS 16”) for recognition, measurement, presentation and disclosure.

The Corporation evaluates in every lease contract the following:

If you have the right to control the use of the identified asses,
If the contract term is longer that twelve months,
If the underlying asset amount is a material amount, and,
That the fees to be paid are not entirely variable.

a)   Leases in which the Corporation is a lessee

The Corporation recognizes a right-of-use asset and a lease liability as of the beginning of the lease.

The right-of-use asset is initially measured by the initial amount of the lease liability adjusted for any lease payment made on or before the start date, plus the initial direct costs incurred. The right-of-use assets are depreciated in a straight line, from the start date until the end of the lease contract. The term of the lease includes the periods covered by an option to extend the contract if the Corporation is reasonably sure to exercise that option.

The lease liability is the total unpaid installments, measured at amortized cost using the effective interest method. It is measured again when there is a change in future lease payments that arise from a change in an index or rate, if there is a change in the Corporation's estimate of the amount expected to be paid under a residual value guarantee, or if the Corporation changes its assessment of whether it is sure that it will exercise a purchase, extension or term option.

When the lease liability is measured again, the carrying amount of the right-of-use asset is adjusted.

In engineering and construction segment, interest expenses related to leasing contracts of the core business are reported in gross margin; the rest of the Corporation segments, report them in financial expenses.

Operational cash flows will be greater since cash payments for the main portion of the lease debt are classified within the financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash flow.

b)   Leases in which the Corporation is a lessor

Liabilities for operating leases and assets are included in the statement of financial position according to the nature of the asset. Revenues from operating leases are recognized in a straight line over the term of the lease agreement and the incentives granted to lessees are reduced from rental income.

Based on the foregoing, the Corporation as lessor has not changed the recognition of its leases.

- 29 -


2.30 Dividend distribution

Dividend distribution to the Corporation shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved.

2.31
Significant non-operating items

Significant non-operating items are separately shown in the financial statements when they are necessary to provide an adequate understanding of the Corporation’s financial performance. These material items are income or expenses shown separately due to their nature or significant amount.

2.32 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”.
     
 
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 36.

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


- 30 -

   
As of
               
As of
 
   
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
 


- 31 -

   
As of
               
As of
 
   
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:
- 32 -


   
For the year ended
   
December 31, 2019
   
Reported
   
Adexus
   
As restated
 
                   
                   
Revenues from construction activities
   
2,411,880
     
-
     
2,411,880
 
Revenues from services provided
   
1,089,465
     
164,594
     
1,254,059
 
Revenue from real estate and sale of goods
   
583,659
     
88,263
     
671,922
 
     
4,085,004
     
252,857
     
4,337,861
 
                         
Cost of construction activities
   
(2,351,563
)
   
-
     
(2,351,563
)
Cost of services provided
   
(866,326
)
   
(168,925
)
   
(1,035,251
)
Cost of real estate and  sale of goods
   
(425,352
)
   
(75,258
)
   
(500,610
)
     
(3,643,241
)
   
(244,183
)
   
(3,887,424
)
Gross profit
   
441,763
     
8,674
     
450,437
 
                         
Administrative expenses
   
(213,908
)
   
(34,744
)
   
(248,652
)
Other income and expenses
   
(326,754
)
   
(12,740
)
   
(339,494
)
Operating loss
   
(98,899
)
   
(38,810
)
   
(137,709
)
                         
Financial expenses
   
(231,709
)
   
(21,425
)
   
(253,134
)
Financial income
   
74,656
     
(310
)
   
74,346
 
Share of the profit or loss of associates and joint ventures accounted for using the equity method
   
(218,774
)
   
-
     
(218,774
)
Loss before income tax
   
(474,726
)
   
(60,545
)
   
(535,271
)
Income tax expense
   
(319,957
)
   
16,586
     
(303,371
)
Loss from continuing operations
   
(794,683
)
   
(43,959
)
   
(838,642
)
                         
(Loss) profit from discontinued operations
   
(43,959
)
   
43,959
     
-
 
Loss for the year
   
(838,642
)
   
-
     
(838,642
)
                         
(Loss) profit attributable to:
                       
Owners of the Company
   
(884,721
)
   
-
     
(884,721
)
Non-controlling interest
   
46,079
     
-
     
46,079
 
     
(838,642
)
   
-
     
(838,642
)

3    STANDARDS, AMENDMENTS, AND INTERPRETATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

a) New standards and amendments to standards and interpretations adopted by the Company in 2020

The following accounting standards (IFRS), amendments to standards and interpretations are effective as of January 1, 2020, and have had no impact on the Company's consolidated financial statements:

Amendments to IAS 1 and IAS 8 - Definition of materiality.
   
 
The amendments provide a new definition of "materiality" as information the omission of which, through error or obstruction, would reasonably be expected to influence the decision-making of the primary users of the financial statements.  The amendments clarify that materiality will depend on the nature or extent of information, individually or aggregated with other information, in the context of the financial statements.
   
Amendments to IFRS 3 - Definition of a Business
   
 
The amendments provide a new definition of business that requires an acquisition to include at least one input and one substantive process that together contribute significantly to the ability to create products.  The definition of the term "products" is modified to focus on goods and services provided to customers, generating investment and other income, and excludes returns in the form of lower costs, savings and other economic benefits.

- 33 -

Amendments to IFRS 7, IFRS 9 and IAS 39 - Benchmark interest rate reform The amendments to IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement provide certain exemptions in relation to benchmark interest rate reforms. The exemptions relate to hedge accounting and have the effect that the reforms should generally not cause the termination of hedge accounting.  However, any hedge ineffectiveness will continue to be recorded in the income statement.
 
Modifications to the Conceptual Framework for Financial Reporting
   


The revised conceptual framework includes some new concepts and definitions, as well as criteria for recognition of assets and liabilities, and clarifies some concepts.  In particular, the IASB has issued a revised Conceptual Framework to be used for standard-setting decisions with immediate effect.  Key changes include:


 
 




(i)    Increasing the importance of management in the objective of financial reporting.

(ii)   Restoring prudence as a component of neutrality.

(iii)  Defining a reporting entity, which may be a legal entity, or a part of an entity.

(iv)  Revise the definitions of an asset and a liability.

(v)   Eliminate the probability threshold for recognition and add guidance on derecognition.
 
(vi)  Add guidance on different measurement bases; and

(vii)  establishing that profit or loss is the primary performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled when this improves the relevance or faithful representation of the financial statements.
   

These amendments had no impact on the consolidated financial statements and are not expected to have future impacts on the Company.
   
Amendment to IFRS 16 "Leases" – Rent decrease related to Covid-19
   

This amendment was issued on May 28, 2020, is applicable for annual periods beginning on June 1, 2020 and provides an exemption in relation to the accounting treatment of lease modifications under IFRS 16 to lessees that obtain lease modifications in the context of Covid-19 (payment holidays and extension of lease payments).
   

The application of this amendment had no significant impact on the Company's consolidated financial statements as of December 31, 2020.



b) New standards and interpretations that have not been adopted in advance

The following standards, amendments to standards and interpretations have been published with application for periods beginning after the date of presentation of these financial statements and have not been adopted in advance:

Amendment to IAS 1: Classification of Liabilities as current or non-current.
   

 The amendments to IAS 1 Presentation of Financial Statements clarify that liabilities are classified as current or non-current, depending on the rights that exist at the end of the reporting period.  The classification is not affected by the entity's expectations or events after the reporting date (e.g., receipt of a waiver or breach of covenant).
   

 The amendments also clarify what IAS 1 means when it refers to the 'settlement' of a liability.
   

 The amendments could affect the classification of liabilities, particularly for entities that previously considered management's intentions in determining classification and for some liabilities that may be converted to equity.

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The amendments should be applied retrospectively in accordance with the normal requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
   

The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and should be applied retrospectively.
   
Amendment to IAS 16 - Property, Plant and Equipment: Property, Plant and Equipment: Property, Plant and Equipment: Product before use
   

This amendment prohibits entities from deducting from the cost of an item of Property, Plant and Equipment any income from the sale of items produced while bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.  Instead, an entity should recognize the proceeds from the sale of such items, and the production costs associated with those items, in profit or loss.
   

Likewise, the amendment clarifies that when IAS 16 indicates that an entity is "testing whether the asset is operating properly", it refers to the physical and technical evaluation, the financial performance of the asset being not relevant.
   
  This modification is effective from January 1, 2022 and must be applied retrospectively.
   
Amendments to IFRS 3 - reference to the Conceptual Framework
   

Minor amendments were made to IFRS 3 Business Combinations to update the references to the Conceptual Framework for Financial Reporting and to add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRIC Interpretation 21 Liens.
   

The amendments also confirm that contingent assets should not be recognized at the acquisition date.
   

The amendment will be effective for annual reporting periods on or after January 1, 2022.
   
Onerous Contracts - Cost of fulfilling a contract - Amendments to IAS 37
   

In May 2020, the International Accounting Standards Board issued amendments to IAS 37 to specify which cost an entity needs to include when assessing whether a contract is onerous or loss making.
   

The amendment to IAS 37 clarifies that direct contract performance costs include both incremental contract performance costs and an allocation of other costs directly related to the performance of contracts.  Before recognizing a separate provision for an onerous contract, an entity recognizes any impairment loss that has occurred on assets used to fulfill the contract.
   

The amendment is effective for annual reporting periods beginning on or after January 1, 2022.
   
  The Company will apply this modification to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reported period, in which it is the first time the modifications are applied.
   
Annual Improvements to IFRSs 2018-2020 Cycle
   

As part of its 2018-2020 annual improvements to the IFRS standard process in May 2020 the IASB issued the following amendments:
   

(i)  IFRS 9 Financial Instruments - clarifies which fees should be included in the 10% test for derecognition of financial liabilities.

(ii) IFRS 16 Leases - amended Illustrative Example 13 to remove the illustration of lessor payments related to leasehold improvements, to eliminate any misinterpretation on the treatment of lease incentives.





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(iii) IFRS 1 First-time Adoption of International Financial Reporting Standards - permits entities that have measured their assets and liabilities at the carrying amounts recorded in the books of their parent to also measure any cumulative translation differences using the amounts reported by the parent.  This amendment will also apply to associates and joint ventures that have taken the same IFRS 1 exception.
   
  The amendments will be effective for annual reporting periods beginning on or after January 1, 2022 with early adoption permitted.
   

Amendment to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
   
  The IASB has made limited scope amendments to IFRS 10 "Consolidated Financial Statements" and IAS 28 "Investments in Associates and Joint Ventures".
   
  The amendments clarify the accounting treatment of sales or contributions of assets between an investor and its associates or joint ventures.  They also confirm that the accounting treatment will depend on whether the non-cash assets sold or contributed to an associate or joint venture constitute a "business" (as defined in IFRS 3 "Business Combinations").
   
  When the non-monetary assets constitute a business, the investor shall recognize the full gain or loss from the sale or contribution of the assets.  If the assets do not meet the definition of a business, the gain or loss is recognized by the investor only to the extent of the investment of the other investors in the joint venture associate.  These amendments will be applied prospectively.
   
  In December 2015, the IASB decided to defer the date of application of this amendment until its research project on the equity method has been completed.
   
  The amendments will be effective for annual reporting periods beginning on or after January 1, 2023 and should be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applied the amendment.

The Company is currently evaluating the impact that the modifications or amendments described before may have on current practice.

4      FINANCIAL RISK MANAGEMENT

Financial risk management is carried out by the Corporation’s Management. Management oversees the general management of financial risks, 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 monitoring periodically.

4.1  Financial Risk Factors

The Corporation’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 Corporation’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Corporation’s financial performance.  The Corporation 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 Corporation in the short and medium-term.

a) Market risks

i) Foreign exchange risk

The Corporation 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 2020 this exposure is mainly concentrated in fluctuations of U.S. dollar, the Chilean and Colombian Pesos.