Grana y Montero S.A.A.
Annual Report 2006

Plain-text annual report

8 8 8 8  109 8 Liability Statement This document contains true and sufficient information on the operations of Graña y Montero S.A.A. during the year 2006. Notwithstanding the liability of the issuer, the undersigned assume responsibility for its content in accordance with the applicable legal provisions. Mario Alvarado Pflucker Corporate General Manager Gonzalo Rosado Solís Corporate General Accountant  Letter to the Shareholders Developing new professional skills Diversifi- cation Concessions Internacional Development 0 2 4 Source of experience GMD GMI GMP and knowledge 8 22 26 GyM Concar Larcomar 0 4 8 Experience within everyone’s reach Business Corporate Social Res- Governance Historical Summary 64 72 ponsibility 44 Administra- tion Analisis 74 8 Turning experiences into knowledge  Knowledge management has become the core theme for the Group’s future development, in order to ensure its growth and continued existence. With the growth that we are experiencing and the greater sophistication of the projects we are undertaking, knowledge management has become of paramount importance. The knowledge of each professional in the group, as well as that of the organization as a whole, must be well managed so as to turn our experiences into knowledge. 2 25 Key Figures 2006 32 Constant Values in Thousands of New Soles as of December 2006 200 2004 2005 2006 Equivalent USD Thousands Activity Turnover Gross Profit Profit before worker’s share and income tax Net Profit OIBDA Number of Professionals 807,571 811,200 124,290 24,461 8,034 5,540 64 840,974 833,731 141,991 47,460 17,515 47,502 984 931,666 910,454 183,826 72,741 32,724 80,860 ,286 1,320,849 1,188,813 272,755 174,373 104,918 275,60 ,80 413,153 371,853 85,316 54,543 32,818 86,207 Graña y Montero is a group of 6 companies that provide Engineering and Infrastructure Services, with over 00 professionals and operations in 4 Latin American countries. Its mission is to satisfy its clients’ needs for Engineering and Infrastructure Services beyond contractual obligations, working in an atmosphere in which personnel are motivated and are able to develop, respecting the environment in harmony with the communities in which it operates, while ensuring a return for its shareholders. Its vision is to be the Engineering and Infrastructure Services Group with the highest compliance rates in Latin America. 10 10 16 10 20 20 Activity by Sector 2006 OIBDA by Subsidiary Activity (S/. Thousands)  1,450,000 1,250,000 1,050,000 850,000 650,000 450,000 2003 2004 2005 2006 42% 2003 2004 2005 2006 807,571 840,974 931,666 1,320,849 42% 15 Mining Energy and Petroleum Construction and Industry Technology Infrastructure Public Sector Entertainment 44.1% 24.6% 12.11% 6.64% 6.22% 4.78% 1.47% GyM S.A. GMP S.A. GMD S.A. GMI S.A. Concar S.A. Larcomar S.A. Graña y Montero S.A.A. 59.08% 24.09% 4.94% 1.78% 3.72% 3.31% 3.09% OIBDA (S/. Thousands) Net Profit (S/. Thousands) Number of Professionals 10 52% 125,000 100,000 75,000 50,000 25,000 0 221% 1,500 1,250 1,000 750 500 250 0 2003 2004 2005 2006 2003 2004 2005 2006 2003 2004 2005 2006 135,540 147,502 180,860 275,603 52% 2003 2004 2005 2006 8,034 17,515 32,724 104,918 221% 2003 2004 2005 2006 643 984 1,286 1,380 300,000 250,000 200,000 150,000 100,000 0 2003 2004 2005 2006 4 Letter to the Shareholders 32 Dear Shareholders long-term business in the areas of Hydrocarbons, Infrastructure and Mining Services. During the year 2006 we made noteworthy progress on We are pleased to present the excellent results obtained for these investments. Early in the year, we signed an the year 2006, the best year in the history of the Group. agreement with the Electric Company of Piura (“Empresa Eléctrica de Piura”) in order to acquire its Natural Gas In fact, sales as well as profits are the best in the history of business, with a commitment to build a new Fractioning the Company, which was founded 73 years ago as a Plant in Talara requiring an investment of approximately 14 construction company and has now become a diversified million dollars. In the month of April, we initiated a Engineering Services Group involved in other activities such concession contract for the operation and maintenance of as Petroleum, Systems and Highway Concessions. the Northern IIRSA Highway from Paita to Yurimaguas that, Activity for the year amounted to 413.15 million dollars with the month of November, we won the contract bid for the growth of 42% over the previous year and net profits Buenos Aires-Canchaque Highway, which is the first exceeding 32 million dollars, which is three times the figure concession related to a major program called “Costa-Sierra” for the preceding year. (Coast-Highlands). with its 960 Kms., is one of the longest in the world; and in 52 Most importantly, these results have enabled us to fulfill our In addition to these new, long-term business projects, our plan to consolidate the Group from a financial point of view traditional business has continued growing and becoming as well as in the strategic aspect. We have managed to increasingly more sophisticated. During the year we reduce the net debt 50%, ending the period with a cash executed the new Concentrator Project at Cerro Verde, the reserve of 30 million dollars. This permits us to program our San Cristóbal Mining Project in Bolivia and the Detailed strategic investments adequately, with the objective of Engineering for the San José Mining Project in Argentina; becoming a more structurally solid group, growing mainly in and other projects were initiated, such as the new Camisea 5 José Graña Miró Quesada 10 President “ At Graña y Montero, we have always understood that knowledge management is one the guiding principles of the Group’s strategic development” – José Graña Miró Quesada 74 33 6 Mario Alvarado Pflucker General Manager “ We quickly noticed that we learned from preparing courses as well as teaching them, and then the internal educator would become a reference source for inquiries” – Mario Alvarado Pflucker 10 33 II Gas Separation (Flume) plant and the Software Design elections which allow us to expect quite favorable economic Service for the Oficina de Normalización Previsional (Office of forecasts for the coming years; and our group has been able Pension Standardization) systems. to develop valuable skills and experience in carrying out the type of infrastructure projects that the country will need for its These contracts enabled us to close the year with a 591 growth, permitting us to look toward the future with great million dollar contract backlog. optimism. The aforementioned figures and the contract portfolio Before closing, we would like to point out that in 2006 our demonstrate the success of the Strategic Plan. company obtained the Award for the Best Annual Report in the Corporate Governance contest held by UPC, which is a However, we are aware that soon we will be celebrating our clear acknowledgement of our commitment to Transparency, 75th anniversary, thanks to the prestige earned over so many correct information for our shareholders and best practices in 55 years. Therefore, the fact that this development can continue Corporate Governance. only if it is accompanied by an effort to strengthen our Values of Quality, Compliance, Reliability and Efficiency is taken into Lastly, we would like to thank our clients and workers for consideration in the Strategic Plan. Considering that our permitting these successes that bring us such good growth must be based on the enhancement of the business prospects. skills of the over 1300 professionals who work for the group, we have created a program called “Learning to Grow”, through which 80,478 man hours of training have been imparted over the past year, making Knowledge Management a key element of the Group’s strategy. This strategic development has clearly placed us in a leadership position in Peru and in a situation where expectations are high. This past year Peru had democratic José Graña Miró Quesada President Mario Alvarado Pflucker General Manager 7 10 10 8 109 9 8 8 8 8 8 Diversification 32 0 25 Over 20 years ago, we adopted a diversification strategy in order to increase the stability of our business without distancing ourselves from our basic knowledge; so we zeroed in our efforts on turning the company into an Engineering and Infrastructure Services Group. Today, what was once a construction company has become a group of 16 companies clustered in 6 operating companies, thereby achieving the objective of having the new companies generate over half of the operating profits of the Group. 32 GMD the Information Technology Services company, that has a Technological Operations Center for outsourcing systems services. GMI the Engineering Consulting company that has a subsidiary specializing in Environmental Engineering called ECOTEC. GMP the Petroleum Services company that provides well drilling services for third parties, operates two petroleum fields in northern Peru and has formed Consorcio Terminales, a consortium with Oiltanking of Germany for the operation of fuel terminals in Peru and Bolivia. During 2006, a Natural Gas Fractioning Plant was acquired in Talara. GyM the original construction company, which has four divisions: Electromechanics, Civil Works, Buildings and Real Estate. concar CONCAR the company specializing in the operation and maintenance of highways in concession.  50 LARCOMAR the company that operates Larcomar Entertainment Center in the Lima district of Miraflores and that recently opened its Fashion Center. 2 Concessions CONIRSA NORTE A company that began the construction of the 980 Km Paita-Yurimaguas Highway Conirsa Norte Paita-Yurimaguas Highway 19 in 2006. In recent years we have been successful in our objective of ensuring the stability of the Group by developing knowledge and skills in design, construction, finance and the operation of Infrastructure Concessions, which is clearly the way that large projects will be carried out in the future. The Builder-Concessionaire model generates extensive synergies between the different business lines of the Group. In the economic aspect, the cycles of concessions are long-term, sometimes 60 years, in comparison with 1 or 39 2-year construction contracts. Lastly, although concessions are capital intensive, they produce greater margins that are far more stable, using capital stemming from construction which requires less capital. In operations, the two areas strengthen and complement each other in their execution and maintenance. Currently, we own shares in the concession companies listed below. CONIRSA SUR A company that began the construction of the 2nd and 3rd sections of the Interoceanic Highway to Brazil in 2006. Consorcio Terminales Terminal Marítimo de Camisea, Pisco CONSORCIO TERMINALES in association with Oiltanking of Germany, which operates fuel storage terminals in Peru and the Camisea Loading Dock in Pisco, and is completing new Sodium Sulfhydrate Storage and Dispatch facilities at the Matarani Port. 40 CONCAR concessionaire of the Arequipa-Matarani highway and the Ovalo Gutiérrez Norvial Operación de la Carretera Huacho- 20 parking garage in Miraflores, Pativilca and operator of the northern Lima highway and the northern IIRSA highway from Paita to Yurimaguas  CLHB Hydrocarbon Logistics Company of Bolivia (Hydrocar- bon Logistics Company of 20 Bolivia), is also operated by Consorcio Terminales. This company is included in the Bolivian Decree of Nationaliza- tion of Hydrocarbons, which has not yet been implemented. Larcomar Entertainment Center TGP NORVIAL (Transportadora de Gas Concessionaire of Road del Perú), the company that Network No. 5, the won the contract bid for the construction of a transpor- tation and distribution system for Camisea gas. Northern Lima highway from Ancón to Pativilca. CANCHAQUE The future concessionaire for the Buenos Aires Canchaque Highway, contract bid awarded in November of 2006. 21 LARCOMAR Concessionaire of the Larcomar Entertainment Center in Miraflores. 4 International Development Throughout the year, our Group has had contracts in four other countries as a result of a decision we made some years ago to strive to develop business outside of Peru, due to the need to be competitive internationally rather than in a single market. 32 BOLIVIA GyM is finishing work on the Construction and Assembly of equipment for the San Cristóbal 60 Polymetallic Mining Project in the Potosí area. Through CLHB, in association with Oiltanking, we operate the fuel Transport and Storage system in Bolivia. REPÚBLICA DOMINICANA GMI supervises the Ciudad Colonial (Colonial City) Shopping Center, property of Sol Meliá Group, and manages the 1800-room Palace Resorts Hotel Project in Punta Cana. 5 ARGENTINA GMI is in charge of the Detailed Engineering for the San José Mining Project in the province of Patagonia, Argentina. 20 50 6 109 7 8 8 8 8 8 17 10 10 Jaime Dasso Botto General Manager 9 “ The projects we carry out today are increasingly sophisticated and complex, and they provide us with a new set of experiences and knowledge” – Jaime Dasso Botto, General Manager 20 Information Technology Services GMD had 0% growth, maintaining the profitability of the previous year in accordance with the planned commercial 10 selectivity strategy. In the year 2006 GMD increased its market share in Outsourcing and Technological Services, and consolidated its leading position in the Software Factory business. These results have enabled us to improve our financial position and lay the foundations for solid future growth. The total activity of the company for the year was US$ .7 million, which represents growth of .75% with respect to the year 2005 and the EBITDA margin was 4%. During the year investments of US$ .9 million were made for the purpose of maintaining the growth of the Outsourcing business and following the strategy of executing projects with stable flows. The activity generated by the Outsourcing and Software Factory business amounted to US$ 2.8 million, which accounts for a 5% growth compared to the year 2005 and 67% of the total activity of the company. This growth only validates our vision and further consolidates our leadership During the year 2006 GMD was able to renew and expand 00% of the Outsourcing and Technology Service contracts, in addition to being recognized once again by our partners – Cisco Systems, Hewlett Packard and Microsoft – as their major partner in the country. In 2005 a Human Management strategy aimed at improving the workplace climate, identifying competencies by role, assessing performance and recognizing adherence to our values, permitted a 4% improvement in the workplace climate, definition of the profile of a GMD employee and simplification of the organizational structure. The GMD intranet, including human, commercial, project and administrative management, was implemented during the year, allowing us to improve communication between the company and our collaborators. During 2006 GMD reaffirmed its commitment to Quality Management, renewing the ISO 900 certification in all its processes and raising the software factory level to CMMI–, thereby guaranteeing reliability and quality in the development and in this market segment. In the business of technology sales, maintenance of software. Sector Industria y Comercio Backus Suez Energy Perú S.A. Renovación del Outsourcing Consultoría SAP – del sistema comunicaciones Reportes de Flujo de Caja, y Outsourcing del Servicio Configuración y desarrollo Sector de Telecomunicaciones 26 empresas de Help Desk a nivel de Sales & Distribution, Telefónica del Grupo Romero nacional. Reportes de seguimiento. Software Factory Sistemas Ampliación del contrato Grupo Hoschschild Cementos Pacasmayo ATIS: Atención de Clientes, actual hasta el año 2009. Outsourcing del Servicio S.A.A. Facturación y Cobros e Outsourcing Integral de del Help Desk a nivel Cobranzas Intercompañías, Integración. Tecnología. Aplicación de Regional. Migración y Consultoría Técnica y Terra Networks Peru S.A. Notas SAP en Servidor de soporte SAP. Consultoría Funcional SAP, Reporte de Generación de avisos de Desarrollo R/3, Soporte en seguridad de TI. Saldos y Movimientos cobranza, Migración de Basis de SAP. Cía. Minera Antamina S.A. Bancarios, Control de Crédi- Base de datos de clientes. Avícola San Fernando Portal Web Corporativo, tos por Proveedor. Renovación y ampliación Configuración de del contrato hasta el año Project Server y Genera- 2010. Outsourcing Integral ción de Reportes. de Tecnología y Soporte de Minsur S.A. los Sistemas Oracle Suite. Soporte a la Operación de SAP, Metodología de Procesos. SITEL Plataforma Telecomunicaciones para Servicio de Carrier de Telefonía. 2 Centro de Operaciones Tecnológicas de GMD 10 53 Sector Industria y Banca y Finanzas Comercio de Plataforma Unificada y Sarbanes Oxley (SOX). Desarrollo de Proyectos: Multifondos, Planes de ONP AFP Integra Permanencia, Portal Único (Oficina Normalización Software Factory, de Recaudación, Previsional): Software Fac- Mantenimiento evolutivo, Desigualdades Mínimas. tory de DyM II, Outsourcing correctivo, perfectivo y HSBC Bank Perú S.A. de los DataCenters y adaptativo, extracción de Implementación del atención a usuarios y datos, gestión de consultas Sistema de operaciones de Outsourcing del Archivo. y soporte de aplicaciones: arrendamiento financiero 47 SUNARP Recaudación, Beneficios, (WINLEASING). (Zona Registral IX): Afiliaciones y Traspasos, Banco Financiero del Outsourcing integral de Inversiones, Contabilidad, Perú Implementación del mesa de ayuda. Acreditación, Estado de Sistema de operaciones de SBS (Superintendencia Cuenta, Sistemas Web arrendamiento financiero de Banca y Seguros): AFP Horizonte (WINLEASING). Implementación Outsourcing de El Pacífico Vida S.A. de Telefonía IP Cisco. Mantenimiento de Aplica- Consultoría Gestión Docu- ciones: Gestión Provisional, mental (Filenet) para la Ger- Ingresos, Administración encia Actuarial y la Gerencia y Recursos Humanos. de Contabilidad. Apoyo a la Implementación 22 17 10 10 Walter Silva Santisteban General Manager 2 “ At GMI, our services demand experience and knowledge, which led us to identify, retain, organize, apply and disseminate the lessons learned” – Walter Silva Santisteban, General Manager 24 Consulting Engineering Regarding our international activity, we successfully culminated the detailed engineering for Minera Santa Cruz’s 10 Gold Concentration Plant in Argentina, having dedicated 64,0 man hours, and the supervision of the Palma Real Shopping Center in Punta Cana, Dominican Republic. Likewise, we started out the supervision of Club Meliá For GMI it has been an important year in terms of the Paradisus Punta Cana for Sol Meliá. For the Mexican chain, advancement of our consolidation strategy in the Mining Palace Resorts, we continued supervising its first 875-room Sector. We continued providing our Engineering services hotel in the Dominican Republic for the second year. through framework contracts with Cía. Minera Antamina and Minera Cerro Verde, and entered into a new framework Part of the GMI’s strategy is the implementation of new contract with Rio Tinto Minera Perú Limitada S.A.C.; technologies and procedures in order to remain at the simultaneously, new projects were initiated with already forefront of the industry, as well as on-going training of its established clients such as Cía. Minera Volcán, Minera personnel, to which 5,760 hours have been dedicated over Yanacocha S.R.L., Doe Run Peru and Minsur, as well as the past year. with new clients such as Marcobre S.A.C. and Bear Creek Mining Corporation. Additionally, as part of our strategy of In 2006 efforts were focused internally on the development diversification into the Hydrocarbons sector, this year we and implementation of Improvement Plans, which led to signed framework contracts with Repsol and Pluspetrol. greater efficiency in the Document Control Department Our sales totaled US$ 9.6 million, which represents growth Control System; additionally, the Knowledge Management of 48% compared to the previous year, with an operating Portal was implemented and ISO 900-2000 Certification profit of US$ .4 million. The year ended with a backlog of in “Engineering Consulting Services” was obtained in US$ 6.4 million and predictable flows of US$ 4.2 million. relation with our Quality Management System. through the implementation of SISDOC, its own Document Sector Minería • Línea de Retorno de Agua • Túnel Camiones de Ampliación Planta Victoria Seepage Tucush Concentrados Cerro de 2000 a 4000 TMPD. • En Geomática el Monito- Verde-Matarani • Estudio Técnico Planea- reo Topográfico para el • Mejoramiento Descarga miento y Selección de Compañía Minera control de estabilidad de de Acido Aglomeración Alternativas Paso a Antamina taludes en la carretera • Sistema Protección Desnivel Zona de Bota- Bajo el Contrato Marco de acceso a Antamina Contra Incendios Tanques dero Rumiallana de Ingeniería se desarro- así como la Topografía Almacenamiento Com- • Ingeniería Básica llaron aproximadamente de Mina. Primer Con- bustible Norte y Sur. Ampliación Planta 50 proyectos entre los que trato Marco de Manten- Minera Santa Cruz S.A. Victoria de 2000 a 4000 podemos mencionar: imiento Predictivo para • Se concluyó la Ingeniería TMSPD. • Ingeniería Conceptual los servicios Monitoreo de de Detalle Proyecto • Estudio Técnico Automa- Variante a Laguna Canrash condición a los equipos San José tización de los sistemas • Proyecto Nuevas Facili- y componentes estruc- BHP Billiton Tintaya S.A. de bombeo de la Planta 49 dades Yanacancha turales de Antamina. Bajo el Contrato Marco Concentradora de la • Proyecto ampliación capa- Sociedad Minera Cerro de Servicios: Unidad de Producción. cidad Planta de Nitrógeno Verde S.A.A. • Supervisión y Asegura- Río Tinto Minera Perú • Revisión de Estándares y Bajo el Contrato Marco de miento del control de cali- Limitada S.A.C. Especificaciones Ingeniería se desarrollaron dad de los trabajos para Bajo el Contrato Marco • Optimización del sistema 40 Proyectos resaltándose: la Elevación del nivel 4000 se desarrollaron los de reactivos 3ra. Etapa • Ingeniería Nuevo Labora- a 4005 de la Presa de siguientes Proyectos: • Nuevo Taller Bahía de torio Químico para Lixi- Relaves de Camacmayo. • Ubicación Pista de Llantas viación y Concentradora Compañía Minera Aterrizaje La Granja • Mejoramiento del Sistema • Nuevo Tanque de Acido Volcán S.A.A. • Ingeniería Rehabilitación Contra Incendio en Matarani (10000TM) • Ingeniería de Detalle Carretera Querocoto-La Cemento Andino Tarma, Perú Minera Santa Cruz Argentina 25 36 64 Granja y Supervisión de Primax que podemos destacar: 120+00 al Km 140+000. las Obras. • Nueva Planta de Recep- • Ingeniería de Detalle para • Se continuó la Supervisión • Ingeniería y Supervisión ción, Almacenamiento Agitadores de la Obra de Rehabili- Ampliación Campamento y Despacho de • Conversión del tanque tación y Mejoramiento de • Ingeniería de Detalle Elec- Productos de Petróleo. diesel en gasolina BTX la Carretera Aguaytia- trificación Comunidades Logística Químicos • Adecuación de Cubeto Pucallpa Tramo III: vecinas a La Granja del Sur LQS a Estándares de Repsol Neshuya-Pucallpa. Doe Run Perú • Diseño Integral de las (Cubeto modelo) Minera Yanacocha S.R.L. • Se inició el servicio de Instalaciones del Terminal Pluspetrol Perú • Se inició la Supervisión Ingeniería de Detalle NaSH Corporation de la Construcción de de las Obras fuera del Cemento Andino S.A. • Se inició el Contrato de Ser- la Carretera Chilete límite de bateria del • Contrato de Locación de vicios de Ingeniería para la San Pablo Yanacocha Contrato de Fleck Servicios de Limpieza Planta de Gas en Malvinas (Carretera Kuntur Huasi). Chemical Industries. Industrial y Manejo de Re- y Planta de Fraccionami- GyM Marcobre S.A.C. siduos a cargo de nuestra ento en Pisco Lote 88. • Reconocimiento del Trazo, Se inició el Estudio de subsidiaria Ecotec S.A. inspección geotécnica Infrastructura y Concesión del Sistema de Factibilidad Definitivo de la Mina Justa. Bear Creek Mining Corporation • Estudios de Ingeniería Proyecto Corani Edificaciones e Industria Hidrocarburos Transportes Provias Nacional Petroperú S.A. • Supervisión de Plan Piloto • Supervisión de los trabajos del BID para la Evaluación de Remediación Ambien- de Pavimentos Económi- tal en Refinería La Pam- cos de los tramos: pilla y su Planta de Ventas. Capizapa-Picota, Tambo- Refinería La Pampilla Osno y Yauri-San Genaro. Neptunia Bajo Contrato Marco de • Supervisión de la Reha- • Gerencia de Proyecto Ingeniería de Proyectos bilitación y Mejoramiento del Nuevo Almacén de de Inversión se desarro- de la Carretera Casma Contenedores Vacíos llaron aproximadamente Yaután Huaraz, tramo: Yu- en el Callao. 40 proyectos entre los pash Huaraz, Sector: Km Distribución de Gas Natu- ral en los Departamentos de Ica, Ayacucho y Junín • Actualización del Diseño Nuevo Terminal de Contenedores Muelle – Concesión Terminal Portuario del Callao • Estudios de accesos y seguridad Lomas de Lachay • Evaluación Geológica en Gabinete de Pipeline II de Camisea 26 17 10 10 Francisco Dulanto Swayne General Manager 27 “ I recognize that in over 0 years I’ve been with the Graña y Montero Group, the experiences and knowledge that my superiors have conveyed to me are the most valuable resource I could have received from them” – Francisco Dulanto Swayne, General Manager 28 Petroleum Services expansion of the aforementioned Terminal and the reception, storage and dispatch of sodium sulfhydrate. 10 The start-up of operations at this new terminal is expected for the first quarter of the year 2007, through the new company “Logística de Químicos del Sur” (LQS / Southern Chemical Logistics). For GMP, the year 2006 was once again a year with very In April of 2006 a contract was signed for the acquisition of good results, reflected in EBITDA of 20.8 million dollars, natural gas liquids separation and fractionation plants which is 6% more than that of the previous year; simulta- from the electric company in Piura, Empresa Eléctrica de neously, it was a year in which important strategic Piura, by which we agreed to build a new plant to begin investments set about. operating in April of 2008, processing 40 million cubic feet of gas per day and requiring an investment of approxi- The results obtained for the year, the economic environ- mately 4 million dollars. ment and the political situation have permitted us to begin developing several investment projects. In February of 2006, a contract was signed with Minera Cerro Verde for the construction and operation of a sodium sulfhydrate terminal at the Matarani port. This is a ten-year contract we are executing partnered with Santa Sofía Puertos and Oiltanking. Additionally, in the month of November a 5-year contract was signed with SPCC for the Petroleum and Gas Production Talara Gas Plant was 1.5 million Barrels, with were nationalized; however, (apr - dec) average use of our installed by the end of the year the In the month of April capacity of 66%. conditions pertaining to 2006, operations of the It should be noted that this nationalization were The year’s production of pe- existing natural gas liquids throughout the year, not yet defined and agreed troleum in Northwestern lots separation and fractionation operations involving the upon. Throughout the year, I and V was a record 330,021 plants commenced. A reception, storage and Ilo-La operations of the pipelines Barrels. The net unit value volume of 8,300 MMCF Paz transportation of Diesel and storage and dispatch of our crude oil basket in- of gas was processed, 2 were conducted for YPFB plants were carried out creased 22.14 % compared resulting in the production Bolivia. as usual. The volume to the previous year. of 228,700 barrels of natural Camisea Terminal In Pisco transported through the The sale of Natural Gas was gas liquids (NGL) and During the year 153 multipurpose pipelines was 1,024 MM CF. the sale of LPG and light shipments of products 7.0 million barrels (23% solvents in the local market. (propane, butane, diesel more than in the previous In the second semester, the 2 and naphtha) with a year) and the volume 57 process engineering and total volume of 11.9 million dispatched from the plants Drilling basic engineering designs barrels were dispatched. was 11.6 million barrels (24% During the year, 21 wells were drilled with a total depth of 82,813 feet. Two of these were drilled in Lot I in order to develop the reserves of GMP S.A. for the new plant were This volume represents more than in 2005). outlined an increase of 8% in CLHB is no longer Storage and Dispatch comparison with the consolidated with the results In the year 2006, Consorcio previous year. of GMP and a provision has Terminales (GMP-Oiltanking) CLHB (Bolivia) been set up for the potential dispatched an average of It is public knowledge that impact of nationalization. 51,946 Barrels of derivatives on May 1, 2006, the Bolivian per day from the 9 terminals government issued a it operates in the country. decree by which 50% + 1 The average storage of the shares of CLHB, as contracted by our users well as other companies, A B 35 35 35 C D E 29 35 A Planta de Gas Verdun Talara B Lote V pozo 289 Piura C Planta de Gas Parinas Mollendo D Planta de Almacenaje y Despacho Mollendo E Terminal Marítimo de Camisea Pisco 0 17 10 10 Juan Manuel Lámbarri Hierro General Manager  “ Within the organization itself, we have developed a course called Programming and Productivity which has enabled us to substantially improve the profitability of the company” – Juan Manuel Lámbarri Hierro, General Manager 2 Construction for the Cerro Corona Project located in the department of Cajamarca. Additionally, in the early months of 2007, we will 10 be finishing the Civil Works and Mechanical Assembly for the San Cristobal Mining Project of APEX Silver in Bolivia. Aligned with the government priority of expanding In the year 2006 GyM consolidated its leadership in the sanitation coverage in Peru, in the latter part of the year market. It executed work projects for a record value of 0 2006 we were awarded  important contracts for Sedapal million dollars, which is an increase of 62% compared to which will result in an improvement of services benefiting the previous year, and obtained after-tax profits of 2 approximately 00,000 persons. million dollars; that is, more than double the figure for the preceding year. These results are backed by a consistent It should be noted that during the year we carried out a enhancement in our efficiency, reflected in a 6% gross program called Simplifica (Simplifying) conceived to margin and a significant backlog substantially composed of enhance our project management processes with the aim contracts with stable flows, in accordance with the of sustaining our future growth efficiently. strategy of the Group. In line with the Group’s Learning to Grow Strategy, GyM The most important contract obtained during the year is developed a training project at all levels of the company, the the Expansion of the Malvinas Gas Compression Plant for highlight of which was the training week called “Developing the Camisea project, which requires a high degree of the GyM Style”. Through this event, 62 young professionals specialization. In this case, our company assumes this who had recently joined the company received an average challenge taking responsibility for the entire project. of 50 hours of training each. In line with the strategic objective of specializing in mining, in October our company was awarded a contract on the construction of the Civil Works and Mechanical Assembly Southern Peru Nueva Fundición de Ilo Sector Energía Pluspetrol Norte Mantenimiento de Carre- teras y proyectos varios. Pluspetrol Obras Civiles Ampliación Instalaciones de Malvinas. Enersur EPC de la Planta de Gas y Obras Civiles de la Estación Generadora de Chilca. Cálida Red de Distribución de Gas en Lima Sector Minería Minera Yanacocha Obras Civiles Gold Mill Minas Buenaventura 11,610 m de túneles y 520 m de chimeneas en Orco- pampa y 362 m de túneles en Poracota Minera El Brocal Tajo abierto por un plazo de 3 años Cerro Verde Planta de Sulfuros Minera San Cristóbal Obras Civiles y Montaje Mecánico Minera MILPO Presa Cerro Lindo Minera Antamina Estanques en Huarmey Sector Infraestructura Sector Edificaciones y Desarrollos Inmobiliarios IIRSA Sur -Tramo 2 Corporación Wong Urcos-Ocongate- 6 mil metros cuadrados Quincemil-Inambari techados en diversos IIRSA Sur-Tramo  locales. Inambari-Santa Rosa- Tejidos San Jacinto Puerto Maldonado-Iñapari. Ampliación de almacenes IIRSA Norte Centro de Paita-Piura-Bagua-Rioja- Entretenimiento Larcomar 47 Tarapoto-Yurimaguas. Fashion Center Sedapal Edificio Residencial Lotes 6 y 7. Conexiones Bolognesi domiciliarias de agua y de- Miraflores sagüe para 30 mil viviendas. Edificio Residencial Norvial Terrazas de San Felipe Carretera Huacho-Pativilca. Jesús María Ejecución de los Puentes Edificio Real 0 Huaura y Pativilca. Oficinas en San Isidro Universidad de Piura Nuevo local en Monterrico B  D 35 A AC 35 35 E A Cerro Verde Planta de Sulfuros B Minera Yanacocha Obras Civiles Gold Mill C Minera San Cristobal Obras Civiles y Montaje D Carretera IIRSA Norte Tarapoto -Yurimaguas 35 E Edificio Residential Terrazas de San Felipe Jesús María 4 concar 17 10 10 Jaime Targarona Arata General Manager 5 “ In Highway Concession Operations, we have obtained valuable knowledge in recent years that we are committed to structuring and developing” – Jaime Targarona Arata, General Manager 6 concar Highway Operation and Maintenance May of 2006, but had a one-year extension or until it is handed over to a new concessionaire. The income from 10 this concession increased by over 5%, while those of the Ovalo Gutierrez Concession rose 6% in comparison with the previous year. The year 2006 was of paramount importance to CONCAR. These results allowed CONCAR to grow more than In April, work was initiated on the Operation and 00% in 2005. This significant growth has been reflected Maintenance of the Northern IIRSA Highway - the most in the strengthening of our team of professionals important of our projects- which is a concession for the throughout the year. operation and maintenance of a ,000 Km highway, the longest highway in the world. The new Administration intends to continue with the infrastructure concessions program; for 2007, calls for In the last quarter of 2006, Graña y Montero S.A.A. was tenders are scheduled for the following projects: IIRSA awarded the Concession Contract for the Buenos Aires – Center, Road Network # , Road Network # 4 and Sections Canchaque highway in the department of Piura, which  and 5 of the Southern Interoceanic Highway, in addition pertains to the “Costa Sierra” (Coast-Highlands) group of to  or 4 projects pertaining to the Coast – Highlands projects that are to support the “Sierra Exportadora” Program. Considering that participation in this type of (Exporting Highlands) program that the government is projects fits in with one of the main strategies of the fostering. CONCAR will be the company in charge of the Group, the generation of stable flows, we are confident operation and maintenance of this highway once it is built. that CONCAR shall continue to be one of the companies We also continue providing operation and maintenance the company’s skills and leadership continue to be services on the Norvial S.A. highway that joins Ancon, demonstrated in the highway concession business in Peru. with the greatest growth opportunities in the long term, as Huacho and Pativilca, as well as the Arequipa Matarani Highway Concession, that was expected to be finished in The current concession and operation contracts are described below: Arequipa – Matarani Contract on the Opera- Contract on the Oper- Concession for Highway Concession tion and Maintenance ation and Maintenance the Ovalo Gutierrez of the Ancon – Huacho of the Northern IIRSA Parking Garage – Pativilca Highway Highway between During 2006, revenue from traffic related to this 100.7 During 2006, CONCAR Paita and Yurimaguas CONCAR has the 30-year Km highway concession satisfactorily carried out the On April 12, 2006, CONCAR Concession Contract on this increased by more than Operation and Maintenance satisfactorily started out underground parking garage 15% in comparison with the of the 182.66 Km highway works on the Operation and built in an 8,200 m2 area previous year. and also assisted its con- Maintenance of the North- under the Ovalo Gutierrez cessionaire, Norvial S.A., in ern IIRSA highway, which is traffic circle, with space for preparing procedures for nearly 1000 Km long. 220 vehicles. 47 technical solutions that im- proved the service provided to the users and enhanced relations with them. A B C D 24 22 22 35 E 7 A Peaje de la carretera Arequipa - Matarani B Operación de la carretera IIRSA Norte C Nuevo Pavimento de la Carretera Piura - Paita D Construcción del nuevo puente del río Pativilca para Novial E Mantenimiento carretera IIRSA Norte 8 17 10 10 Antonio Rodríguez Canales General Manager 9 “ Our daily task is to be an organization with the capacity to innovate and lear” – Antonio Rodríguez Canales General Manager 40 Entertainment Center These strategies have made it possible to maintain a 98% occupation rate of the areas available for leasing during 10 2006, and to open the Fashion Center in December with 95% of its new stores leased, with a conservative forecast of 40% growth in total sales for 2007. During the year 2006, Larcomar consolidated its leadership The total activity of the company for the year amounted to as the best tourism and entertainment center in Peru, US$ 6. million, which generated EBITDA of US$ 2.9 million, expanding its commercial area with the opening of 46 new 2% and % more than in the year 2005 respectively. All stores and increasing its area available for leasing by 25%. commitments related to the structural debt, which was reduced by US$ 2.9 million, were fulfilled punctually. The commercial management of Larcomar, oriented toward offering the best experience in an atmosphere of quality and Over the past few years, with the collaboration of 98 security, has triggered a 5-million visitor rate, including 500 workers, the organization has gained considerable thousand tourists during the year 2006, which was 4% more experience that has been reinforced with 25 man hours of than in 2005 and enabled our operators to invoice a total of training and leadership programs. US$ 29 million dollars, 0% more than in the previous year. The thriving results obtained over the past 4 years A very important aspect of the operations at Larcomar has combined with a committed organization enable us to been the success attained by inserting it in a tourism circuit, forecast future growth in the shopping and entertainment introducing Larcomar as the modern facet of the city of malls industry as well as in tourism, generating an increase Lima, a concept which has been endorsed by major travel in stable flows and the generation of real estate and agencies, hotels and public institutions and is disseminated construction synergies with our shareholders. in international fairs and important tourism forums. HushPuppies Café Café Mangos Makoto Aura Gótica UVK Anunciadores y Franquicias Backus Phillip Morris Telefónica Claro La Dama Juana 47 Principales operadores, Florsheim Alpaca  Swatch Nike Timberland Air Sport Club by Nike Pizza Hut Liliana Castellanos Burger King GMO NU Íbero KFC Bembos Starbucks Giuliana Testino Tony Romas Tatoo Laritza 4 42 43 8 8 8 8 44 Business Social Responsibility 32 Our Strategic Plan reflects our belief that the development of based on our principal values, which are Quality, Compliance, our prestige is based on reinforcing our Values, among which Reliability, and Efficiency. our Business Social Responsibility Policy - mainly focused on education - stands out. Therefore, during the year the different companies that make up the corporation promoted specific actions in the areas of During the year 2006, in cooperation with the Universidad del Human Resources, Risk Prevention and the Environment, Pacífico (University of the Pacific), a Handbook for the Knowledge Management and Community Relations. Selection and Management of Social Responsibility Actions was designed for use by Project Managers with the aim of Internally, our personnel are the main target group of this increasing efficiency in the selection of social actions that responsible social behavior; externally, it is the different they may carry out throughout their projects. sectors, such as the community, shareholders and clients, with which the group has ties in carrying out its operations. The Letter of Ethics, signed in 1995, the Risk Prevention Policy 52 (1999) and the Environmental Policy (1998) form part of this In the year 2006, the Group’s Knowledge Management process and have set clear behavioral guidelines when Program has been given new emphasis with the “Learning to dealing with our clients, shareholders, personnel and Grow” project, which we believe will be the key to future community. growth, as explained further on in this report. During the year 2004, Graña y Montero joined The Global Compact promoted by the Secretary General of the United Nations as a demonstration of our commitment to the social and environmental aspect of the company. The commitment to continuously support this Compact is reflected in the company’s current policies practiced by all employees through Good Corporate Governance and a daily attitude 45 Luis Díaz Imiela-Gentimur Director of the Corporate Learn- ing Center. “ We have enhanced the Group’s Knowledge Management with the project ‘Learning to Grow’, which is the key to future growth.” 74 33 1. The Human Resource The personnel who work for the company are the primary target group of the Business Social Responsibility policy; therefore, they are given top priority in the set of policies and programs that guarantee their development and welfare as a basis for their good performance and satisfaction. During the year 2006, a series of recommendations stemming from the Organizational Climate studies conducted at GyM and GMD with highly satisfactory results were implemented. These studies shall be conducted annually for the purpose of satisfying needs and handling recommendations proposed, which will in turn lead to an even better Organizational Climate in all aspects of the Corporation. 38 Organizational Climate Survey Distribution by Age Group Satisfaction Working Spirit Relation with management Organization of Work (methods, tools) 71.0% 73.5% 69.5% 66.0% 46 10 37 From 20 to 30 years of age From 31 to 40 years of age From 41 to 50 years of age From 51 to 60 years of age From 61 to 65 years of age 66 years of age or more 736 916 445 222 27 17 31% 39% 19% 9% 1% 1% Among the many results of these studies, one that merits special mention is that 74.5% of our employees feel proud of the achievements of the companies for which they work. In order to foster personal welfare among the Group’s manual laborers, numbering over 8,000 during the year, the company developed a sound, annual Preventive Training program within our integrated Risk Prevention and Environmental Management system. 23 13 12 47 Erika Pastor GyM Project Manager “ Our staff is the number one priority within the Social and Business Responsibility policy, thus guaranteeing their development and welfare.” 74 33 48 Statistics – Training t n e m e g a n a M 10 4 3 17 34 3 37 0 0 0 0 Employees (Payroll) Engineers with Postgraduate Degrees Other Professionals with Postgraduate Degrees Engineering Professionals Other Professionals Total Professionals Technicians Total Employees 49 Laborers Skilled Laborers Unskilled Laborers Sub-Contractors Total Laborers GyM GMD GMP GMI Concar Total r a m o c r a L 10 39 16 3 402 106 550 140 690 1,013 3,385 914 5,312 11 457 55 539 296 835 0 0 0 0 14 1 48 19 82 92 174 149 0 0 149 6 3 96 15 120 42 162 73 0 0 73 2 0 27 12 41 371 412 0 0 0 0 0 4 3 7 14 39 53 0 0 0 0 87 26 1036 231 1380 983 2,363 1,235 3,385 914 5566 Total Personnel 37 6,002 835 323 235 412 53 7897 Interns Independent Professionals Total 0 0 0 48 6 54 34 8 42 2 2 4 1 150 151 1 0 1 2 0 2 88 166 254 Overall Total 37 6,056 877 327 386 413 55 8151 49 10 Statistics – Headcount 10 Organization Headquarters Projects Total Gender Male Female Total Hierarchy 47 Upper Management Employees Interns Independent Professionals Laborers Total e t a r o p r o C t n e m e g a n a M 37 0 37 26 11 37 23 14 0 0 0 37 GyM GMD GMP GMI Concar Total r a m o c r a L 124 566 690 569 121 690 6 684 48 6 5312 6,056 182 653 835 271 564 835 6 829 34 8 0 877 49 125 174 150 24 174 9 165 2 2 149 327 88 74 162 125 37 162 3 159 1 150 73 386 4 408 412 356 56 412 2 410 1 0 0 413 21 32 53 38 15 53 9 44 2 0 0 55 505 1,860 2,365 1,535 828 2,363 58 2,305 88 166 5,534 8,151 50 José Gastulo Worker “ 672,376 hours have been invested by approximately 8 thousand workers, while adhering to the fundamental principles of safety in the workplace and respect for the environment.” 10 33 51 2. Risk Prevention and the Environment striven to work abiding by the fundamental principles of safety in the workplace and respect for the environment. Graña y Montero is fully committed to leadership in Corporation has enabled us to end the year 2006 with zero environmental performance and risk prevention through its environmental incidents and an accident frequency rate of Integrated Management System applied to all sectors where 0.69, a value within the range of optimum international The commitment of our personnel to the policies of the its activities are conducted, thereby creating value for its standards. clients, personnel, shareholders and neighboring communities. This philosophy is a significant part of our Business Social The investment that our organization makes to guarantee the Responsibility Policy. health and safety of its workers is reflected in the establishment of a preventive culture and the protection of Maintaining responsible conduct regarding the environment workers from work-related risks and the associated 58 and the health of the workers while carrying out their activities environmental risks. In this regard, during the year 2006, nearly is a traditional practice among all of the employees at the 630 thousand hours were invested in instructing and raising Graña y Montero Corporation. It is a principle upon which our awareness among our personnel on work-related risks, as well Risk Prevention and Environmental Policies are based. as approximately US$ 4 million in the acquisition of personal In order to guarantee the fulfillment of this commitment, our organization has an integrated risk prevention and Throughout the year, these results have merited recognition environmental management system developed according to from our clients who, in virtue of our effort, have renewed and the guidelines of OHSAS 18001 and ISO 14001 standards, granted us new contracts, thereby extending our commercial and collective protection equipment. which is audited annually by the IDB, thereby enabling us to relationship. show evidence of effective, efficient implementation. During the year 2006 the Graña y Montero Corporation invested 627,376 hours in training on Risk Prevention and Environmental Management for its 8,000 workers, who have 52 10 10 3. Knowledge Management employee back in 2005. Of this training, 64% was in-house in the Young Engineers, Professional Development and Collective Memory programs. The commitment toward Knowledge Management, as the core Within this training, programs that merit special mention are feature of the group’s development, received new emphasis the “Developing the GyM Style” program for our Young this year with the launch of the “Learning to Grow” strategy. Engineers, which was rolled out in the second semester and This includes handling the different areas of knowledge of the included a one-week retreat, and the “Development of Young Group in a professional manner and training the members of Project Managers”, which is to start in the coming months the organization to strive for cultural change and to consolidate with the collaboration of a well-known postgraduate school. the group as an “organization that learns”. As a result, the growth rate of training during the year was 80% In terms of knowledge management, the companies have compared to 2005 and the companies have formed a Board of worked on their respective information systems allowing them Directors at the Corporate Learning Center (known by its to make the knowledge generated in their operations Spanish acronym, CCA)- made up of the General Managers available to all employees, as well as informative bulletins on and the Human Resources Managers- for the purpose of relevant occurrences. Additionally, during the year, 20 talks developing mechanisms for the “Learning to Grow” program. were given on collective memory regarding the most interesting projects of the Group. In 2006, 80,478 man hours were spent on training; that is, a ratio of over 35 hours per employee, compared to 24 hours per Training Man Hours GyM GMD GMP GMI Concar Total r a m o c r a L Description Basic Program – Young Engineers Professional Development 6,504 19,477 756 5,648 250 9,139 880 9,247 372 0 11,680 3,756 36,108 18,456 13,145 5,761 3,717 1,638 92 314 238 754 38 3,324 4,354 826 736 190 902 2,654 12,291 37,392 1,572 29,223 80,478 Collective Memory External Training Overall Total Promedio Mensual de empleados Ratio = Hours of Training / Employees 49.16 22.15 43.82 67.7 16.4 49 35.36 Risk Prevention and Environmental Man- agement - Laborers 593,107 0 24,232 1,199 8,792 46 627,376 46 27 53 10 74 33 Javier Sánchez Pisco Terminal Supervisor “ Each company has worked on its respective information system, allowing the knowledge generated to be made available to all the employees.” 54 Juan José Arrieta GyM Human Resources Manager “ In 2006, we benefited approximately 14,000 persons with a series of activities aimed at the Community and the Environment, as well as 6,000 more with specific actions in the field of education.” 33 55 10 10 4. Community Relations It should be noted that the training programs are being carried out in remote communities such as Andoas in Loreto or Potosí in Bolivia, in order to incorporate as many workers Community relations, especially in the execution of projects, as possible from the places in which we operate. should be developed in a positive atmosphere of harmony and mutual respect, within which the company promotes and During the year 2006, with our Social Responsibility program, carries out activities that contribute to the sustainable approximately 14,000 persons benefited from several actions development of the communities where it operates. These within the Community and the Environmental area. In the area 40 situations are analyzed previously based on the Social of Education, approximately 6,000 persons have benefited Initiative Management Guide designed in cooperation with the and 494,997 hours of training have been provided. Universidad del Pacífico (University of the Pacific). Based on our Social Responsibility practice, the companies in local populations in the immediate area of influence of the the Group make a contribution to the development of these projects we executed, as described below. During the year, different activities were carried out among the communities that goes beyond the time period during which they are working in these areas. Specifically, they ensure that these actions are related to the areas of Education, the Community and the Environment. Community Initiative Target Group Location Support for the Preventive Program Youths from 12 to 16 years of age Puente Piedra / Lima “Adolescent Stage of Life” at the MINSA Hospital in Puente Piedra: stadiometers, scales and career counseling provided. Repaired water connections and Local Public Shools Puente Piedra - S.J. de replaced plumbing hardware at public Lurigancho- Independencia -Comas / Lima 35 schools. Promotion and hiring of local suppliers Small and Micro Businesses Puente Piedra / Lima of: concrete boxes and lids, uniforms and metallic carpentry. Generation of direct employment with Unemployed local residents Puente Piedra / Lima suppliers 56 10 Community 10 Initiative Target Group Location Children’s Christmas show and Children of the area Puente Piedra - Valle Chillón / Lima donation of gifts in coordination with the Hospital in Puente Piedra. Economic support for the “II Happy Local Community Faces Campaign” to provide medical care to patients with cleft lip and other congenital malformations. Cajamarca Oral Health Campaign: Distribution of Local Populations San Cristóbal; Río Grande and packets of oral hygiene products. Culpina / Bolivia Refurbished desks and chairs. CEI “Vista Alegre” School Orcopampa / Arequipa Donation of classroom furniture: desks, C. E. No. 4021 School in Parque Ventanilla / Lima metal file cabinet, table and chairs. Porcino Implementation of computer laboratory: “Virgen del Carmen” School Colquijirca settlement / Cerro de Pasco desks and computers. Training: “Handicrafts Workshop”. Women in the Glass of Milk Program Colquijirca settlement / Cerro de Pasco Follow-up on project for the Creation Local Population Colquijirca settlement / Cerro de Pasco and Generation of Sources of Employment in Guinea Pig Breeding. Christmas celebration. Children at the schools with which we El Valor - San Juan de Chiple worked during the year 2006. Christmas celebration. Boys and Girls of the villages, Toll Booth Project in Moyobamaba, pre-schools, and schools near the toll Aguas Claras, Pedro Ruiz, Bagua, booths. Pucara,Olmos, Chulucanas, Paita, Pesaje Bagua, Pacayzapa C-21 settlement Education Initiative Target Group Location 57 10 Leadership Development. Community Leaders Puente Piedra- San Juan de Lurigancho- Comas-Independencia / Lima Recruitment and selection of Coordinators of the five plans in Puente candidates in coordination with Piedra (leaders elected by grassroots leaders of neighborhood grassroots organizations and recognized by organizations to establish groups for Puente Piedra City Hall) 19 workshop courses. A meeting was held with the coordinators of the five plans in order to distribute the number of persons that would participate per plan, based on social conditions, giving priority to persons who were unemployed and needed help, since upon completion of the workshop and evaluation of the participants who passed, there would be opportunity for employment with the company. 79 Theory and Practical Job Training Unemployed Local Residents Puente Piedra / Lima “Installation of Drinking Water and Sewage Systems” Convention: ”Water Fair”: Exhibition Local Population: Homemakers and the Puente Piedra / Lima of sanitary products and training on General Public ecological alternatives and sanitary installations Cultural Forum: “Towards a New Water Community Leaders Puente Piedra / Lima Culture” Support for the program “Show me Youths at Risk Zapallal - Puente de Piedra / Lima your Job” at the Zapallal police station by holding a workshop, “Basic Civil Works Course” taught by instructors from GyM. 58 10 Education Initiative Target Group Location Workshop Seminar on Property Leaders of Associations and shanty Puente Piedra / Lima Registration as a contribution to the towns titling process. Community leaders and members of Puente Piedra / Lima associations Information Technology - Internet Students of Public School No. 82891 El Cajamarca Course. Tambillo – District of Chetilla, Cajamarca Students in the last semester at the Volunteer Teaching: keynote lectures Engineering School of the Universidad Cajamarca provided by GyM engineers on current Nacional de Cajamarca (National subjects for students in the last University of Cajamarca) semester of Civil Engineering at the Universidad Nacional de Cajamarca (National University of Cajamarca) Volunteer Teaching: Keynote lecture on and Auto Mechanics program at Potosí, Bolivia “Risk Prevention” SENATI Students from the Industrial Electricity Local Population 79 Theory and Practical Job Training in “Training Workshops for Pipeline Welders, Structure Welders, Maniobristas and Oxigenistas” Theory and Practical Job Training: “Basic Training Workshops on Mechanical Assembly” Theory and Practical Job Training: “Training Course for Construction Workers – Metalmechanics” for natives. Local Population Native Communities Uyuni, Bolivia Andoss / Iquitos Iquitos Training “Workshop on Jam Making” Chilcaymarca- Orcopampa/ Arequipa Mothers in the Glass of Milk Program Talks on Communication and Family Chilcaymarca- Orcopampa/ Arequipa Community Violence Local Population Educational talk on “Raising Pigs” Colquijirca settlement / Cerro de Pasco Education 10 Initiative Target Group Location 59 10 Talk on “Sexually Transmitted Diseases Mothers in the Glass of Milk Program Colquijirca settlement / Cerro de Pasco – AIDS” Talk on “Cancer Prevention” Mothers in the Glass of Milk Program Colquijirca settlement / Cerro de Pasco Training: “Dessert Making Workshop” Mothers in the Glass of Milk Program Colquijirca settlement / Cerro de Pasco and children’s dining hall Talks on “Responsible Sexuality” 4th and 5th-year high school students Colquijirca settlement / Cerro de Pasco at the José Carlos Mariategui school Talk on “Self-esteem and Leadership” Students at the José Carlos Mariategui Colquijirca settlement / Cerro de Pasco school Job Training Workshop on “Knits for Adult Women Colquijirca settlement Export” Theory and Practical Job Training: Local Community Chavín / Ica “Basic Training Workshops: Masonry, Carpentry and Safety” Job Training Workshop: “Food Mothers Clubs Yambrasbamba / Ica Handling” Owners of Boarding Houses Basic Training Workshop: Local Young Population Ilo, Moquegua “Metalmechanics Assistants” TECSUP –GyM Theory and Practice Civil Construction Workers Arequipa Training: “Polyvalent Workers, Civil Construction, Assembly and Alignment” Volunteer Teaching: “Seminar on Social Security” given by a GyM Social Worker Students at the School of Social Arequipa Historic Sciences of Univ. San Agustín Implementation of a computer in Arequipa laboratory: desks, computers, printer, Server and network wiring “Sta. Maria de los Ángeles” Primary Arequipa School 60 10 Education Initiative Target Group Location Motivational Workshop: “Senior Citizens Senior Citizens at Surquillo Health Surquillo, Lima “. Center Personal Development Workshop: Network of Workers against Family Miraflores, Lima “Communication and Conflict Violence and Chile Abuse Management”. Theory and Practical Job Training: Neighborhood Organizations Downtown Lima “Basic Training for Civil Construction Laborers”. Talk given to our insured workers General Public to provide information on benefits provided by ESSALUD. Preventive Health Program by raising General Public awareness among workers on the importance of preventing tuberculosis. Preventive Health Program through General Public pre-employment examinations and vaccination against yellow fever, tetanus and rubella. Drafting of files containing social General Public information on workers for use in socioeconomic study. Condorcocha Tarma Condorcocha Tarma Condorcocha Tarma Condorcocha Tarma 79 Social Projection Program contributing Mothers of the Community of Tarma, Junín to the formation of small family Condorcocha businesses -Workshop on Art and Handicrafts. Self-awareness and Self-knowledge General Public Workshop, stimulating and improving self-esteem. Condorcocha, Tarma Huaraz 61 10 Education 10 IInitiative Target Group Location Relaxation Workshop, with exercises to General Public Huaraz relieve muscular tension and stress. Workshop - Alcohol and Alcoholism, General Public raising awareness among workers to change attitudes about alcohol. Condorcocha, Tarma Huaraz Workshop – Alcohol and alcoholism, Mothers of the Community of Condor- Condorcocha - Tarma discussing “The Effects of Alcoholism cocha on Families” Workshop – Human Sexuality, General Public brainstorming on risk behaviors. Condorcocha, Tarma Huaraz Workshop – Human Sexuality, Mothers of the Community of Condor- Condorcocha, Tarma brainstorming on risk behaviors. cocha Workshop – Human Sexuality, Students at the “Antenor Rizo Patrón” Tarma brainstorming on risk behaviors. school Workshop - Conditioning factors in the General Public consumption of drugs, discussion on the issue. Condorcocha, Tarma Huaraz Preventive Health Program, Mothers of the Community of Condor- “Santa Teresa” Medical Center in Tarma. Prevention and Screening – Cervical cocha and Breast Cancer . Children’s Christmas show and Children of the Community of Condor- Tarma refreshments (hot cocoa) cocha Condorcocha 62 10 Environment 10 Social Initiative Target Group Location Manufacturing and installation of Local Population San Cristóbal,Bolivia dumpsters. Provided machinery and equipment Local Owners’ Association Puente Piedra / Lima for the reopening of the Copacabana Local Population Las Viñas drainage channel, at the request of the “San Lorenzo Irrigation Association” in coordination with area residents. Refurbishing of restrooms. C.E.I 337 Paul Harris School in the Ilo, Moquegua province of Ilo Donation of Recycling Bins in “José Carlos Mariategui” School Colquijirca settlement / Cerro de Pasco coordination with the Student Council. Awareness-raising campaign for the Local Population and Authorities San Cristóbal, Bolivia conservation of the environment. Educational and hands-on lecture Primary school students at the Cruce El Valor -Utcubamba Amazonas about water and environmental Cayalti school conservation. Educational and hands-on lecture Primary school students at the San San Juan de Chiple- Cutervo – Jaen, about water and environmental Juan de Chiple school Cajamarca conservation. Formation of Ecological Brigades. Badges given to children chosen for the El Valor -Utcubamba Amazonas Ecological Brigade Formation of Ecological Brigades. Badges given to children chosen for the San Juan de Chiple- Cutervo – Jaen, Ecological Brigade Cajamarca 63 10 79 64 10 Corporate Governance José Graña President Carlos Montero Vice President 10 21 Roberto Abusada Independent External Director In the year 1996 Graña y Montero became an open corporation the Best Annual Report, in recognition of the relevance, and issued shares on the stock market, implementing and transparency, clarity and auditability of the information, in the complying since that time with the principal Good Corporate Corporate Governance Contest organized by the Universidad Government Standards regarding transparency, representation Peruana de Ciencias Aplicadas (Peruvian University of Applied and information provided to the shareholders. Sciences). During the year 2006, we consolidated our image among In addition to the Annual Report and the quarterly reports on Peruvian companies as a model in implementing the best the Group’s status, we constantly report to the market on Corporate Governance practices. Throughout the year we important events of the Group. For the second year, we have 35 were invited to present and share our experience, as speakers issued a report on Compliance with Good Corporate at major events organized by the Colombian Stock Exchange Governance Standards, including additional information to that and the IDB in different cities in Colombia, including the II requested by Conasev and we have worked on improving our International Congress on Corporate Law held this last website, continually adding more information on the company. November in the city of Cartagena where we were invited to speak on our international experience. In 2006, our Regulations of the Shareholders Meeting and the It was also in 2006 that the company obtained the Award for management standards. Through the Shareholder Service Board of Directors were enhanced, incorporating information 21 10 Jean Louis Dupoirieux External Director Mario Alvarado Internal Director Augusto Baertl Independent External Director José Chlimper Independent External Director Teodoro E. Harmsen External Director Hernando Graña Internal Director 65 10 21 Office, we handled nearly 40 inquiries from minority Composition of the Board of Directors shareholders. Additionally, for the first time, our Board of As of December of 2006 the composition of the Board of Directors worked on a Self-Assessment Process, extending it Directors is the following: to the Boards of Directors of the subsidiary companies and obtaining interesting conclusions that enabled us to make internal improvements. José Graña Miro Quesada José Chlimper Ackerman President Independent External Currently we have approximately 700 shareholders. On the Carlos Montero Graña Director company’s Board of Directors we have a majority of external Vice President Jean-Louis Dupoirieux directors who are not employees of the company, 3 of which Roberto Abusada Salah External Director are also independent, having been chosen for their Independent External Teodoro E. Harmsen professional quality and prestige, with no shares in the Director Gómez de la Torre company. In March 2006, Mr. José Chlimper Ackerman joined Augusto Baertl Montori External Director the Board to replace Mr. Pyers Griffith Mostyn Independent External Mario Alvarado Pflucker Director Internal Director Hernando Graña Acuña Internal Director 66 10 10 Composition of the Board of Directors Center and Banco Central de Reserva del Perú (Central Bank of Peru). Director of Consorcio Exportador S.A. and GMD. José Graña Miró Quesada, Chairman of the Board of Directors. Project Director at Vinci-Construction Grands Projets (France) Jean-Louis Dupoirieux, Director. Civil Engineer. He is a Architect. He is also, Chairman of the Boards of Directors of the and a Director of GyM. subsidiaries GyM, GMP, GMD and CONCAR, and a Director of GMI and Larcomar. Likewise, he is a Director of the publishing Teodoro E. Harmsen Gómez de la Torre, Director. Civil company, Empresa Editora El Comercio S.A., and RELAPASA. Engineer. CEO of GMI S.A. and Director of the Master’s Carlos Montero Graña, Vice President of the Board of Engineering at PUCP. He is also an Honorary Member of the Directors. Civil Engineer. Additionally, he is the Vice President of American Concrete Institute, of the College of Engineers and the Board of Directors of GyM and GMP, Director of GMD, GMI the Peruvian Academy of Engineering, among other and CONCAR. distinctions. program DI. Professor emeritus of the School of Science and Roberto Abusada Salah, Director. Doctor of Economics Mario Alvarado Pflucker, Director. Civil Engineer with a 64 (Cornell, USA). Director of GMD, CONCAR, Mauricio Hochschild Master’s degree in Engineering Administration from George y Cía. Ltda. S.A.C. and Director of the Peruvian Institute of Washington University, USA. Currently, he is also a director of Economics (IPE). GMD, GyM, GMP, CONCAR, Larcomar, Norvial and America Augusto Baertl Montori, Mining Engineer. CEO of Gestora Leasing. de Negocios e Inversiones S.A. and of IMA Latin America Inc. Hernando Graña Acuña, Director. Industrial Engineer, with a Additionally, he is Chairman of the Board of Directors of post-graduate degree in Mining Engineering from the Agrícola Chapi S.A. and a Director of Interbank, GMP and University of Minessota, USA. He is a Director of GMI, GMP, FIMA. Ecotec S.A. and CONCAR. Executive Vice President of GyM and CEO of Norvial S.A. He is also a Director of CAPECO and José Chlimper Ackerman, Engineer with a Master’s Degree in TGP. Economics and Business Administration from North Carolina State University. Chairman of the Board of Directors of Corporación Drokasa and of the Sociedad Agrícola Drokasa, where he also holds the position of CEO. Director of Ace Home Committees As of December 31, 2006, the composition of the Committees of the Board of Directors is the following: Auditing and Processes Human Resources and Investment and Risk Committee Composed of: Remunerations Committee Composed of: Committee Composed of: Roberto Abusada Salah Augusto Baertl Montori José Graña Miró Quesada José Graña Miró Quesada José Chlimper Ackerman Hernando Graña Acuña Jean Louis Dupoirieux Carlos Montero Graña Teodoro E. Harmsen Gómez de la Torre 12 67 21 Executive Commission 10 The Executive Commission, which is responsible for the coordination of the Group, is composed of 4 Executive Directors and 6 General Managers of the companies in the Group. José Graña Miró Quesada Carlos Montero Graña Hernando Graña Acuña Mario Alvarado Pflucker Juan Manuel Lámbarri Hierro Francisco Dulanto Swayne Jaime Dasso Botto Walter Silva Santisteban Requejo Jaime Targarona Arata Antonio Rodríguez Canales Principal Executives President Vice President Director Managing Director General Manager GyM General Manager GMP General Manager GMD General Manager GMI General Manager CONCAR General Manager LARCOMAR He has been working for the Graña y Montero Group since 1974, and is also a Director of Consorcio Terminales and CLHB (Bolivia). He was the President of SPE (Society of Petroleum Engineers), Lima Section in 1991 and Director of the National Mario Alvarado Pflucker Corporate General Manager Society of Mining, Petroleum and Energy from 1993 to1994 from 1997 up to date. He obtained a bachelor’s degree in and 2005 to 2006. Civil Engineering from Universidad Ricardo Palma (Ricardo Palma University) and a Master’s Degree in Engineering Jaime Dasso Botto General Manager of GMD from 2000 Management, specializing in Construction Management, up to date. He obtained a Bachelor’s degree in Electronic from George Washington University, USA. Currently, he is Engineering and a Master’s degree in Software Development also a Director of GMD, GyM, GMP, CONCAR, Larcomar, from Stevens Institute of Technology, USA. He was the Norvial and América Leasing. Commercial Manager of GMD from 1994 to 1999. Currently, he Juan Manuel Lámbarri Hierro General Manager of GyM is also a Director of GMD. from 2001 up to date. Civil Engineer, graduate of the Pontificia Walter Silva Santisteban Requejo General Manager of GMI 35 Universidad Católica del Perú (Pontifical Catholic University from 1998 to 2005 and Managing Director from 2006 up to of Peru) and the Upper Management Program at the date. He obtained a Bachelor’s degree in Civil Engineering Universidad de Piura (University of Piura). He joined Graña y from the Universidad Nacional de Ingeniería (National Montero in 1982 and is currently a Director of GyM. Engineering University). Currently, he is also a Director of Hernando Graña Acuña Executive Vice President of GyM. ECOTEC. Industrial Engineer with a post graduate degree in Mining Jaime Targarona Arata General Manager of CONCAR since Engineering from the University of Minnesota, USA. He is August of 2005. Civil Engineer, graduate of the Universidad a Director of GyM, GMI, GMP, Ecotec S.A. and CONCAR Autónoma de Guadalajara (Autonomous University of and President of Norvial S.A. Additionally, he is a Director of Guadalajara), with an MBA from San Ignacio de Loyola CAPECO and TGP. University. He has served as a Civil Engineer on different projects, as Commercial Manager of the Special Projects Francisco Dulanto Swayne General Manager of GMP S.A. Division of GyM and as the General Manager of Graña y since the company was founded in 1984. Director since Montero Mexico. 1988. He studied at the Universidad Nacional de Ingeniería (National Engineering University), ESAN and PAD Universidad de Piura (University of Piura Upper Management Program). Luis Díaz Olivero Corporate Finance Manager since 68 Luis Díaz Olivero Corporate Finance Manager since December 15, 2004. Industrial Engineer with an MBA from the University of Pittsburgh. He has been working for the Group since 1993. He was the Finance Manager of GMP S.A from Kinship 1998 to 2000 and Finance Manager of GyM from 2001 to 2004. Mr. José Graña Miró Quesada, Chairman of the Board of Directors, has first degree kinship with Mr. Miguel Valentín Miguel Valentín Ghezzi Business Development Manager Ghezzi, a Director of Concar and Larcomar and Business since October of 2006. Business Administration Degree from Development Manager at Graña y Montero, third degree the Universidad del Pacífico (University of the Pacific) with an kinship with Ms. Yamile Brahim Graña, shareholder of the MBA from Harvard Business School. He has been working company, and fourth degree kinship with the Director, Mr. with the Group since November of 2004. He is a Director Hernando Graña Acuña. Lastly, Mr. Teodoro Hans Harmsen of CONCAR and Larcomar. He was the General Manager Andress, a Director of GMP, has first degree kinship with of CONCAR S.A. from 2004 to 2005; then he was placed in Mr. Teodoro Harmsen Gomez De La Torre, a Director of the 50 charge of Financing for the Northern IIRSA Highway from 2005 company. to 2006. Previously, he worked for Citibank in the Corporate Finance Area. César Neyra Rodriguez Manager of Internal Auditing and Management Processes. He has a Bachelor’s degree in Accounting from Universidad Nacional Federico Villarreal (Federico Villarreal National University) and a Master’s degree in Business Administration and Finance from the Universidad del Pacífico (University of the Pacific). He has also studied Quality Improvement Systems and completed the program on Six Sigma Methodology at Caterpillar University in Mexico and the USA. Claudia Drago Morante Corporate Legal Advisor from 2000 up to date. Attorney, graduate of the University of Lima. Completed the Upper Management Program on Corporate Law and Finance at ESAN. She was the Legal Advisor of GMD from 1997 to 2000. Capital Major Shareholders 69 The capital of the company as of December 31, 2006 amount- The principal shareholders are: Graña Holdings, represented ed to S/.235,786,936.70, represented by 336,838,481 shares by José Graña Miró Quesada, Chairman of the Board of Direc- with a nominal value of S/. 0.70 each as a result of the increase tors and Vinci Construction, the French group that is currently in capital stock agreed upon by the General Meeting of Share- the largest construction company in the world. holders on March 23, 2006. 50 10 10 List of Major Shareholders as of 12.31.2006 Shareholder Shares % Graña Holdings Vinci Construction AFP INTEGRA AFP PRIMA Bethel Enterprise AFP Horizonte Byron Development AFP Profuturo Genesis Smaller Companies SICAV Total Other Grand Total 71,326,555 53,779,791 35,095,268 28,795,740 21,359,718 21,105,116 16,426,512 15,274,528 13,446,098 276,609,326 60,229,155 336,838,481 21.18% 15.97% 10.42% 8.55% 6.34% 6.27% 4.88% 4.53% 3.99% 82.12% 17.88% 100.00% 70 10 10 10 Evolution of Shares per share in January and S/.4.00 per share at year-end closing. The average liquidity during the period was 92.03 % and the volume traded during the year totaled S /. 275,329,437.34. During the year 2006, the profitability of the shares reached 450% including the effect of the issuance of fully paid-in shares in May. The stock market quotation was S/.0.85 Monthly Quotations on Shares ISIN Code Mnemonic Year-Month 2006 Quotations Price Avg. S./. Opeing Closing Max S./. S./. S./. Min S./. PEP736581005 PEP736581006 PEP736581007 PEP736581008 PEP736581009 PEP736581010 PEP736581011 PEP736581012 PEP736581013 PEP736581014 PEP736581015 PEP736581016 Volume Negotiated 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 GRAMONC1 2006-01 GRAMONC1 2006-02 GRAMONC1 2006-03 GRAMONC1 2006-04 GRAMONC1 2006-05 GRAMONC1 2006-06 GRAMONC1 2006-07 GRAMONC1 2006-08 GRAMONC1 2006-09 GRAMONC1 2006-10 GRAMONC1 2006-11 GRAMONC1 2006-12 0.85 1.22 1.30 1.31 1.75 2.00 1.90 2.99 3.30 3.70 3.88 3.66 1.13 1.32 1.30 1.75 2.00 1.90 2.90 3.33 3.65 3.86 3.65 4.00 1.16 1.34 1.32 1.76 2.20 2.15 3.00 3.40 3.70 4.00 3.95 4.00 0.92 1.22 1.28 1.47 1.96 1.98 2.45 3.05 3.36 3.81 3.86 3.93 Vol. Neg. US$MM Closing Price 0.77 1.05 1.20 1.28 1.70 1.90 1.90 2.75 3.20 3.70 3.60 3.65 5.00 4.00 3.00 2.00 1.00 0.00 Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic 16 27 20 Securitized Bonds the end of December 2006, the balance of these bonds was S/. 116,871,000 (US$ 36.8 MM). During the year 2006, the company obtained the approval of the Assembly of Bondholders and the Guarantors to reduce the levels of the IDB and FMO guarantees, In October 2003 the company and its main subsidiaries placed release the reserve account and relax certain conditions on the Securitized Bonds on the market partially guaranteed by IDB structure of the Bonds that generated operating and tax inef- and the FMO in the amount of US$ 50 million, with semi-annual ficiency. These modifications do not affect the classification of interest payments and an expiration date in September 2011. At the bonds, which continue to have an AAA rating. Securitization Bonds ISIN Code Mnemonic Instrument 2006 Quotations Price Avg. % Opening Closing % % Max % Min % PEP80070F083 INTE0BTG1U Securitization 101.39 101.32 101.39 100.32 100.39 Bonds Short-term Instruments November 28, the company issued S/. 5,000,000 against this line for a period of 6 months, at a rate of 5.06%. 71 10 10 7 In November, the company obtained approval from CONASEV to offer a line of short-term instruments on the capital market in the amount of US$ 20 million for a two-year period. On Short-term Instruments ISIN Code Mnemonic Instrument 2006 Quotations Price Avg. % Opening Closing % % Max % Min % PEP7658VO24 G&M2CP2A Commercial 97.56 97.56 97.56 97.56 97.56 Paper 18 16 10 10 7 72 Historical Summary 32 1933 The Group was founded in the city of Lima in 1933, under the Miraflores City Hall name Gramonvel S.A. Ingenieros. Lima Maternity Hospital City of Talara Las Palmas Air Force Base Nestlé factory 1949 In 1949, the company merged with Morris y Montero, forming Southern Pan American Highway Graña y Montero S.A. Ministry of Economics and Finance Banco Wiese Ltdo. (bank) First National Bank Sears Roebuck of Peru 1954 In 1954 the Consorcio de Ingenieros Contratistas Generales Hospital del Empleado (Hospital for Workers) (Consortium of General Contractor Engineers) was founded. Chimbote Steel Plant Cañón del Pato Hydroelectric Station Jorge Chávez Airport Monterrico Horse Racetrack Paseo de la República avenue Sheraton Hotel 1980 En 1980 Graña y Montero S.A. initiated a diversification proc- Cuajone Mining Project ess with the creation of GMI, the Engineering Consulting firm, Chavimochic Irrigation Project GMP, the Petroleum Services company, and GMD, the Informa- Banco Continental (bank) tion Technology Services company.. Machu Picchu Hydroelectric Station Cuzco Hospital 29,030 feet drilled in 5 wells during 2004 Technology Outsourcing for the Lima Stock Exchange Management of Hotel Melía Project in the Dominican Republic Fábrica de Cementos Lima Hospital del Seguro Social del Empleado 73 22 Cerro Verde Terminal Marítimo de Camisea, Pisco 1994 In 1994, Concar, the company specializing in the Operation Arequipa-Matarani Highway Concession and Maintenance of highways in concession, was founded. 1996 In 1996 the Holding Company was founded and in 1997 Graña Ventanilla Thermoelectric Power Plant y Montero S.A.A. increased its capital stock through public Four Seasons Hotel in Mexico stock offering, thereby turning the company into an Open Sulfuric Acid Plant for Southern -Peru Corporation. 1998 Chinecas Irrigation Project In 1998 Consorcio Terminales was founded in association with Marriott Lima Hotel Oil Tanking of Germany to manage, store and distribute fuel in Camisea: Fractioning Plant 56 the northern and southern sections of the country. Ralco Hydroelectric Station, Chile Operation of the Camisea Maritime Terminal in Pisco 2002 In 2002 Norvial S.A., the concessionaire for Road Network No. 5, was founded. 2005 In 2005, the Concessionaires IIRSA Norte and IIRSA Sur Cerro Verde Concentration Plant (northern and southern highways) were founded. SPCC Smelter in Ilo Ancón-Huacho-Pativilca Highway New Camisea Malvinas Gas Plant Interoceanic Highway Tarapoto-Yurimaguas Highway APEX San Cristóbal mine in Bolivia 74 Administration Analysis Regarding the economic and financial situation The Group’s Backlog amounted to US$ 591.5 MM. Of this total, US$ 347.2 MM is to be executed during the year 2007. Profit and loss Summary The consolidated Activity of the Graña y Montero Group at The consolidated Activity for the 2006 period increased by the end of the 2006 period had grown 41.8% compared to 41.8% compared to the year 2005, totaling S/. 1,320.8 MM the equivalent consolidated Activity for 2005, amounting to (US$ 413.2 MM). Contracts related to Energy and Mines are S/. 1,320.8 MM. The increase in Activity during 2006 stemmed the source of 69% of this Activity. mainly from the Infrastructure Business, which grew S/. 330.4 The OIBDA attained by the end of 2006 was S/.275.6MM, which represents 52.4% growth. Of this OIBDA1, 37.2% MM (+51.2%). All the other lines of business of the group grew during the year as follows: the Petroleum Business by S/ 22.4 MM (+16.9%), the Concession Operation Business by corresponds to Stable Flows from Concessions and S/.16.1 MM (+81.0%), the Engineering Business by S/.9.0 MM long-term contracts. (+41.5%), the Information Technology Business by S/. 8.8 MM (+9.1%) and Larcomar by S/ 3.0 (+18.2%). Available Profits for the year 2006 amounted to S/. 104.9 MM, meaning a 220.6% growth. The Infrastructure Business Activity had been robust since The Financial Debt decreased by 23.8% and the Net Cash project, the Expansion of the SPCC Plant in Ilo and the Reserve Debt decreased 59.4%, resulting in reduced leveraging of 1.54x, as well as a Financial Debt / OIBDA1 ratio Sociedad Minera San Cristóbal Project in Bolivia, which were completed this last quarter. The new contracts on the equivalent to 9.5 months and 10.7x coverage of Financial Expansion of the Malvinas Plant for Pluspetrol, the civil works the end of 2005 due to contracts on the Cerro Verde mining Expenses. and manufacturing of structures for the Cerro Corona Copper Concentrator, as well as Dirt Moving contracts for Brocal IV and revamping and maintenance on Lot 1AB are 75 good indications that similar robustness can be expected supported on an increase in service orders in relation with during 2007. the framework contracts with Antamina, Minera Cerro Verde and Repsol for La Pampilla Refinery, as well as the The price of petroleum throughout the year 2006 was Engineering contract entered into with the Hothschild favorable for the Extraction – Production Activity in Lots I and Group’s Minera Santa Cruz for the development of the San IV, as well as the Well Drilling line of this business. In the fuel José mining project in Argentina. Storage and Dispatch business, an increase in the cost of transporting fuel between Peru and Bolivia was favorable The growth of the Information Technology Business is due to during this period. Lastly, the Talara Natural Gas Processing greater activity in the Technology, Technological Services and Plant, acquired at the beginning of the year from Empresa Software Factory lines of business. Eléctrica de Piura S.A. (EEPSA), more than compensated the effect of no longer consolidating the activity of Compañía A greater average percentage of occupation of commercial Logística de Hidrocarburos Boliviana, explained further on in locations throughout 2006 compared to the previous year, in this report. addition to greater average consumption among visitors, resulting in higher varied sales for Larcomar, are among the The activity of Operations in Concession in 2006 increased main reasons underlying increased Activity in this business. as a result of the start-up of work related to the Concession Contract on the Operation of the Paita – Yurimaguas Highway It is worth mentioning that, of the Activity for the 2006 period, (Northern Multimodal Section) in April. Additionally, the 69% was related to contracts with the Energy and Mining extension of the concession for the Arequipa – Matarani sector, validating the Group’s strategy of zeroing in its Highway through May 2007 until the concession for Section 5 sources of income on this sector. of the Southern Inter-oceanic Highway is awarded, prevented a contraction of activity that would have offset a significant part of this growth. The robustness of the Engineering Business may be Annual Consolidated Activity (S/. 000) 1,550 1,300 1,050 800 550 300 50 2002 2003 2004 2005 2006 692 808 841 932 1,321 2002 2003 2004 2005 2006 * The activity of Larcomar S.A. has been included in preceding quarters for purposes of comparison 76 Activity by business Infrastructure Engineering Concession Operations Information Technology Petroleum Services Other 73.9% 11.8% 8.0% 2.7% 2.3% 1.3% 42.1% of the consolidated Gross Profit was provided by 162.5 MM at the end of the period. lines of Business unrelated to Construction. The increased percentage of Activity from the Infrastructure Business due to The Gross Profit from the Petroleum Business amounted to S/. the previously explained growth has shrunk Gross Profit from 65.3MM due to good results in its extraction and production line lines of business unrelated to Construction down to 42.1%. in lots I and V, to well-drilling services and to the outcomes However, while the percentage of Activity from the Infrastructure contributed by the operation of the Talara Gas Processing Plant Business lies in the ballpark of 74% for the 2006 period, the that made it possible to compensate and overcome the effect Gross Profit percentage from this line of business accounted of the deconsolidation of CLHB results. Gross Profit for the fuel for 58% of the group’s Profit. Storage and Dispatch line was equivalent to that reported for Gross Profit rose 48.4%, reaching S/. 272.8 MM. the preceding year. The increase in Gross Profit of the Infrastructure Business The Gross Profit of the Highway Concession Operation (+81.3%) is a by-product of greater Activity in this business; the Business is explained by the 8 months that the Contract on the increase in the Gross Profit from Petroleum Business (+9.3%), Concession for the Operation of Paita – Yurimaguas Highway Concession Operations (+82.0%) and Larcomar (+20.3%) (Northern Multimodal Section) was in effect during the 2006 support this growth. It should be noted that, as a consequence period. of greater than usual margins for the Infrastructure business, the consolidated Gross Margin improved by 92 basic points, Lastly, greater Activity related to the Information Technology amounting to 20.7% of the Activity. Business, Larcomar and the Engineering Business generated In addition to the growth in Gross Profit generated by the business, which amounted to S/. 13.6 MM, S/. 11.1 MM and S/. increase in Infrastructure Business Activity, the Gross Margin 8.9 MM respectively. an increase in the Gross Profits reported by these lines of of this business improved 13.9% to 16.7% as a consequence of greater profitability in all its divisions. As a result of these factors, the Gross Profit from this business amounted to S/. OIBDA Per line of business 77 Infrastructure Petroleum Services Information Technology Operation of Concessions, , Engineering Other 60.87% 24.09% 4.94% 3.72% 1.79% 4.60% Operating Profit totaled S/. 213.0 MM, representing an S/. 275.6 MM, representing growth of 52.4 % compared to Operating Margin of 16.1%. The aforementioned increase in the previous period. As in the case of Gross Profit, the Gross Profits, enhanced by the fact that consolidated General growth of the Infrastructure Business Activity increased its Expenses accounted for 4.5% of the Activity, materialized a share of the group’s OIBDA, resulting in the generation of 68.7% increase in Operating Profit. 39.1% of the OIBDA by businesses unrelated to Infrastructure and Construction. Additionally, it should be mentioned that Net financial expenses decreased by 26.4%, totaling S/ long-term stable flows such as concessions and outsourcing 25.7 MM. The contraction of financial debt achieved during provided 37.5% of the OIBDA. This resulted in 1.55x coverage the first quarters of the year as a consequence of the Group’s over the Group’s Financial Expenses plus General Expenses financial liability reduction policy is reflected by lower financial unrelated to these lines of business, assuming that the latter expenses for this period. This, combined with the increase in will not decline in the event of a total loss of their Activity. OIBDA explained further on in this report, resulted in 10.7x coverage, which represents an improvement of 5.5x in comparison with the previous year. Available Profit totaled S/. 104.9 MM, implying growth of 220.6%. Greater Operating Profit, combined with lower financial expenses, explains this improvement in Available Profit. A point worth noting is the favorable effect produced by the decline of the exchange rate which cushioned a signifi- cant portion of the rise in Other Disbursements resulting from the provision set up for CLHB investment devaluation. The cumulative OIBDA as of the end of the year 2006 was 78 Balance Sheet - the Group opened time deposit accounts with diverse financial institutions for a total of S/. 101.6 MM (US$ 31.7 MM). These deposits are earning interest at market rates, pending strategic investments that the Group expects to make during Consolidation of Larcomar. After the completion of the first upcoming quarters. phase of the Commercial and Financial Relaunch of Larcomar, which included the opening of a 4,400m2 Shopping Center and the construction of a permanent Exhibition Hall for Financial Debt / OIBDA decreased to 0.59x. The increase in pieces from the Gold Museum, the Group decided to OIBDA combined with the reduction of Financial Debt shall withdraw Larcomar from Investments Available for Sale and to permit the group to cancel the entire Financial Debt in 9.5 consolidate it as an additional subsidiary. months. It should be noted that the group maintains an During the year 2007 the Group expects to conclude a average expiration date of 31 months, which results in process for refinancing the Financial Liabilities of this significant generation of additional liquidity for the group. business in order to improve the ratio between the generation of debt and its average due date. Grounded in the aforementioned, as of the third quarter the Securitized Bonds. On November 10, 2006, the second Group incorporated Assets totaling S/. 80.3 MM, Liabilities Bondholders’ meeting took place. A series of changes was totaling S/. 72.9 MM and Minority Interest totaling S/ 7.5 MM. approved in relation with the financial conditions and into its Balance Sheet. guarantees on the bonds that will yield future savings for the group. As a consequence of the foregoing, US$ 8.8 MM of the reserve account and US$ 3.3 MM of the structure’s provision Effects of deconsolidation of Compañía Logística de account were released, leaving them freely available. Hidrocarburos Boliviana (CLHB). As consequence of the Additionally, the level of guarantees from the IDB and the FMO Nationalization of Hydrocarbons in Bolivia, and as a shrunk so that in the future guarantees shall be maintained on recommendation of our auditors, the financial statements of 37.5% of the balance of bonds issued. A series of CLHB were deconsolidated and a provision was set up for modifications to the securitization structure were also 50% of our share value at this company and charged against approved, making the operations of the group more flexible income in 2006. Although no agreement has been reached on and cutting down the effective issuance cost. valuation mechanisms vis-a-vis the shares to be transferred to the Bolivian government or the method of payment, the The foregoing did not affect the rating of the instruments, Group and Oiltanking, its German partner in CLHB, continue which kept the AAA rating given prior to these changes. in negotiations. The Financial Debt decreased by S/. 67.9 MM during the Commercial Paper. In the month of November 2006, 2006 period. This entails a 23.8% reduction in the group’s CONASEV approved the Group’s Second Short-Term financial debt, which reduced its leveraging from 2.18x to Instrument Program for a maximum amount of US$ 20 million 1.54x. The generation of cash attained during 2006, combined or the equivalent in New Soles for two years. The purpose of with a postponement of the investments forecasted for the this program is to diversify the Group’s sources of short-term year as a consequence of the electoral setting in the second financing. quarter, allowed the flows to be channeled toward Financial Debt reduction. This effect, along with increased equity due to Under this program, toward the end of November, Commercial positive results for the year, resulted in a 0.65x reduction of Papers were issued in the amount of S/. 5 MM at an AER of the total leveraging of the group. 5.06%. The funds were used to replace short-term financial liabilities related to the Information Technology business. The current liquidity as of the end of the period was 1.29x, an improvement of 0.08x. As a consequence of having reduced leveraging to 1.5x and not requiring additional cash to reduce its financial debt - where excess cash is generated by the businesses combined with the funds from the reserve and provision for the Securitized Bonds released last quarter 79 Backlog and Forecast The Group’s Backlog at the end of the period amounted to US$ 591.5 MM, equivalent to 1.46x the Activity for the last 12 months. Of this total, US$ 347.2 MM is to be executed in 2007, US$ 164.7 MM in 2008 and the balance from 2009 onward. It should be noted that as a consequence of the consolidation of Larcomar, the Backlog has increased by US$ 24 MM, and that in the month of May, US$ 29 MM was deducted from the Backlog as a consequence of the deconsolidation of CLHB. Consolidated Backlog 600 500 400 300 200 550 100 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 292 239 278 539 592 Explanatory Notes The figures in this report include the Financial Statements for Larcomar S.A., which has been consolidated as a subsidiary of the group as of the last quarter, the main effects of which are explained throughout this report. For comparison purposes, the year 2005 has been modified to include Larcomar figures. The deconsolidating of CLHB applies only to the Financial Statements for the year 2006. The figures for 2005 include the Earnings, Assets, Liabilities and Shareholders’ Equity of this company as required by accounting standards. 

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