6-K 1 d186761d6k.htm 6-K 6-K
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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 June 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              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  

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable.

 

 

 


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June 09, 2021

AENZA S.A.A. (“we” or the “Company”) hereby informs that, following the signing by the Company of a Settlement and Cooperation Agreement with Peruvian authorities which was disclosed on a Form 6-K on May 24, 2021, and in light of the audited consolidated financial statements that were included in the Company’s annual report on Form 20-F for the 2020 year filed on May 17, 2021, we have restated our consolidated financial statements for 2020 that were previously prepared under Peruvian accounting standards and furnished on Form 6-K on March 8, 2021. The attached consolidated financial statements for 2020 do not differ substantially from the consolidated financial statements included in the Company’s annual report on Form 20-F for the 2020 year.

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.

AENZA S.A.A.

By: /s/ LUIS FRANCISCO DIAZ OLIVERO

Name: Luis Francisco Diaz Olivero

Title: Chief Executive Officer

Date: June 09, 2021


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AENZA S.A.A. (FORMERLY GRAÑA Y MONTERO

S.A.A.) AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2020

(Free translation from the original in Spanish)


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(Free translation from the original in Spanish)

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 Registered Public Accounting Firm

     1 - 3  

Consolidated Statement of Financial Position

     4  

Consolidated Statement of Income

     5  

Consolidated Statement of Comprehensive Income

     6  

Consolidated Statement of Changes in Equity

     7  

Consolidated Statement of Cash Flows

     8  

Notes to the Consolidated Financial Statements

     9 -121  

 

 

 

S/

  =   Peruvian Sol

US$

  =   United States dollar


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(Free translation from the original in Spanish)

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. (formerly 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 such internal control as management determines is necessary to enable the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in 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.

 

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(Free translation from the original in Spanish)

Opinion

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, the consolidated financial statements for the year ended December 31, 2020 were prepared and issued with the authorization of management and the Board of Directors on March 5, 2021. On March 5, 2021, we issued an unqualified opinion on the aforementioned financial statements, which contained a paragraph related to the legal situation of the Company as of the date of the opinion, which has required updating. Since the date the financial statements were submitted to the shareholders for approval, events with a material impact on the results of operations have occurred that were recorded in compliance with International Financial Reporting Standards (IFRS). Consequently, as indicated in Note 2.32 to the separate financial statements, the Company restructured the financial statements as of December 31, 2020 mainly due to adjustments related to the contingencies of the so-called “Construction Club” and to investigations arising from projects developed in partnership with Odebrecht Group companies, the effect of which was a decrease in assets of S/44,092 thousand, an increase in liabilities of S/49,788 thousand and a decrease in equity and results for the year of S/93,880 thousand.

As indicated in Note 1 to the separate financial statements, AENZA S.A.A. (formerly Graña y Montero S.A.A.) in the so-called Lava Jato case, participated as a minority partner, directly and/or through subsidiaries and other entities with companies of the Odebrecht Group for the development of six infrastructure projects; Cumbra Perú S.A. (formerly GyM S.A.) and Concar S.A. (subsidiaries of AENZA S.A.A.) have been included in the criminal investigation being conducted by the Peruvian authorities for the alleged crime of corruption in relation to the so-called “Construction Club”. The value of the contingency resulting from the aforementioned processes has been recorded in the financial statements as of December 31, 2020 based on the Agreement entered into with the Prosecutor’s Office and the Attorney General’s Office on May 21, 2021, whose specific terms and conditions are subject to judicial approval. Additionally, Cumbra Peru S.A. has also been included in an Administrative Sanctioning Process by a Peruvian regulatory entity for the existence of the so-called “Construction Club”. The Company and its legal advisors estimate that the fine to be imposed in this case should not exceed the present value of S/24.5 million recorded as of December 31, 2020. The Company’s management cannot rule out the possibility of finding, in the future, adverse evidence, nor does it rule out that the authorities or third parties may find, in the future, adverse evidence not currently known with respect to other projects developed during the period under investigation.

 

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(Free translation from the original in Spanish)

As indicated in Notes 12 and 15 to the consolidated financial statements, as of December 31, 2020 the Company has an account receivable from Gasoducto Sur Peruano (associate) for S/620 million. 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 natural gas pipeline transportation system, this process is in the stage of recognition of creditors that will form the Board of Creditors. Based on the preliminary agreement of effective collaboration signed with the Peruvian authorities, the Company desisted from requesting arbitration for the collection of this debt; however, according to the opinion of its legal advisors, the Company considers that Gasoducto Sur Peruano can exercise its collection right against the Peruvian State for the Net Book Value of the concession assets and thus recover the corresponding accounts receivable.

Lima, Peru

March 5, 2021, except for Note 1, Note 2.25 and Note 24, which is as of June 9, 2021.

Lima, Peru

March 5, 2021

 

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(Free translation from the original in Spanish)

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      As of  
          December 31,      December 31,  
     Note    2019      2020  
          (as restated)      (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        433,531  

Inventories, net

   14      555,401        552,000  

Prepaid expenses

        16,478        22,972  
     

 

 

    

 

 

 
        2,977,373        2,825,609  

Non-current assets as held for sale

        2,398        —    
     

 

 

    

 

 

 

Total current assets

        2,979,771        2,825,609  
     

 

 

    

 

 

 

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        262,165  
     

 

 

    

 

 

 

Total non-current assets

        3,424,693        3,286,955  
     

 

 

    

 

 

 

Total assets

        6,404,464        6,112,564  
     

 

 

    

 

 

 

LIABILITIES AND EQUITY

 

          As of     As of  
          December 31,     December 31,  
     Note    2019     2020  
          (as restated)     (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  

Other provisions

   22      113,483       92,757  
     

 

 

   

 

 

 

Total current liabilities

        2,558,583       2,497,972  
     

 

 

   

 

 

 

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       183,232  

Accounts payable to related parties

   12      22,583       36,297  

Other provisions

   22      214,952       336,609  

Derivative financial instruments

        52       —    

Deferred income tax liability

   24      112,734       102,907  
     

 

 

   

 

 

 

Total non-current liabilities

        1,969,796       2,019,296  
     

 

 

   

 

 

 

Total liabilities

        4,528,379       4,517,268  
     

 

 

   

 

 

 

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     (728,637
     

 

 

   

 

 

 

Equity attributable to controlling interest in the Company

        1,477,810       1,267,606  

Non-controlling interest

        398,275       327,690  
     

 

 

   

 

 

 

Total equity

        1,876,085       1,595,296  
     

 

 

   

 

 

 

Total liabilities and equity

        6,404,464       6,112,564  
     

 

 

   

 

 

 
 

 

The accompanying notes on pages 9 to 121 are an integral part of the consolidated financial statements.

 

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(Free translation from the original in Spanish)

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)     (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     (182,846
     

 

 

   

 

 

 

Operating loss

        (137,709     (15,147

Financial expenses

   27      (253,134     (156,943

Financial income

   27      74,346       39,420  

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     (131,900

Income tax expense

   29      (303,371     (58,444
     

 

 

   

 

 

 

Loss for the year

        (838,642     (190,344
     

 

 

   

 

 

 

Profit (loss) attributable to:

       

Owners of the Company

        (884,721     (217,871

Non-controlling interest

        46,079       27,527  
     

 

 

   

 

 

 
        (838,642     (190,344
     

 

 

   

 

 

 

Loss per share attributable to owners of the Company during the year

   34      (1.076     (0.250
     

 

 

   

 

 

 

The accompanying notes on pages 9 to 121 are an integral part of the consolidated financial statements.

 

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(Free translation from the original in Spanish)

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,  
     Nota    2019     2020  
                (as restated)  

Loss for the year

        (838,642     (190,344
     

 

 

   

 

 

 

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     (181,958
     

 

 

   

 

 

 

Comprehensive income attributable to:

       

Owners of the Company

        (891,607     (209,599

Non-controlling interest

        44,345       27,641  
     

 

 

   

 

 

 
        (847,262     (181,958
     

 

 

   

 

 

 

The accompanying notes on pages 9 to 121 are an integral part of the consolidated financial statements.

 

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(Free translation from the original in Spanish)

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

     —          —          —          —          —         —         (217,871     (217,871     27,527       (190,344

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       (217,871     (209,599     27,641       (181,958
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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     (728,637     1,267,606       327,690       1,595,296  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes on pages 9 to 121 are an integral part of the consolidated financial statements.

 

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(Free translation from the original in Spanish)

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  
            (as restated)     (as restated)  

OPERATING ACTIVITIES

       

Loss before income tax

        (535,271     (131,900

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       134,964  

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       126,896  

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     (33,264

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       (46,117

Other accounts receivable from related parties

        (11,178     (20,641

Inventories

        (34,091     22,578  

Pre-paid expenses and other assets

        4,964       (823

Trade accounts payable

        58,973       (42,062

Other accounts payable

        (292,184     (58,011

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

        601,755       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        (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

        163,909       (64,346

Exchange difference

        (20,303     13,813  

Cash and cash equivalents at the beginning of the year

        807,095       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 9 to 121 are an integral part of the consolidated financial statements.

 

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(Free translation from the original in Spanish)

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019 AND 2020

 

1

GENERAL INFORMATION - updated for subsequent events until June 9, 2021

 

  a)

Incorporation and operations

AENZA S.A.A., formerly Graña y Montero S.A.A. (hereinafter the “Company”) is the parent 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 real estate business. See details of operating segments in 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 were approved on the General Shareholders’ Meeting held on March 31, 2021.

Since the date the financial statements were submitted to our shareholders for their approval, until the date of presentation to the Securities and Exchange Commission of the financial information attached to the annual report 20F, subsequent events with material impact on our results occurred and as a result, and in compliance with International Financial Reporting Standards (IFRS), we have recorded such impacts herein. This was revealed through a relevant information communication on May 17, 2021. The events referred to previously, are related mainly to the considerable progress in the negotiations of the Company’s plea bargain agreement, which allowed us to reassess our estimate of our exposure to the contingencies including within its scope. As a result, the amounts included in our financial statements were restructured as described in Section/Note 2.32.

After the filing of the Form 20-F, the Company signed an “Acta de Acuerdo Preparatorio de Colaboracion y Beneficios” (the “Agreement”), with the Special Prosecutor Team dedicated on an exclusive basis to the investigations related to the Lava Jato and Construction Club cases and with the “Procuraduria Publica ad Hoc”. Pursuant to the Agreement, the Company assumed an obligation to pay a civil penalty, which is within the estimates included in such financial information. The terms of the Plea Agreement will be enforceable once such agreement is approved by the Peruvian courts.

The consolidated restructured financial statements for the year ended December 31, 2020 have been prepared and issued with authorization of Management and the Board of Directors on June 9, 2021 to ensure consistency between the information presented to the markets in which the Company’s securities are traded, and will be submitted for consideration and approval of the General Mandatory Shareholder’s Meeting that will be scheduled promptly.

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)

Acta de Acuerdo Preparatorio de Colaboracion y Beneficios – “The Agreement”

Pursuant to the Agreement, executed on May 21, 2021, AENZA S.A.A. accepts it was utilized by certain former executives to commit illicit acts until 2016, and commits to pay a civil penalty to the Peruvian State of S/321.9 million and US$40.7 million. The civil penalty is subject to (i) a repayment tenor of 12 years, (ii) the legal interest rate in domestic and foreign currency, (iii) a total collateral of S/197.0 million through a trust that includes shares issued by a subsidiary of AENZA, a mortgage on a real estate asset and debt service guaranty account. Among other conditions, the Agreement includes a restriction to participate in public construction and road maintenance contracts for 2 years. As of December 31, 2020, we registered the present value of the amounts described before, which amount to S/154.3 million and US$19.3 million (totaling S/.223.7 million).

The civil penalty covers the total contingency to which the Company was exposed because of the investigations revealed in the notes to the financial statements since 2017. Nevertheless, the Agreement enforceability is subject to court approval and its terms and conditions are subject to confidentiality provisions in such agreement.

The Company is currently evaluating the changes to its Financial Plan approved on November 2, 2020 to repay the final amount of the civil penalty.

 

  d)

Current situation of the Company

The Company 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 Company´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 Chief Executive Officer 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 Company.

 

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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.

 

   

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 commitment to transparency and integrity.

 

   

Subsequently, in August 2019, Jose Graña Miro 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 Director’s, 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 or 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 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.

 

   

The Covid-19 pandemic in Peru suspended the negotiations of the plea bargain agreement in March 2020 and such negotiations discussions resumed in July 2020. The Company made substantial progress in the negotiations and executed a preparatory agreement on May 21, 2021.

 

   

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. The resulting contingency from these projects has been determined in the Agreement, and includes IIRSA Sur Tranches 2 and 3, IIRSA Norte, Electric Train Construction Project Tranches 1 and 2 and Gasoducto Sur Peruano (GSP).

 

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Criminal investigations in relation to the Construction Club case

On another side, Cumbra Peru S.A. (formerly 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. The resulting contingency from these projects has been determined in the Agreement.

Similarly, at the end of February 2020, the Public Ministry has requested the incorporation of Concar S.A.C., the latter is pending judicial decision. Like officials of other construction companies, a former commercial manager of Cumbra Peru 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.

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 with respect to the projects executed during the period under investigation.

Anticorruption Law - effects on the Company

Pursuant to the terms of the Agreement, the Prosecutor is obliged to Request, with respect to the projects under the Agreement, the exoneration of the Company from the Law 30737 and its Reglamentation.

 

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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 Cumbra Peru S.A.), about the existence of an alleged cartel called the Construction Club. Cumbra Peru S.A. has provided to INDECOPI with all the information requested and continues collaborating with the investigation.

On February 11, 2020, the subsidiary Cumbra Peru S.A. was notified by the Technical Secretariat (the “TS”) of the Commission for the Defense of Free Competition of INDECOPI (the “Commission”) 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 concluded its evidentiary stage and on March 9, 2021, the TS notified Cumbra Peru that it had recommended the Commission the imposition of a fine of approximately S/ 108 million. Cumbra Peru S.A. has objected this recommendation and its advisors estimate its exposure in approximately S/ 39 million without considering present value deductions and additional deductions to which Cumbra Peru S.A. may be entitled under applicable law. As of December 31, 2020 the Company registered the present value of such provision, which amounts to S/24.5 million.

 

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  e)

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 Company 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 Company has been impacted during 2020 as follows:

1) In the engineering and construction business the mandatory stoppage of activities, specially form March to June, caused total revenues to decrease by 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 operating 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 shutdown 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.

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 were 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.

 

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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 were no penalties for non-compliance with our agreements with clients.

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

 

2

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.

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.

 

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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.

 

  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.

 

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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 it 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.

 

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.

 

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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:

 

  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.

 

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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.

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.

 

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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 twelve 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 twelve 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 twelve months and the expected credit losses during the life of the asset are calculated individually or collectively, depending on the nature of the portfolio.

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 a 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.

 

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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 twelve months and as a current asset or liability when the remaining maturity period of the hedged item is less than twelve 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

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 Tren Urbano de Lima S.A. (formerly 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 Cumbra Peru S.A. and Cumbra Ingenieria S.A. (formerly 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).

 

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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

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.

 

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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 Negocio Inmobiliario S.A. (formerly 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.

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.

 

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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 unit (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.

 

  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.

 

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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 recognized 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.

 

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.

 

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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 twelve 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.

 

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.

 

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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.

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.

 

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  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 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.

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 UNNA ENERGIA S.A. (formerly 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.

 

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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 Cumbra Peru S.A. signed a sale option contract on the equity of its subsidiary Morelco S.A.S. (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.

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.

Below, the Corporation policy of recognition for 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.

 

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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

 

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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.

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 enforced 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, enforced 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.

 

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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.

 

2.29

Leases

Lease contracts are analyzed for the purpose of identifying those containing the characteristics 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.

 

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

 

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 restated as of December 31, 2020 due to subsequent events as of June 9, 2021

Since the date of the financial statements were submitted to our shareholders for their approval, until the date of of presentation to the Securities and Exchange Commission of the financial information attached to the annual report 20F, subsequent events with material impact on our results have occurred and as a result, we have recorded such impacts herein. As explained in Note 1 b), these events consisted mainly of: (i) the achievement of considerable progress in the negotiations of the Company’s plea bargain agreement; and (ii) the notification of the conclusion of the sanctioning administrative procedure evidentiary stage with the recommendation of the Technical Secretariat of INDECOPI for the imposition of a fine, that has allowed us to reassess our estimate of our exposure to the contingencies including within its scope.

Adjustments made from the date on which the financial statements were submitted for approval, until the date of these financial statements, and generated updates in the following notes 4.1.a i), 4.2, 6, 7, 8.1, 13, 22, 24, 27, 28, 29, 30, 33, 34, and 37 are as follows:

 

  a)

The reassessment of the estimate of the civil indemnity payable to the Peruvian State, increasing the present value by S/25.3 million (Note 1-c and Note 22-i). In other and, the present value of the civil indemnity provision equivalent to S/2.2 million was reclassified from “other income and expenses, net” to “financial income”. Additionally, the schedule and method of payment was modified, and consequently, the distribution between current and non-current portions of the caption “other provisions” was modified.

 

  b)

The recording of the present value of the exposure estimation to the fine that the Technical Secretariat of INDECOPI recommended for the administrative process followed against the subsidiary Cumbra Peru for S/24.5 million (Note 1-d and Note 22-ii) and Note 28, which was recorded under the caption “other income and expenses, net”.

 

  c)

The recording in the subsidiary Concesionaria Via Expresa Sur S.A. of additional provision totalling S/43.6 million as a consequence of the resignation on further collections from Municipalidad de Lima for any concept arising from the Concession contract termination (Note 13 e.2 and Note 28 b), which was recorded in in the caption “other income and expenses, net”.

 

  (d)

An adjustment to the deferred tax account was recorded on the present value of an account receivable from SUNAT equivalent to S/.0.5 million.

 

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

 

     As of
December 31,
          As of
December 31,
 
     2020     Adjustment     2020  
ASSETS    Audited           As restated  

Current assets

      

Cash and cash equivalents

     900,168       —         900,168  

Trade accounts receivables, net

     703,167       —         703,167  

Work in progress, net

     186,433       —         186,433  

Accounts receivable from related parties

     27,338       —         27,338  

Other accounts receivable

     477,165       (43,634 )(c)      433,531  

Inventories, net

     552,000       —         552,000  

Prepaid expenses

     22,972       —         22,972  
  

 

 

   

 

 

   

 

 

 

Total current assets

     2,869,243       (43,634     2,825,609  
  

 

 

   

 

 

   

 

 

 

Non-current assets

      

Trade accounts receivable, net

     730,666       —         730,666  

Accounts receivable from related parties

     620,071       —         620,071  

Prepaid expenses

     22,264       —         22,264  

Other accounts receivable

     328,223       —         328,223  

Investments in associates and joint ventures

     35,516       —         35,516  

Investment property

     26,073       —         26,073  

Property, plant and equipment, net

     405,469       —         405,469  

Intangible assets, net

     791,990       —         791,990  

Right-of-use assets, net

     64,518       —         64,518  

Deferred income tax asset

     262,623       (458 )(d)      262,165  
  

 

 

   

 

 

   

 

 

 

Total non-current assets

     3,287,413       (458     3,286,955  
  

 

 

   

 

 

   

 

 

 

Total assets

     6,156,656       (44,092     6,112,564  
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

      

Current liabilities

      

Borrowings

     452,884       —         452,884  

Bonds

     58,446       —         58,446  

Trade accounts payable

     1,097,167       —         1,097,167  

Accounts payable to related parties

     43,818       —         43,818  

Current income tax

     34,494       —         34,494  

Other accounts payable

     718,406       —         718,406  

Provisions

     141,744       (48,987 )(a, b)      92,757  
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     2,546,959       (48,987     2,497,972  
  

 

 

   

 

 

   

 

 

 

Non-current liabilities

      

Borrowings

     445,436       —         445,436  

Bonds

     874,313       —         874,313  

Trade accounts payable

     40,502       —         40,502  

Other accounts payable

     183,230       2       183,232  

Accounts payable to related parties

     36,297       —         36,297  

Provisions

     237,836       98,773 (a, b)      336,609  

Deferred income tax liability

     102,907       —         102,907  
  

 

 

   

 

 

   

 

 

 

Total non-current liabilities

     1,920,521       98,775       2,019,296  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     4,467,480       49,788       4,517,268  
  

 

 

   

 

 

   

 

 

 

Equity

      

Capital

     871,918       —         871,918  

Legal reserve

     132,011       —         132,011  

Voluntary reserve

     29,974       —         29,974  

Share Premium

     1,131,574       —         1,131,574  

Other reserves

     (169,234     —         (169,234

Retained earnings

     (635,101     (93,536     (728,637
  

 

 

   

 

 

   

 

 

 

Equity attributable to controlling interest in the Company

     1,361,142       (93,536     1,267,606  

Non-controlling interest

     328,034       (344     327,690  
  

 

 

   

 

 

   

 

 

 

Total equity

     1,689,176       (93,880     1,595,296  
  

 

 

   

 

 

   

 

 

 

Total liabilities and equity

     6,156,656       (44,092     6,112,564  
  

 

 

   

 

 

   

 

 

 

 

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

 

     For the year ended December 31, 2020
     Audited    Adjustment     As restated

Revenues from construction activities

                 1,815,671                        -                       1,815,671  

Revenues from services provided

     1,055,423        -           1,055,423  

Revenue from real estate and sale of goods

     442,935        -           442,935  
  

 

 

 

  

 

 

   

 

 

 

     3,314,029        -           3,314,029  
  

 

 

 

  

 

 

   

 

 

 

Cost of construction activities

     (1,716,309      -           (1,716,309

Cost of services provided

     (929,206      -           (929,206

Cost of real estate and sale of goods

     (347,906      -           (347,906
  

 

 

 

  

 

 

   

 

 

 

     (2,993,421      -           (2,993,421
  

 

 

 

  

 

 

   

 

 

 

Gross profit

     320,608        -           320,608  

Administrative expenses

     (152,909      -           (152,909

Other income and expenses

     (87,232      (95,614 ) (a, b, c)      (182,846
  

 

 

 

  

 

 

   

 

 

 

Operating profit (loss)

     80,467        (95,614     (15,147

Financial expenses

     (156,943      -           (156,943

Financial income

     37,231        2,189  (a)      39,420  

Share of the profit or loss of associates and joint ventures accounted for using the equity method

     770        -           770  
  

 

 

 

  

 

 

   

 

 

 

Loss before income tax

     (38,475      (93,425     (131,900

Income tax expense

     (57,989      (455     (58,444
  

 

 

 

  

 

 

   

 

 

 

Loss for the year

     (96,464      (93,880     (190,344
  

 

 

 

  

 

 

   

 

 

 

(Loss) profit attributable to:

       

Owners of the Company

     (124,335      (93,536     (217,871

Non-controlling interest

     27,871        (344     27,527  
  

 

 

 

  

 

 

   

 

 

 

     (96,464      (93,880     (190,344
  

 

 

 

  

 

 

   

 

 

 

Loss per share attributable to owners of the

       

Company during the year

     (0.143      (0.107     (0.250
  

 

 

 

  

 

 

   

 

 

 

 

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As a result of this process, the amounts in the consolidated statement of cash flow are adjusted as follows:

 

     For the year ended December 31, 2020
     Audited    Adjustment               As restated

OPERATING ACTIVITIES

             

Loss before income tax

     (38,475      (93,425           (131,900

Adjustments to profit not affecting cash flows from operating activities:

             

Depreciation

     98,504        -                 98,504  

Amortization

     98,621        -                 98,621  

Impairment of inventories

     791        -                 791  

Impairment of accounts receivable and other accounts receivable

     91,330                        43,634        (c)          134,964  

Reversal of impairment of inventories

     (821      -                 (821

Debt condonation

     (9,451      -                 (9,451

Change in the fair value of the liability for put option

     245        -                 245  

Other provisions

     80,673        46,223        (a, b)          126,896  

Financial expense,net

     225,212        -                 225,212  

Impairment of investment

     38        -                 38  

Incremental cost accrued

     8,875        -                 8,875  

Share of the profit and loss of associates and joint ventures accounted for using the equity method

     (770      -                 (770

Reversal of provisions

     (36,827      3,563        (a, b)          (33,264

Disposal of assets

     8,895        -                 8,895  

Profit on sale of property, plant and equipment

     (2,322      -                 (2,322

Profit on remeasurement of accounts receivable

     (25,888      -                 (25,888

Net variations in assets and liabilities:

             

Trade accounts receivable and working in progress

                 131,674        -                             131,674  

Other accounts receivable

     (46,120      3             (46,117

Other accounts receivable from related parties

     (20,641      -                 (20,641

Inventories

     22,578        -                 22,578  

Pre-paid expenses and other assets

     (823      -                 (823

Trade accounts payable

     (42,062      -                 (42,062

Other accounts payable

     (58,013      2             (58,011

Other accounts payable to related parties

     3,591        -                 3,591  

Other provisions

     (9,051      -                 (9,051

Interest payment

     (137,369      -                 (137,369

Payments for purchases of intangibles - Concessions

     (3,519      -                 (3,519

Payment of income tax

     (112,851      -                 (112,851
  

 

 

 

  

 

 

         

 

 

 

Net cash provided by operating activities

     226,024        -                 226,024  
  

 

 

 

  

 

 

         

 

 

 

INVESTING ACTIVITIES

             
  

 

 

 

  

 

 

         

 

 

 

Net cash applied to investing activities

     (64,733      -                 (64,733
  

 

 

 

  

 

 

         

 

 

 

FINANCING ACTIVITIES

             
  

 

 

 

  

 

 

         

 

 

 

Net cash applied to financing activities

     (225,637      -                 (225,637
  

 

 

 

  

 

 

         

 

 

 

Net decrease in cash

     (64,346      -                 (64,346

Exchange difference

     13,813        -                 13,813  

Cash and cash equivalents at the beginning of the year

     950,701        -                 950,701  
  

 

 

 

  

 

 

         

 

 

 

Cash and cash equivalents at the end of the year

     900,168        -                 900,168  
  

 

 

 

  

 

 

         

 

 

 

NON-CASH TRANSACTIONS:

             

Capitalization of interests

     4,887        -                 4,887  

Acquisition of assets through finance leases

     71        -                 71  

Acquisition of right-of-use assets

     12,075        -                 12,075  

Reclassification to other accounts receivable by Concesionaria Vía Expresa Sur

     24,157        -                 24,157  

Acquisition of supplier bonds

     25,871        -                 25,871  

 

2.33

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.

 

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

 

     As of
December 31,
                As of
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  
  

 

 

   

 

 

   

 

 

   

 

 

 

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  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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                   For the year ended
December 31, 2019
 
     Audited      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.

 

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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:

 

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  (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.

  (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.

 

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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.

As of December 31, 2020, the balances of financial assets and liabilities denominated in foreign currencies correspond to balances in U.S. dollars, which are expressed at the published bid and ask exchange rate in effect at that date, according to the currency exchange rate: soles for S/3.624 published by the Superintendency of Banking, Insurance and Pension Fund Administrators (SBS), Chilean pesos for CLP711.24 published by the Central Bank of Chile and Colombian pesos for COP3,432.50 published by Bank of the Republic of Colombia.

As of December 31, the consolidated statement of financial position includes the following:

 

                                                  2019                                                   2020  
     S/(000)      USD(000)      S/(000)      USD(000)  

Assets

     2,868,128        864,675        2,125,400        586,479  

Liabilities

     1,754,630        528,981        1,165,475        321,599  

The Corporation’s exchange gains and losses for the Peruvian Sol, the Chilean and Colombian Pesos exposure against the U.S. dollar was (*):

 

                 2019                 2020  

Gain

     392,942       426,850  

Loss

     (425,782     (432,652

(*) Balances for 2020 were restated as of June 9, 2021

If as of December 31, 2020 the Peruvian Sol, the Chilean and Colombian Pesos had strengthened/weakened by 2% against the U.S. dollar, with all other variables held constant, the pre-tax results for the year would have increased/decreased by S/0.1 million (S/0.7 million in 2019).

The consolidated statement of changes in equity comprises a foreign currency translation adjustment originated by its subsidiaries. The consolidated statement of financial position includes assets and liabilities in functional currency equivalent to (in thousands):

 

                                                      2019                                                       2020  
     Assets      Liabilities      Assets      Liabilities  

Chilean Pesos

     53,383,866        65,260,543        40,869,086        74,151,415  

Colombian Pesos

     187,119,204        76,446,723        113,350,078        54,581,654  

The Corporation’s foreign exchange translation adjustment for 2020 was positive by S/8.3 million (in 2019, S/8.2 million, negative).

ii)   Price risk

 

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

 

  iii)

Cash flow and fair value interest rate risk

The Corporation’s interest rate risk mainly arises from its long-term borrowings. Borrowings issued at variable rates expose the Corporation to cash flow interest rate risk. Borrowings issued at fixed rates expose the Corporation to fair value interest rate risk. Group policy is to maintain most of its borrowings at fixed rate instruments; 62.3% of total debt in 2020 (61.8% in 2019) was contracted at fixed rates and 37.7% at variable rates (38.2% in 2019) which consisted of a 37.5% fixed rate plus VAC (adjusted for inflation) and the remaining 0.2% at a variable rate (37.7% fixed rate + VAC and the remaining 0.5% at a variable rate in 2019).

During 2019 and 2020, the debt subject to fixed rate plus VAC is related to a bond issued in Peruvian Sol to finance the Tren Urbano de Lima Project, Metro Line 1 (Note 19). Any increase in the interest rate resulting from higher inflation will have no significant impact on the Corporation’s profit because these revenues are also adjusted for inflation.

In the event that the Corporation accrues variable interest rates in soles and U.S. dollars, the policy would be to hedge the cash flow risk with interest rate swap-type derivatives, on which the hedge accounting treatment is applied.

If as of December 31, 2019, the libor rate plus three months had increased/decreased by 5%, with all other variables held constant, the pre-tax results for the year would have increased/decreased by S/0.01 million. In 2019 there was no significant ineffectiveness in the cash flow hedge. In 2020, it was not necessary to perform the sensitivity analysis since the variable rate debt was not significant.

 

  b)

Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as customer credit counterparties, including the outstanding balance of accounts receivable and committed transactions.

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

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

 

  c)

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. Historically, the Group cash flows enabled it to meet its obligations. Due to the COVID-19 pandemic (Note 1-d), the Company has implemented various actions to reduce its exposure to liquidity risk and has developed a Financial Plan based on several steps, which were designed assuming attaining a plea bargain agreement within a reasonable time frame. The Financial Plan aims to enable compliance with the various obligations at the corporate and group companies’ levels.

 

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

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

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

The table below analyzes the Corporation’s financial liabilities into relevant maturity groupings based on the remaining period from the date of the consolidated statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

     Less than    1-2    2-5    More than     
As of December 31, 2019    1 year    years    years    5 years    Total

Other financial liabilities (except for finance leases and lease liability for right-of-use asset)

     501,864        147,473        235,222        -                    884,559  

Finance leases

     11,438        3,531        13,346        -            28,315  

Lease liability for right-of-use asset

     31,036        40,808        32,562                  11,551        115,957  

Bonds

     115,690        157,516        358,461        1,077,960        1,709,627  

Trade accounts payables (except non-financial liabilities)

             989,574        -            34,814        -            1,024,388  

Accounts payables to related parties

     38,916        21,747        -            836        61,499  

Other accounts payables (except non-financial liabilities)

     220,602        2,505        219,788        -            442,895  

Other non-financial liabilities

     -            52        -            -            52  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

           1,909,120                373,632                894,193        1,090,347        4,267,292  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

     Less than    1-2    2-5    More than     
As of December 31, 2020    1 year    years    years    5 years    Total

Other financial liabilities (except for finance leases and lease liability for right-of-use asset)

     433,318        183,796        197,785        23,953                838,852  

Finance leases

     16,287        14,919        20,851        8,515        60,572  

Lease liability for right-of-use asset

     24,714        32,006        19,847        11,131        87,698  

Bonds

             137,090                168,673                385,919                971,543        1,663,225  

Trade accounts payables (except non-financial liabilities)

     1,001,470        40,502        -            -            1,041,972  

Accounts payables to related parties

     43,818        35,461        -            836        80,115  

Other accounts payables (except non-financial liabilities)

     288,037        2,185        115,321        -            405,543  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

     1,944,734        477,542        739,723        1,015,978        4,177,977  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

 

4.2

Capital management risk

The Corporation’s objectives when managing capital are to safeguard the Corporation’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to minimize the cost of capital. In 2017 the situation of the Corporation had led Management to monitor deviations that might cause the non-compliance of covenants and may hinder renegotiation of liabilities (Note18-a). In extraordinary situations and events as explained in Note 1 d), the Corporation identifies potential deviations and requirements and establishes a plan.

 

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

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

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

 

     2019   2020

Total financial liabilities and bonds (Note 18 and Note 19)

     1,814,637       1,831,079  

Less: Cash and cash equivalents (Note 9)

     (950,701     (900,168
  

 

 

 

 

 

 

 

Net debt

     863,936       930,911  

Total equity

     1,876,085       1,595,296  
  

 

 

 

 

 

 

 

Total capital

             2,740,021               2,526,207  
  

 

 

 

 

 

 

 

Gearing ratio

     0.32       0.37  
  

 

 

 

 

 

 

 

(*) Balances for 2020 were restated as of June 9, 2021

 

4.3

Fair value estimation

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

 

-

 

Level 1:

 

Measurement based on quoted prices in active markets for identical assets or liabilities.

-

 

Level 2:

 

Measurement based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

-

 

Level 3:

 

Measurement based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs, generally based on internal estimates and assumptions of the Corporation).

The table below shows the Corporation’s assets and liabilities measured at fair value:

 

     Level 2      Level 3  

As of December 31, 2019

     

Financial liabilities

     

Derivatives used for hedging (a)

     52        -      

As of December 31, 2020

     

Financial liabilities

                               

Other financial entities (Note 18-d)

     -                    152,523  

(a) As of December 31, 2020, this financial liability was liquidated.

 

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5

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

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

 

5.1

Critical accounting estimates and assumptions

The Corporation makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

 

  a)

Evaluation of the impairment of goodwill and other fixed assets of definite useful life and intangible assets of indefinite useful life

Impairment reviews are undertaken annually to determine if goodwill arising from business acquisitions and other intangible assets with indefinite useful life are impaired, in accordance with the policy described in Note 2.15-i). For this purpose, goodwill is allocated to the different Cash Generating Unit (“CGU”) to which it relates while other intangible assets with indefinite useful life are assessed individually.

The recoverable amounts of the CGU and of other intangible assets with indefinite useful life have been determined based on the higher of their value-in-use and fair value less costs to sell. This evaluation requires the exercise of Management’s professional judgment to analyze any potential indicators of impairment as well as the use of estimates in determining the value in use, including preparing future cash flows, macro-economic forecasts as well as defining the interest rate at which said cash flows will be discounted.

If the Corporation experiences a significant drop in revenues or a drastic increase in costs or changes in other factors, the fair value of their business units might decrease. If management determines that the factors reducing the fair value of the business are permanent, those economic factors will be taken into consideration to determine the recoverable amount of those business units and therefore, goodwill, as well as other intangible assets with indefinite useful life may be deemed to be impaired, which may cause their write-down.

As of December 31, 2019, and 2020 the Corporation has performed a sensitivity analysis increasing or decreasing the assumptions of gross margin, discount rate, and revenue and terminal growth rate by a 10%, with all the other variables held constant, as follows:

 

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     Difference between recoverable amount and carrying amounts  
     2019      2020  

Goodwill                                                                  

           

Gross margin

     (10%)        +10%        (10%)        +10%  

Engineering and construction

     (25.54%)        (4.25%)        (8.30%)        37.10%  

Electromechanical

     35.63%        52.97%        41.81%        55.60%  

Discount rate:

     (10%)        +10%        (10%)        +10%  

Engineering and construction

     (4.30%)        (23.09%)        32.68%        0.53%  

Electromechanical

     48.89%        39.92%        52.32%        45.23%  

Terminal growth rate:

     (10%)        +10%        (10%)        +10%  

Engineering and construction

     (16.31%)        (13.38%)        11.58%        17.44%  

Electromechanical

     42.36%        46.32%        46.83%        50.65%  

Trademarks                                                                  

           

Revenue growth rate:

     (10%)        +10%        (10%)        +10%  

Morelco

     22.14%        60.11%        59.65%                123.51%  

Vial y Vives - DSD

             110.69%        72.38%        (1.04%)        2.79%  

Discount rate:

     (10%)        +10%        (10%)        +10%  

Morelco

     63.02%        23.56%                124.29%        66.82%  

Vial y Vives - DSD

     78.72%                106.64%        (6.56%)        9.95%  

Terminal growth rate:

     (10%)        +10%        (10%)        +10%  

Morelco

     37.49%        44.02%        86.47%        97.09%  

Vial y Vives - DSD

     88.07%        95.20%        (9.14%)        11.05%  

Goodwill

In 2020, if the gross margin had been 10% less than management’s estimate, the Corporation would have had to recognize an impairment provision for goodwill of the Engineering and Construction CGU (Morelco); however, if the discount rate or terminal growth rate had been 10% less or 10% more than management’s estimate, it would not have had to recognize an impairment provision. In 2019, if these assumptions had been 10% less or 10% more than Management’s estimate, the Corporation would not have recognized a provision for impairment of goodwill in the Electromechanical CGU (GMA); however, at the same variation, the Corporation would have to recognize a provision for impairment of the Engineering and Construction (Morelco).

As a result of these assessments, as of December 31, 2020, no impairment provision was identified. As of December 31, 2019, an impairment of the goodwill in Morelco was identified and recorded in the Engineering and Construction CGU (Note 17).

Trademarks

In 2020, if the revenue growth rate, terminal growth rate, or discount rate were 10% below Management’s estimates, the Corporation would have had to recognize a provision for trademark impairment in Vial y Vives-DSD. In 2019, if these assumptions had been 10% less or 10% more than Management’s estimates, the Corporation would have not recognized a provision for impairment in trademarks.

 

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As a result of these assessments, as of December 31, 2020, no impairment provision was identified. As of December 31, 2019, a reversal of goodwill impairment was identified and recorded in the Engineering and Construction CGU, trademark impairment in Vial y Vives-DSD (Note 17).

Review of carrying amounts of UNNA ENERGIA S.A.‘s long-lived assets

At the date of each consolidated statement of financial position, the Group reviews the carrying amounts of its non-financial assets with finite useful lives to determine whether there is any indication that their carrying amounts are impaired. If there is any indication of impairment, the recoverable amount of the asset is estimated in order to determine, if applicable, the amount of the impairment.

The determination of whether an asset or group of assets is impaired involves management’s estimates with a certain level of uncertainty, such as future oil and gas (commodity) prices, effects of inflation on operating expenses, discount rates, production profiles and the outlook for world supply and demand conditions for crude oil, natural gas and refined products. Expected future cash flows are determined using management’s best estimate of future oil and gas prices and reserve volumes.

The level of expected future production in any impairment test is based on assumptions about future oil and gas prices, development and production costs, current tax regimes, among other factors.

As a consequence of the decrease in crude oil and gas prices at international level, the Group performed an impairment test of its long-lived assets belonging to its Cash Generating Units (hereinafter CGU), crude oil and non-associated gas, Block I, Block V, Block III, Block IV and the Pariñas Gas Plant, respectively, for which it used the value in use approach, since it has considered within its maintenance capex cash flows and the pre-tax valuation has been performed.

Management based its estimates of expected future cash flows to determine the recoverable value on i) information on reserves determined by technical management; and ii) estimated future prices and costs projected by management, using the following assumptions:

 

   

Projection horizon of the concession of its lots, (Block I until 2021, Block V until 2023, Block III until 2045, Block IV until 2045 and gas plant until 2046).

 

   

Future prices projected based on information available in the market at the date of the consolidated statement of financial position, based on a “Crude Oil Brent” price forecast and published by the Energy Information Administration (EIA) starting at US$/bbl57.50, reaching US$/bbl100.25 in the long term for crude oil. Likewise, the prices for the Company have been considered a reference price starting at US$/bbl57.50 up to US$/bbl98.68 in the long term.

 

   

Future costs projected by Management based on the estimated evolution of the business, considering the investment plan reported to Perupetro S.A.

 

   

Actual discount rate for the four Lots is 11.09% and for the Plant 10.17%, which is the weighted average cost of capital (WACC) rate, determined in accordance with the Company’s policies, before taxes.

The recoverable value determined by the Company for crude oil following the value in use approach was S/783.8 million, which is higher than the carrying value of the CGU’s S/361 million, therefore management concludes that it is not required to recognize an impairment recovery of its assets (Level 3).

Sensitivity analysis

The sensitivity of the results obtained from the impairment test above to changes in the assumptions used by management is detailed below:

 

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  -

Changes in projected future prices based on information available in the market at a date close to the date of approval of the consolidated financial statements by the Board of Directors. This assumption has considered a decrease in quoted oil and gas prices on December 31, 2019 by 10%.

 

  -

Changes in the discount rate: If the discount rate used by management were to increase by 10%.

As a result of the volatility of oil and gas prices in the international and local market, the Company sensitized the prices and discount rates in its expected cash flow model according to the assumptions included obtaining the recoverable values as of December 31, 2020. Assuming that prices had been reduced by 10%, and the discount rate had been increased by 10%, this would have resulted in a negative variation in the Company’s value in use of 29.2%. Although there is a high level of uncertainty, the impact is not significant in the separate financial statements, which is still higher than the carrying value of the CGU’s S/194 million.

 

  b)

Income taxes

Determination of the tax obligations and expenses requires interpretations of the applicable tax laws and regulations. The Corporation seeks legal and tax counsel before making any decision on tax matters.

Deferred income tax assets and liabilities are calculated on the temporary differences arising between the tax basis of assets and liabilities and the amounts stated in the financial statement of each entity that makes up the Corporation, using the tax rates in effect in each of the years in which the difference is expected to reverse. Any change in tax rates will affect the deferred income tax assets and liabilities. This change will be recognized in the consolidated statement of income in the period in which the change takes effect.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which deductible temporary differences and tax loss carryforwards can be utilized. For this purpose, the Corporation takes into consideration all available evidence, including factors such as historical data, projected income, current operations, and tax planning strategies. A tax benefit related to a tax position is only recognized if it is more likely than not that the benefit will ultimately be realized.

The Corporation’s possible maximum exposure to tax contingencies amount to S/147.7 million.

The income tax for the year includes Management’s evaluation of the amount of taxes to be paid in uncertain tax positions, where the liabilities have not yet been agreed with the tax administration.

 

  c)

Percentage of completion revenue recognition

Service revenues based on construction contracts are recognized by the percentage of completion method, which requires estimating the margin will be obtained culminating works. Projections of these margins are determined by management based on their budgets execution and adjusted periodically in order to use updated information to reflect actual performance in the work. In this regard, management believes that the estimates made at the end of the year are reasonable. When changes occur not approved in the scope of work, income is recognized as equivalent to the cost incurred (no profit is recognized) until it has been approved the additional work.

The revenue of the contract is recognized as such in the consolidated statement of comprehensive income in the accounting periods in which the work was executed. Costs related to the construction contract costs are recognized as works in the consolidated comprehensive income in the accounting periods in which the work was executed. However, any expected and likely cost overruns related to the contract over total expected income under the contract is recognized as expense immediately.

 

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In addition, any change in the estimates under the contract is recognized as a change in accounting estimates in the period in which the change is made and future periods if applicable. In certain construction contracts, the terms of these agreements allow to retain an amount to customers until it culminates with construction. Under these contracts, the total amount cannot be recognized until the construction is finished.

As of December 31, 2019 and 2020, a sensitivity analysis was performed considering a 10% increase/decrease in the Corporation’s gross margins, as follows:

 

     2019   2020

Revenues

             2,411,880               1,815,671  

Gross profit

     60,317       99,362  

%

     2.50       5.47  

Plus 10%

     2.75       6.02  
  

 

 

 

 

 

 

 

Increase in profit before income tax

     6,010       9,941  
  

 

 

 

 

 

 

 

     66,327       109,303  
  

 

 

 

 

 

 

 

Less 10%

     2.25       4.92  
  

 

 

 

 

 

 

 

Decrease in profit before income tax

     (6,010     (9,941
  

 

 

 

 

 

 

 

     54,307       89,421  
  

 

 

 

 

 

 

 

 

  d)

Provision for well closure costs

As of December 31, 2020, the present value of the estimated provision for the closure of 193 wells located in Talara amounted to S/52.9 million (S/50.1 million as of December 31, 2019, for the closure of 189 wells). The well closure liability is adjusted to reflect the changes that resulted from the passage of time and from reviews of either the date of occurrence or the amount of the present value of the originally estimated obligations (Note 17-d).

The Corporation estimates the present value of its future obligation for well closure costs, or well closure liability, and increases the carrying amount of the asset that will be withdrawn in the future and that is shown under the heading of intangibles in the consolidated statement of financial position.

In 2020, the calculation of the provision has been separated according to the obligation’s currency. Therefore, the pre-tax discount rates used for the calculation of the present value were 0.36% (for dollars) 1.95% (for soles) Block I, and 0.17% (for dollars) 1.149% (for soles) Block V (1.58% for Block I and 1.66% for Block V in 2019), and 1.55% (for dollars) 5.65% (for soles) for Blocks III and IV (2.33% in 2019), based on the rate applicable to Peruvian sovereign bonds in soles and dollars between 3, 5 and 30 years respectively, in effect as of December 2019 and 2020.

If on December 31, 2019, and 2020, the estimated rate had increased or decreased by 10%, with all variables held constant, the impact on pre-tax profit would not have been significant.

 

  e)

Impairment of investment in associate and account receivable to Gasoducto Sur Peruano S.A. (GSP)

Based on the termination of the concession agreement, on which Gasoducto Sur Peruano S.A. (GSP) acts as concessionaire (Note 15 a-i), as well as the agreements taken at the end of the year, the Corporation identified potential impairment indicators affecting the recoverability of its investment. Consequently, the Corporation impaired the full investment amount in 2019.

In that process, the Corporation has applied judgment to weight the various uncertainties surrounding the amount that can be recovered from this investment. Management has determined the recoverable amount assuming the following key factors: (i) the amount that GSP will recover as a result of a possible public auction, (ii) the liquidation of the company via the GSP Creditor´s meeting, and (iii) the validity of its right to subordinate the Odebrecht Group’s debts in GSP.

 

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The calculation of the impairment estimate assumes a process of liquidation of GSP in accordance with Peruvian legislation, whereby the value of the asset to be recovered is first applied to the payments of liabilities in the different categories of creditors and the remainder, if it is the case, to the payment of the shareholders, taking into account the existing subordination agreements.

In 2018, in relation to the amount to be recovered by GSP, the Corporation is assuming a recovery of the minimum amount established in the concession agreement, which is equivalent to 72.25% of the Net Carrying Amount (NCA) of the Concession assets. This amount, in substance, represents a minimum payment to be obtained by GSP based on a public auction (liquidation) to be set up for the adequate transfer of the Concession’s assets to a new Concessionaire, under the relevant contractual terms and conditions. Additionally, given the situation of non-compliance by the Peruvian State and the situation in which the process of forming the creditors’ meeting was, and according to the opinion of lawyers for similar cases, the term for five years was estimated the recovery of the account receivable.

As of December 31, 2019 and 2020, the recovery of NCA estimated by Management equals 50%, in consideration of the agreements taken as a consequence of the signing of the preliminary effective collaboration agreement. Likewise, considering that the formation of the creditors’ meeting is still pending, the deadline to initiate actions to start the collection process has been delayed. Therefore, a total term of eight years has been considered, from the date and until the formation of the creditors’ meeting, the approval of the settlement plan, the presentation of the arbitration claim, as well as the entire arbitration process in itself.

 

5.2

Critical judgments in applying the accounting policies

Consolidation of entities in which the Corporation holds less than 50%

The Corporation owns some direct and indirect subsidiaries of which the Corporation has control even though it has less than 50% of the voting rights. These subsidiaries mainly comprise indirect subsidiaries in the real estate business owned through Viva Negocio Inmobiliario S.A., having the power to affect the relevant activities that impact the subsidiaries’ returns, even though the Corporation holds interest between 30% and 50%. Additionally, the Corporation has control de facto by a contractual agreement with the majority investor over Promotora Larcomar S.A. of which it owns 46.55% of the equity interest.

UNNA ENERGIA S.A. Lots III and IV, License contracts for the exploitation of hydrocarbons

As a result of the signing in March 2015 of the license agreements for block III and IV, the Group’s oil production and business capacity has increased. The most relevant critical judgments applied by the Group are listed below.

The Corporation’s Management concluded that it acquired control over the assets of the aforementioned blocks, by defining the main aspects of the operation, maintenance and disposal, as well as being exposed to the main risks and benefits inherent to the ownership of the assets and, consequently, the Group is not simply assuming a right of use. Therefore, on April 2015, the Group recognized facilities, machinery and equipment for S / 35.7 million and will recognize its futures investments as part of its assets.

Additionally, the Group would assume the costs of the permanent abandonment of the productive wells and facilities that are part of its operations and that have been produced in the Group’s management, which, for safety, environmental or economic reasons, cease to operate, in accordance with established in clause 13.5 of the aforementioned contract. It should be noted that it is not the Group’s obligation to carry out closure activities for existing wells that are not produced by it. These costs must be part of the assets of the company, see Note 13 - Intangible Assets - Provision for the closure of wells.

 

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On December 31, 2016, the Company began its well drilling activities in Block IV, which continued until March 2020, when due to a Sanitary Emergency, the drilling campaigns were suspended due to Force Majeure. In Block III, the company has not started its drilling activities, for reasons of Force Majeure, as it does not have the authorization of the Miramar Vichayal Peasant Community (the Community), until the Easement Contract is registered in Public Registries. In November 2019, UNNA ENERGIA S.A. and the Community entered into the Easement Agreement. Efforts are under way to register the Easement Contract in Public Records, to then continue with the respective payments and start the drilling campaign in Block III.

Consolidation of entities in which the Corporation does not have joint control but holds rights and obligations over the assets and liabilities

The Corporation assesses, on an ongoing basis, the nature of the contracts signed with one or more parties. If no control or joint control is determined to be held by the Corporation, but it has rights over assets and obligations for liabilities under the arrangement, then the Corporation recognizes its assets, liabilities, revenue and expenses and its share of any jointly controlled assets or liabilities and any revenue or expense arising under the arrangement as a joint operation in accordance with IFRS 11 - Joint arrangements (Note 2.2-d).

 

6.

INTERESTS IN OTHER ENTITIES

The consolidated financial statements include the accounts of the Corporation and its subsidiaries. Additionally, the consolidated financial statements of the Corporation include its interest in joint operations in which the Company or certain subsidiaries have joint control with their partners (Note 2.2-d).

 

  a)

Main subsidiaries

The following table shows the principal direct and indirect subsidiaries classified by operating segment (Note 7):

 

Name

  

Country

  

Economic activity

Engineering and Construction:

     

Cumbra Peru S.A.

  

Peru and Colombia

  

Civil construction, electro-mechanic assembly, buildings management and implementing housing development projects and other related services.

GyM Chile S.p.A.

  

Chile

  

Investment funds, investment companies and similar financial entities.

Vial y Vives - DSD S.A.

  

Chile

  

Construction engineering projects, civil construction and related technical consultancy, rental of agricultural machinery and equipment, forestry, construction and civil engineering without operator.

Cumbra Ingenieria S.A.

  

Peru, Mexico, and Bolivia

  

Advisory and consultancy services in engineering, carrying out studies and projects, managing projects and supervision of works.

Morelco S.A.S.

  

Colombia and Ecuador

  

Providing construction and assembly services, supply of equipment and materials, operation and maintenance and engineering services in the specialties of mechanics, instrumentation and civil works.

Infrastructure:      

UNNA Energia S.A.

  

Peru

  

Oil and oil by-products extraction, operation and exploration services, as well as providing storage and fuel dispatch services.

Oiltanking Andina Services S.A.

  

Peru

  

Operation of the gas processing plant of Pisco - Camisea.

Transportadora de Gas Natural Comprimido Andino S.A.C.

  

Peru

  

Supply, process and market natural gas and its derivative products.

Concar S.A.C.

  

Peru

  

Highway and roads concessions operation and maintenance.

Tren Urbano de Lima S.A.

  

Peru

  

Concession for the operation of the public transportation system of Lima Metro (Metro de Lima Metropolitana).

Survial S.A.

  

Peru

  

Concession for constructing, operating and maintaining Section 1 of the “Southern Inter-oceanic” highway.

 

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Name

  

Country

  

Economic activity

Norvial S.A.

  

Peru

  

Concession for restoring, operating and maintaining the “Ancon - Huacho - Pativilca” section of the Panamericana Norte road.

Concesion Canchaque S.A.C.

  

Peru

  

Concession for operating and maintaining of the Buenos Aires – Canchaque provincial road highway.

Concesionaria Via Expresa Sur S.A.

  

Peru

  

Concession for designing, constructing, operating and maintaining the Via Expresa - Paseo de la Republica in Lima.

Real estate:      

Viva Negocio Inmobiliario S.A.

  

Peru

  

Developing and managing real estate projects directly or together with other partners.

Parent company operation:      

Adexus S.A.

   Chile, Peru, Colombia and Ecuador   

IT solutions services.

CAM Holding S.p.A.

  

Chile

  

Investment company.

Qualys S.A.

  

Peru

  

Human, economic and technological services to the Corporation´s companies.

Promotores Asociados de Inmobiliarias S.A.

  

Peru

  

Operating in the real-estate industry and engaged in the development and sale of office premises in Peru.

Negocios del Gas S.A.

  

Peru

  

Investment company for construction, operation, and maintenance of the pipeline system to transport natural gas and liquids.

Inversiones en Autopistas S.A.

  

Peru

  

Holding company of shares, participation or any other credit instrument or investment document.

Agenera S.A.C.

  

Peru

  

Activities related to the generation, cogeneration, transmission, import, export and distribution of electrical energy.

 

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The following table shows the Corporation’s subsidiaries and related interest as of December 31, 2020:

 

     Percentage of
common
shares directly
held by Parent
(%)
     Percentage of
common shares
held by
Subsidiaries (%)
     Percentage of
common
shares held
by the Group
(%)
     Percentage of
common shares
held by non-
controlling
interests (%)
 

Engineering and Construction:

           

Cumbra Peru S.A.

     98.90%        -             98.90%        1.10%  

- Morelco S.A.S.

     -             70.00%        70.00%        30.00%  

- GyM Chile S.p.A.

     -             100.00%        100.00%        -       

- Vial y Vives - DSD S.A.

     -             94.49%        94.49%        5.51%  

Cumbra Ingenieria S.A.

     89.41%        -             89.41%        10.59%  

- Ecología Tecnología Ambiental S.A.C.

     -             100.00%        100.00%        -       

- GM Ingenieria y Construccion de CV

     -             100.00%        100.00%        -       

- GM Ingenieria Bolivia S.R.L.

     -             98.57%        98.57%        1.43%  

Infrastructure:

           

UNNA ENERGIA S.A.

     95.00%        -             95.00%        5.00%  

- Oiltanking Andina Services S.A.

     -             50.00%        50.00%        50.00%  

- Transportadora de Gas Natural Comprimido Andino S.A.C.

     -             99.93%        99.93%        0.07%  

Concar S.A.C.

     100.00%        -             100.00%        -       

Tren Urbano de Lima S.A.

     75.00%        -             75.00%        25.00%  

Survial S.A.

     100.00%        -             100.00%        -       

Norvial S.A.

     18.20%        48.80%        67.00%        33.00%  

Concesion Canchaque S.A.

     99.96%        0.04%        100.00%        -       

Concesionaria Via Expresa Sur S.A.

     99.98%        0.02%        100.00%        -       

Real Estate:

           

Viva Negocio Inmobiliario S.A.

     56.22%        43.32%        99.54%        0.46%  

Parent company operations:

           

Qualys S.A.

     100.00%        -             100.00%        -       

Promotora Larcomar S.A.

     46.55%        -             46.55%        53.45%  

Negocios del Gas S.A.

     99.99%        0.01%        100.00%        -       

Agenera S.A.

     99.00%        1.00%        100.00%        -       

Inversiones en Autopistas S.A.

     1.00%        99.00%        100.00%        -       

Cam Holding S.p.A.

     100.00%        -             100.00%        -       

Adexus S.A.

     100.00%        -             100.00%        -       

 

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The following table shows the Corporation’s subsidiaries and related interest as of December 31, 2019:

 

     Percentage of
common
shares directly
held by Parent
(%)
     Percentage of
common shares
held by
Subsidiaries (%)
     Percentage of
common
shares held
by the Group
(%)
     Percentage of
common shares
held by non-
controlling
interests (%)
 

Engineering and Construction:

           

Cumbra Peru S.A.

     98.87%        -             98.87%        1.13%  

- Morelco S.A.S.

     -             70.00%        70.00%        30.00%  

- GyM Chile S.p.A.

     -             100.00%        100.00%        -       

- Vial y Vives - DSD S.A.

     -             94.49%        94.49%        5.51%  

Cumbra Ingenieria S.A.

     89.41%        -             89.41%        10.59%  

- Ecología Tecnología Ambiental S.A.C.

     -             100.00%        100.00%        -       

- GM Ingenieria y Construccion de CV

     -             99.00%        99.00%        1.00%  

- GM Ingenieria Bolivia S.R.L.

     -             98.57%        98.57%        1.43%  

Infrastructure:

           

UNNA ENERGIA S.A.

     95.00%        -             95.00%        5.00%  

- Oiltanking Andina Services S.A.

     -             50.00%        50.00%        50.00%  

- Transportadora de Gas Natural Comprimido Andino S.A.C.

     -             99.93%        99.93%        0.07%  

Concar S.A.C.

     100.00%        -             100.00%        -       

Tren Urbano de Lima S.A.

     75.00%        -             75.00%        25.00%  

Survial S.A.

     100.00%        -             100.00%        -       

Norvial S.A.

     18.20%        48.80%        67.00%        33.00%  

Concesion Canchaque S.A.

     99.96%        0.04%        100.00%        -       

Concesionaria Via Expresa Sur S.A.

     99.98%        0.02%        100.00%        -       

Real Estate:

           

Viva Negocio Inmobiliario S.A.

     56.22%        43.32%        99.54%        0.46%  

Parent company operations:

           

Qualys S.A

     100.00%        -             100.00%        -       

Promotora Larcomar S.A.

     46.55%        -             46.55%        53.45%  

Negocios del Gas S.A.

     99.99%        0.01%        100.00%        -       

Agenera S.A.

     99.00%        1.00%        100.00%        -       

Inversiones en Autopistas S.A.

     1.00%        99.00%        100.00%        -       

Cam Holding S.p.A.

     100.00%        -             100.00%        -       

Adexus S.A.

     100.00%        -             100.00%        -       

All investments in subsidiaries have been included in the consolidation. The proportion of voting rights in such subsidiaries is held directly by the Company and does not differ significantly from the proportion of shares held.

As of December 31, the non-controlling interest is attributed to the following subsidiaries (*):

 

     2019        2020    

Viva Negocio Inmobiliario S.A. and subsidiaries

     168,839          132,238    

Cumbra Peru S.A. and subsidiaries

     61,569          51,798    

Norvial S.A.

     63,031          57,941    

UNNA ENERGIA S.A.

     24,413          24,162    

Tren Urbano de Lima S.A.

     77,564          59,231    

Promotora Larcomar S.A.

     3,058          3,022    

Other

     (199)         (702)   
  

 

 

    

 

 

 
     398,275          327,690    
  

 

 

    

 

 

 

(*) Balances for 2020 were restated as of June 9, 2021

 

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In December 2019, the subsidiary Viva Negocio Inmobiliario S.A. through the General Shareholders’ Meeting, it agreed to capitalize its supplementary premium for the amount of S/65.3 million to subsequently reduce the share capital in a non-proportional manner by returning contributions amounting to S/82.3 million. The return did not generate cash outflow as the reciprocal obligations between its shareholders with the subsidiary were offset. Consequently, the Company modified its participation in its subsidiary from 63.4% to 56.2%, in turn its subsidiary Cumbra Peru S.A. (also a shareholder of Viva Negocio Inmobiliario S.A.) modified its stake from 36.1% to 43.3%.

In addition, in December 2019 the subsidiary Cumbra Peru S.A. through the General Shareholders’ Meeting agreed to the capital increase for monetary contributions in the amount of S/146.1 million. Minority shareholders voluntarily waived the pre-emptive subscription right, causing the Company’s participation percentage to increase from 98.2% to 98.9%.

Summarized financial information of subsidiaries with material non-controlling interests

Set out below is the summarized financial information for each subsidiary that has non-controlling interests that are material to the Corporation (*).

Summarized statement of financial position

 

     Viva Negocio                              
     Inmobiliario S.A.    Cumbra Peru S.A.              Tren Urbano
     and subsidiaries    and subsidiaries    Norvial S.A.    de Lima S.A.
           As of December 31,          As of December 31,          As of December 31,          As of December 31,
     2019    2020    2019    2020    2019    2020    2019    2020

Current:

                       

Assets

     591,402         541,703         1,232,486         1,310,053         84,889         72,462         449,180         367,610   

Liabilities

     (263,592)        (249,816)        (1,491,747)        (1,687,355)        (53,715)        (45,185)        (93,879)        (85,616)  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Current net assets (liabilities)

     327,810         291,887         (259,261)        (377,302)        31,174         27,277         355,301         281,994   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Non-current:

                       

Assets

     121,529         120,223         1,100,218         1,092,120         442,186         403,280         623,033         635,836   

Liabilities

     (37,851)        (34,378)        (486,924)        (439,253)        (282,358)        (254,979)        (668,080)        (680,905)  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Non-current net assets (liabilities)

     83,678         85,845         613,294         652,867         159,828         148,301         (45,047)        (45,069)  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net assets

     411,488         377,732         354,033         275,565         191,002         175,578         310,254         236,925   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

(*) Balances for 2020 were restated as of June 9, 2021

Summarized income statement

 

     Viva Negocio                              
     Inmobiliario S.A.    Cumbra Peru S.A.              Tren Urbano
     and subsidiaries    and subsidiaries    Norvial S.A.    de Lima S.A.
               For the year ended              For the year ended          For the year ended          For the year ended
     2019    2020    2019    2020    2019    2020    2019    2020

Revenue

     264,401         182,439         2,279,786         1,816,358         272,679         134,149         397,853         345,258   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Profit (loss) before income tax

     30,729         17,816         (116,081)        (76,669)        24,067         (2,029)        121,079         87,522   

Income tax

     (7,000)        (2,854)        (30,843)        (1,753)        (6,815)        1,405         (39,634)        (26,681)  
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Profit (loss) for the year

     23,729         14,962         (146,924)        (78,422)        17,252         (624)        81,445         60,841   

Other comprehensive income

     -              -              (7,436)        7,368        -              -              -              -        
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Total comprehensive income for the year

     23,729         14,962         (154,360)        (71,054)        17,252         (624)        81,445         60,841   
  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

(*) Balances for 2020 were restated as of June 9, 2021

Summarized statement of cash flows

 

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<
    

Viva Negocio

                             
    

Inmobiliario S.A.

  

Cumbra Peru S.A.

            

Tren Urbano

     and subsidiaries    and subsidiaries    Norvial S.A.    de Lima S.A.
           For the year ended          For the year ended          For the year ended          For the year ended
     2019    2020    2019    2020    2019    2020    2019    2020

Net cash provided from operating activities

     28,791         84,770         (25,503)        1,400         12,514         36,942         379,882         52,055   

Net cash (applied to) provided from investing activities

     (2,613)        (473)