Grana y Montero S.A.A.
Annual Report 2013

Plain-text annual report

80 yeArs GroWInG WItH VIsIon AnnuAl report 2013 Since July 24th, 2013 Graña y Montero iS liSted on the new york Stock exchanGe, throuGh a capital increase of UsD 430 million. as a resUlt, Graña y Montero becaMe the coMpany with the larGeSt Market capitalization in the enGineerinG and conStruction induStry in latin aMerica, with a valUe of Us$ 2,700 million. 1_experience 2_projection 3_internAtionALiZAtion 4_growth 5_tALent 6_vALues 7_reLiAbiLity 8_innovAtion 80 yeArs growing with vision 80 yeArs growing with vision 08_ to the shareholders 15_ engineering & construction 11_ organiZation 12_ main figures 17_ 19_ 20_ 21_ 22_ GyM Stracon GyM Vial y Vives DSD GMI 39_ technical services 41_ 42_ 43_ Concar GMD CAM GyM 45_ 46_ 47_ 67_ 71_ 72_ corporate governance Board of Directors Board Profile History Awards and Recognitions 2013 Results Analysis to December 31st, 2013 25_ infrastructure 32_ real estate 27_ 27_ 27_ 28_ 29_ 30_ Norvial Survial Concesion Canchaque Ferrovías GyM Concesionaria La Chira GMP 76_ reports 76_ Audited Financial Statements 272_ Compliance with Good Corporate Governance principles 324_ Special report on previously agreed upon procedures applied to the schedules of work, projects and services performed 34_ 36_ 37_ Viva GyM Almonte Espacio Project AnnuAl report 2013 statement of responsibility “this document contains true and sufficient information on the operations of graña y Montero s.A.A. during the year 2012. notwithstanding the responsibility of the issuer, the undersigned assume responsibility for the contents hereof in accordance with applicable laws.” mario alvarado pflucker chief executive officer gonzalo rosado solis corporate general Accountant Lima, january 30, 2014 6 80 YEARS ANNUAL REPORT 2013< menuGROWING WITH VISION 80 years experience We are pleased to submit to you the Annual Report 2013, the year when we celebrate 80 years of our company, founded on June 22, 1933. to the shareholders 5 José Graña and Mario Alvarado to tHe sHAreHolders: We are pleased to submit to you the Annual Report 2013, the year when we celebrate 80 years of our company, founded on June 22, 1933. Certainly, the most important event of this year, and a milestone in our long history, was that, as from July 24, 3013, Graña y Montero was listed at the New York Stock Exchange and made a capital increase of US$430 million, becoming the construction company with the greatest stock capitalization in Latin America, with a stock value of 2,700 million dollars. This capital increase was made primarily to further our growth in the infrastructure concession area, which requires major capital efforts, and also to foster our regional development, especially in Chile and Colombia. We made great progress in the few remaining months of the year. In August, we executed the contract for concession of the Lima South Expressway and late 8 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu to the shareholders the financial results of the year have been, once again, the best in our long history. sales reached the equivalent of 2,134 million dollars in the year we were awarded, as part of a consortium, the Chavimochic Irrigation concession. Concurrently, we acquired, in Chile, the firm DSD, with broad experience in electromechanical assembly, mainly in the oil and gas sector. This is a perfect complement to our previous acquisitions in Chile of the firm CAM, specialized in the electric power sector, and Vial y Vives, with broad experience in the mining industry. These three companies had revenues of 187 million dollars in 2013 which is equivalent to an Activity of 421 million dollars. These investments attest to our strategy of becoming a key player in the construction and infrastructure area in the Region and bring us closer to our vision of being the most reliable engineering group in Latin America. In this connection, in late 2013 we were selected, in a partnership with an Australian firm, to build a gold mine in Guyana. With this Project, as of December 31st our Contract Portfolio reached 3,935 million dollars plus recurrent businesses for 403 million dollars. Furthermore, the financial results of the year have been, once again, the best in our long history. Sales reached the equivalent of 2,134 million dollars, generating 369 million dollars in EBITDA, which accounts for 29% growth in nuevos soles (17% in dollars) vis-à-vis the previous year. But it is clear to us that this successful course is the result of having bet years ago on the development of talent of our thousands of employees, especially our team of more than 3,800 engineers who are capable of designing, building, operating and funding the most complex engineering projects that our region requires. And this great human team revolves around the corporate Values of Quality, Compliance, Reliability and Efficiency and committed to the policies of the Group, such as the Grow and Share policy, that make up what we call the Graña y Montero Way, for which this year we have been awarded 12 major external recognitions. 9 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuto the shareholders méxico panamá guyana colombia perÚ brasil chile Our leadership and reputation of 80 years, added to the new capacities acquired by our listing with the New York Stock Exchange to implement the large infrastructure projects that the region will require in upcoming years, allow us to foresee with optimism the development of our Group in the near future. Lastly, we would like to express our very special thanks to our clients and employees, who have made this success possible. José graña chairman mario alvarado ceo we are a group of complementary companies which cross frontiers Note: Activity represents the total amount of the project we manage 10 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuorganization Which was before only a construction Company, today is a group of 25 complementary companies grouped into 4 business areas and operating in 7 countries in latinamerica. 11 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menumain figures revenues gross profit profit before taxes net profit ebitDA backlog professionals 2010 2011 2012 2013 2013 thousands of s/. thousands of s/. thousands of s/. thousands of s/. 2,502,675 444,829 401,028 252,802 572,546 3,688,909 2,816 4,241,266 631,749 477,645 289,076 675,489 6,726,148 4,810 5,231,885 712,066 520,826 289,954 800,839 10,627,338 5,575 5,967,315 1,004,661 595,005 320,363 1,030,680 11,002,142 6,077 equivalent in thousands of us$ 2,134,233 359,321 212,806 114,579 368,627 3,934,958 6,077 growth 2012-2013 14.1% 41.1% 14.2% 10.5% 28.7% 3.5% 9.0% From the year 2013, EBITDA calculation will start from the net income, figure to which the taxes, exchange losses and interests expenses will be returned to, and the depreciation and amortization will be added. It also includes adjustments for Real Estate business and Metro de Lima. For comparison purposes, the figures from 2010 to 2012 have been calculated in the same way. 12 80 YEARS ANNUAL REPORT 2013< menuGROWING WITH VISIONmain figures reVenues (uS$ in MillionS) BAckloG (uS$ in MillionS) 1 9 8 3 7 5 , 1 1 5 0 , 2 4 3 1 , 2 3 1 3 , 1 4 9 4 , 2 6 6 1 , 4 5 3 9 , 3 cagr 33.8% cagr 44.2% 10 11 12 13 10 11 12 13 13 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu 80 years proJection Certainly, the most important event of this year, and a milestone in our long history, was that, as from July 24, 3013, Graña y Montero was listed at the New York Exchange and made a capital increase of US$430 million, becoming the construction company with the greatest stock capitalization in Latin America, with a stock value of 2,700 million dollars. 5 Construction of The Lima Metro, Line 1 Section 2. (Grau Ave. – San Juan de Lurigancho) 15 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuengineering & construction 5 Construction of tranche 2 of Metro of Lima in the year 2013, the engineering and construction area continued to grow, reaching total revenues of 1,457 million dollars, which accounts for 5.5% growth in dollars and 16% in nuevos soles. 16% growth in soles during 2013 Vial y Vives and DSD from Chile as well as Stracon GyM from contract mining operations, GMI from Engineering and Consultancy and the construction company GyM with their divisions of civil works, electromechanical assembly and buildings are included In the Engineering and Construction Area. In the year 2013, the Engineering and Construction Area continued to grow, reaching total sales for 1,457 million dollars, which accounts for 5.5% growth in dollars and 16% in nuevos soles, and profit after taxes for 91.9 million dollars. At the end of the year, the backlog portfolio of the Engineering and Construction Area is 3,044 million dollars, so growth of this area in upcoming years is assured. In August 2013, the company purchased the construction and assembly firm DSD, specialized in energy, oil and gas and the timber-related industry. 16 80 YEARS GROWING WITH VISIONANNUAL REPORT 2013< menuengineering & construction 5Hydroelectric central huanza in the energy sector, we delivered the huanZa hydropower plant (90 mw) and continued construction of another three, cerro del aguila (512 mw) , santa teresa ( 90 mw) and machu picchu (98 mw). GyM In the mining sector, we continued with the works, jointly with Bechtel, for the Las Bambas megaproject, we completed Ciudad de Nueva Fuerabamba and also delivered the concentrator area for the Toromocho mining company, where our company has erected the world’s largest mill. We completed assembly of the crusher for the Caserones mine, near Copiapó, in Chile, contracted prior to the purchase of Vial y Vives. In July, we obtained the civil works and electromechanical assembly for the expansion of the Cerro Verde Mine, in Arequipa, owned by Free Port, and we continued the construction of the Inmaculada mine for the Hochschild Group. In the Energy sector, we delivered the Huanza hydropower plant (90 MW) and continued construction of another three, Cerro Del Aguila (512 MW) , Santa Teresa ( 90 MW) and Machu Picchu (98 MW). 17 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuengineering & construction In August we were awarded the contract to build the Kepashiato compressor station for Transportadora de Gas del Perú (TGP). During the year, civil works for the Trench 2 of Line One of the Lima Metro were completed. This work will be delivered to the concession holder in mid-2014. In the Building Division, major contracts were obtained in the last quarter, like Panorama Building for the Inversiones Maje S.A. real estate company, the new campus of UTEC university, and the Leuro Financial Center for Inversiones Benavides 777. 18 5Pachachaca lime plant 3Piping installation for contugas 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuengineering & construction this was a year of maJor growth for the company. proJects for 423 million dollars were implemented, which accounted for 50% growth strAcon GyM This was a year of major growth for the company. Projects for 423 million dollars were implemented, which accounted for 50% growth and net profits for 23 million dollars, thus doubling the profits of the previous year. During this year, the main projects of this company are the civil works and mining services for the Hudbay mining company at the Constancia mine in Cusco, for the La Arena mining company in the Andes of the Department of La Libertad and the earth moving works for Minera Panamá, in Panama. 5Constancia mine earth movenet 19 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuengineering & construction 5Caserones Project. Chile in its first year as a graña y montero group company, vial y vives reached record revenues of 67 million dollars in profit after taxes. VIAl y VIVes In its first year as a Graña y Montero Group company, Vial y Vives reached record sales and 20 million dollars in profit after taxes. Nowadays, Vial y Vives is about to complete assembly of the Caserones mine concentrator, it continues implementing an important Project for Antofagasta Mineral at the Antucoya mine that starts from the construction and assembly of primary, secondary and tertiary crusher and another, a joint project with Bechtel, for BHP’s Escondida mine consisting of localized earth movements, concrete works, electromechanical erection including support in the comissioning stage. In October, Vial y Vives was awarded with the contract for the construction of a major truck shop for Los Pelambres mining company, which assure us a strong backlog for next year. 20 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuengineering & construction dsd In August, we acquire from Ferrostaal, DSD from Chile, a company specilize in electromechanical constructions in hydrocarbons and mining sectors. During the year, DSD completed the civil works and assembly of the tailings thickeners for CODELCO and the electromechanical assembly of the new ore coarse for the processing line of Compañia Minera del Pacifico. Also, the works for the agglomeration plant for Takraf at the Antucoya mine started. the works for the agglomeration plant for takraf at the antucoya mine started. 5Antucoya Project, Antofagasta. Chile 21 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuengineering & construction 5 New Fuerabamba city GMI The Mining Division continued with the detail engineering and support to materials management for the EPC Project of the Inmaculada mine for the Hochschild Group and extended the Master Contract for two more years with the Cerro Verde and Antamina mining companies. GMI also executed the Master Contract with Votorantim Metais and started the detail engineering of the infrastructure of the Aurora EPC Project in Guyana. The Industry Division continued with the field engineering for the EPC Contract of Nueva Ciudad de Fuerabamba for GyM; it was granted, in a consortium, the supervision of the Matarani Port terminal for the Romero Group; the detail engineering for the Alicorp noodle factory and executed the Master Agreement with Minera Rio Tinto. The Industry Division also completed management of the District S Project (Telefonica del Peru Operations Center). 22 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuengineering & construction the oil and gas division extended the master contract with coga, and entered a business development agreement in the sector with tipiel from colombia, with whom we were Jointly awarded with the master contracts for pp norte, pp camisea – maJor works. The Oil and Gas Division extended the Master Contract with COGA, and entered a Business Development Agreement in the sector with Tipiel from Colombia, with whom we were jointly awarded with the Master Contracts for Pluspetrol Norte, Pluspetrol Camisea – Major Works. This division also extended its Master Contract with Pluspetrol for performance of Minor Works. ECOTEC, a subsidiary of GMI, continued with its waste management and environmental services for UNACEM-Condorcocha; the EIA (environmental impact assessment) of the future paper plant of PROTISA; as well as the design of the new landfill (Cerro de Pasco). Also, the environmental assessments were conducted, the permits obtained and the environmental services provided for the Inmaculada EPC project. The Infrastructure Division continued with the road design and survey control of earth moving works for Las Bambas Project; and with the supervision of the construction and assembly works for Antamina. This division executed the Geomatic Services Master Contract. It has obtained the contracts for the supervision of the storage expansion at the Talara refinery with Petroperu and with Minera Shougang it has entered the contract for the supervision of EPC packages of the “Mine and Processing Plant Expansion of Operations” Project, the investment of which shall be about US$ 1,000 million. Also in 2013, we were conferred the Business Creativity Award 2013 for Knowledge Management System in the Technological Development and Information Systems Category. This competition is organized every year by Universidad Peruana de Ciencias Aplicadas – UPC, and we were also conferred the Good Labor Practices Award 2013, an event organized by the Ministry of Labor. The “Libro del Conocimiento” (Book of Knowledge), Volume IV, and the book “Compartiendo Historias de Valor” (Sharing Stories of Value), first issue, were presented. 5 Palomar road Exchange in Arequipa 23 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu80 years internationaliZation Concurrently, we acquired, in Chile, the firm DSD, with broad experience in electromechanical assembly, mainly in the gas and oil sector. This is a perfect complement to our previous acquisitions in Chile of the firm CAM, specializing in the electric power sector, and Vial y Vives, with broad experience in the mining industry. These three companies have revenues of of 187 million dollars in 2013. 5 Talara Gas plant 25 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuinfrastructure on closing of the year 2013, the infrastructure area has revenues of us$244 mm, which represents an 18% growth vis-à-vis the previous year. revenues of us$ 244 mm during 2013 On closing of the year 2013, the Infrastructure Area has revenues of US$244 MM, which represents an 18% growth vis-à-vis the previous year. EBITDA was US$87 MM and Net Profit US$27 MM. and works for stages I, II and III of Chavimochic Project as well as the design and construction of the hydraulic work of stage III, of which we are holders of 26.5%with an investment commitment of US$554 MM. During the year, the concession for expansion of the Via Expresa Sur (South Expressway) was signed and started, with an investment commitment of US$197 MM, the Private Public Partnership (PPP contract) for the Massification of Natural Gas Use using Compressed Natural Gas – CNG in the cities of Abancay, Andahuaylas, Huamanga, Huanta, Huancavelica, Huancayo, Jauja, Cusco, Juliaca and Puno was executed, with an investment commitment of US$15 MM, and we were awarded the concession for the maintenance Furthermore, the Contract for Concession of the Javier Prado Road Axis, involving an estimated investment of US$800 MM, in which we hold an interest of 40%, was ready for execution upon the final approvals by the Economy Ministry (MEF) and the Government Comptroller’s Office, milestones remaining to be completed in this project. In connection with international development, we have prequalified to submit proposals for three road concessions in Colombia in 2014. 26 80 YEARS GROWING WITH VISIONANNUAL REPORT 2013< menuinfrastructure 5 Operation of Ancon to Pativilca highway more than 1,000 kms of highways norVIAl, surVIAl y cAncHAque Road concession companies operate over 1,000 km of roads: In Norvial, which operates the road from Ancón to Pativilca, tollable traffic reached 17.5 MM in 2013, accounting for a 4.98% traffic increase vis-à-vis 2012. Also, in September, the technical file for construction of the second stage was submitted, and is scheduled to start in April 2014. The Nuevo Mundo overpass was also completed this last year. In Survial, which runs from San Juan de Marcona to Urcos, works for US$26 MM for the first periodic maintenance were executed and additional works for US$31 MM to be implemented in 2014 were awarded. Lastly, in Canchaque, which operates the road from the junction with the IIRSA Norte road to Buenos Aires, up to Canchaque’s town, the technical file for the first periodic maintenance was submitted. 27 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuinfrastructure 5 Operation of line 1 of Metro of Lima by december the line one was running with 12 trains simultaneously, in compliance with the investment commitment for this concession. 185,000 passengers daily FerroVíAs GyM During the first months of the year, operation of Line One was conducted with five Ansaldo trains. As from July, Alstom trains were gradually incorporated to the system and by December the Line One was running with 12 trains simultaneously, in compliance with the investment commitment for this concession. The maintenance shop yard started operating in March. During the year, this line transported 37 MM passengers, with a daily record of 185,000 passengers and operated with 98% compliance and 99% punctuality of the service. In the November survey conducted by Arellano Marketing we obtained 92% in customer satisfaction and 100% level of recommendation of our service. Also, we were conferred a customer service award from Ciudadanos al Dia. Also, in May, we were for Good Practices in Public Management in the Category of Public Services manage by private companies and in November two awards from Peru 2021 for social responsibility one in Customers and the other in Multistakeholders categories. 28 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuinfrastructure concesIonArIA lA cHIrA On February, 2011, La Chira Concessionaire, incorporated with Acciona Agua from Spain, signed the contract for the design, financing, construction and operation for 30 years of the waste water treatment of La Chira in the south of Lima. The construction started in July, having completed US$33 MM of the works to this date, equal to 48.78% of the total investment commitment. 5 La Chira project 29 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menuinfrastructure GMp In December, we achieved the highest monthly average production of crude in the history of GMP, reaching 1,745 barrels/day. Also in December, we drilled Well # 100 in blocks operated by GMP we produced 581,000 barrels of crude, the highest annual production in the history of gmp we have to point out that for the 2nd consecutive year, gmp was chosen as one of the great places to work in peru (gptw) ranking 9 between the 251 - 1000 workers category Prospecting and Production Sixteen development Wells were drilled in Block I, with an investment of US$ 17.8. We produced 581,000 barrels of crude, the highest annual production in the history of GMP and 2,029.2 MMSCF of natural gas. Pariñas Gas Plant 6.61 BSCF of natural gas, equal to an average of 18.10 MMSCFD, were processed. Liquids production was 270,351 barrels and recovery of liquids efficiency reached 95%. Consorcio Terminales An average of 77.000 barrels/day of products were dispatched and storage contracted by our users was 2.250 MM barrels/month. 5 Pariñas gas plant in pariñas 30 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu80 years growth Sales reached the equivalent of 2,134 million dollars, generating 369 million dollars in EBITDA, which accounts for 29% growth (17% in dollars) vis-à-vis the previous year. 5 Espacio Project. Cuartel san Martin 32 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menureal estate 5 Cipreses Building, San Isidro In 2013 we grew by 19%, reaching revenues of 112 million dollars and EBITDA of 48 million dollars, with 36% growth vis-à-vis the previous year, even though 2013 was a year of changes for the sector, especially in bank guidelines for approval of mortgage credits, motivated by increased of restrictions by the Governmental Supervisory Entity for Banks and Insurance (SBS). The first change was the differential funding rate future properties and finished properties and subsequently more demanding requirements to qualify for a mortgage credit. These conditions have affected the sales rates of our various real estate projects. The Real Estate Area includes the companies Viva GyM, the main developer of affordable housing projects, Almonte S.A., owner of the site for a major urban development in the south of Lima and “Espacio” project association where the former army base Cuartel San Martin was located. We closed the year with a backlog of executed contracts for 85 million dollars and we have developed 25 projects in their various completion stages, which means delivering about 10,600 housing units in the next five years. We closed the year With a backlog of executed contracts for 85 million dollars 10,600 housing units in the next five years 33 80 YEARS GROWING WITH VISIONANNUAL REPORT 2013< menureal estate 5 Parques Villa El Salvador project in 2013, 70% of our revenues came mainly from the development of affordable housing, in line With our strategy and With market demand. VIVA GYM In 2013, 70% of our revenues came mainly from the development of affordable housing, in line with our strategy and with market demand. During the year ended, we sold 1,134 apartments and delivered 1,756 apartments. Also, we have purchased three sites for about 23 million dollars: one in Chiclayo, of a total area of 8,100m2 where we can develop 216 apartments; another of an area of 5,009 m2 at Av. Canta Callao where we will develop about 300 apartments and, lastly, a 1,375 m2 site in San Isidro (Av. Pezet) to develop a luxury building of 36 apartments. At Los Parques de Comas Project, we continue working on the solutions to the problems encountered in the respective Municipality formalities. During the year we conducted campaigns to position our brand Viva GyM in the market, ranking third in top-of-mind brand recall. 34 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menureal estate during the year We conducted campaigns to position our brand viva gym in the market, ranking third in top-of- mind brand recall. It is worth noting that we were conferred the Business Creativity Award for Real Estate, Construction and Equipment category for our Social Accompaniment Program (AYNI), in which we obtained a talk to box rating over 75% based on our customer satisfaction survey, resulting in 30.7% of our sales being made by “referred” clients. For the third consecutive year, Viva GyM was elected as one of the Great Places to Work (GPTW) in Peru. Also in 2013, we ranked seventh among the companies with 50 to 250 employees in Peru. Another important recognition we received was the first place in the real estate ranking of the most attractive employers in Peru (Employer Brand – Laborum / Arellano Marketing). 5 Cipreses Building 35 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menureal estate ALMONTE S.A. The company intends to develop a project that is practically a satellite city in the south of Lima. During the year, 43,000 m2 of industrial land were sold. Recently, the Municipality of Lima approved the new zoning plan up to 2035, which includes our site as one of the two industrial areas of the city. Additionally, we have continued with the designs and authorizations to be granted the Specific Zone status of the sites. the company intends to develop a project that is practically a satellite city in the south of lima. during the year, 43,000 m² of industrial land Were sold. 36 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menureal estate ESPAcIO PROjEcT This partnership with the firm Urbi is developing the “Espacio” project at the site of the former military base Cuartel San Martin, with an area of 68,400 m2 which includes four residential buildings, two office buildings, a shopping center, a hotel and a convention center. Design of this project was completed during the year with the renowned architect Jean Nouvel and the process to obtain the building permit has started. 5 Espacio project 37 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menu80 years talent But it is clear to us that this successful course is the result of our having bet years ago on the development of talent of thousands of collaborators, especially our team more than 3,800 engineers who are capable of designing, building, operating and funding the most complex engineering projects that our region requires. 5 Technological operations center, GMD 39 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menutechnical services The Technical Services Area includes our companies engaged in the provision of maintenance, installation and technology services to sectors such as the energy, telecommunication, transportation, water and general infrastructure sectors. The Technical Services Area includes Concar, specialized in transport maintenance, GMD information technology company and CAM, specializing in services to electricity companies in Chile, Colombia, Peru and Brazil. revenues of this area in 2013 were us$ 418 million, which meant keeping the turnover of 2012, ebitda of this area was us$ 39 million Revenues of this area in 2013 were US$ 418 million, which meant keeping the turnover of 2012, explained by a reduction in the business of CAM (a strategic decision to focus operations on the services business and reduce construction and sales). This effect was offset by an increase in the business of Concar. EBITDA of this Area was US$ 39 million. In sum, we foresee major opportunities for the Services Area in upcoming years, spearheaded by the growth of the main industries in the region and their needs for specialization, which will demand services for their non-core businesses, and new opportunities for synergies among the various companies of the Group, and by the major infrastructure investments announced in the countries where we operated, which will demand associated maintenance and installation services. 40 80 YEARS GROWING WITH VISIONANNUAL REPORT 2013< menutechnical services the year 2013 was one of increased business as a result of new road proJects with the cusco regional government concAr The year 2013 was one of increased business as a result of new road projects with the Cusco Regional Government that, even though these involved revenues of US$ 153 million, 61% more than in 2012, such increase was not reflected in earnings due to the greater complexity and difficulties for implementation of such projects. Operation of the Lima Metro was a major activity, where the good outcome in the customer satisfaction surveys reflect the quality of our services. The year 2013 has been one where the lessons learnt have served to strengthen the internal organization of Concar, preparing the company for the growth in upcoming years. 5 Conservation contarcts with the Ministery of transport and communications 41 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menutechnical services GMd In 2013, even though growth of the IT sector was forecasted to drop, GMD increased its market share in the help desk, IT infrastructure outsourcing and application outsourcing businesses, strengthening even further its leadership in such businesses. Revenues of the company for this year was US$ 81 million and EBITDA US$ 12 million. Investments for US$ 6.6 million were made during the year ended, to sustain growth of the IT infrastructure outsourcing and application outsourcing businesses, and in purchasing and fitting of the new offices of the company. The activity generated by IT services, Help Desk, IT infrastructure outsourcing and application outsourcing grew by 23% vis-à.vis 2012, which accounts for 63% of the total business of the company. This growth is a clear ratification of our vision and consolidates even further our leadership in these business segments. During 2013, GMD ratified its commitment to human resources management, being recognized by ABE (the good employers association - Asociacion de Buenos Empleadores) and increasing by 2 points in working climate, according to GPTW (Great Place to Work), and to quality management by renewing its ISO 9001 certification for all processes, including electronic intermediation. Also, the company obtained the OSHAS 18001 certification, ensuring the reliability, availability and quality of its operations. during 2013, gmd ratified its commitment to human resources management, being recogniZed by abe (the good employers association - asociacion de buenos empleadores) and increasing by 2 points in working climate, according to gptw (great place to work), 5 Help Desk, GMD. 42 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menutechnical services cAM For CAM, 2013 was a year of strengthening of the new processes resulting from the Cam Cumple project and from reorienting its business activity towards site services and specialized services. Even though CAM sales were US$ 184 million, less than in 2012, due to the strategic decision of focusing its operations on the services business, reducing construction and sales, we have operated more efficiently, improving our profitability, being competitive in prices and providing a better quality service to our clients. Also, the results of our subsidiaries point at major progress in Chile, Colombia and Peru. In Brazil, we started a deep restructuring that rendered positive results in the second half of the year. we foresee maJor opportunities for the services area in upcoming years, spearheaded by the growth of the main industries in the region and their needs for specialiZation 5 Technical and comercial operations in médium and low tension 43 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu80 years values And this great human team revolves around the corporate Values of Quality, Compliance, Professionality and Efficiency and committed to the policies of the Group corporate governance Since July 24th 2013, Graña y Montero is listed on the New York Stock Exchange, incorporating to its shareholders new institutional investors with very demanding management requirements, growth expectations and sustainable performance. As part of our continued improvement plan, we reviewed our corporate governance standards to meet the exacting requirements of the market. In this process, we found, with great satisfaction, that we met most of the standards that the New York Stock Exchange requires from foreign investors, however, we include some improvements in our Corporate Governance Policies. Thus, we created Canal Etico (the Ethics Channel), a tool to receive any concern in connection with compliance with the Letter of Ethics and the Code of Conduct, protecting the confidentiality and anonymity of the user. We also made some changes to the Board of Directors Regulations; specifically, we included as part of the duties of the Audit and Processes Committee and the Human Resources Management and Social Responsibility Committee setting their own budget to ensure performance of their duties. Also, it was established that any complaint received by the Ethics Channel in connection with accounting or audit matters would be assessed by the Audit and Processes Committee, and that the Human Resources Management and Social Responsibility Committee would be in charge of reviewing and approving corporate goals and objectives associated with the compensation of the CEO, of evaluating his performance and of approving its compensation. It should be noted that both Committees consist solely of Independent Directors. Furthermore, the company continued within the Good Corporate Governance Index of the Lima Stock Exchange and participated actively in the Companies Circle, a group of 19 Latin American companies with high standards of corporate governance, being a member of the steering committee of the Companies Circle. On the other hand, in 2013, training on the Asset Laundering Prevention System continued, implementing a virtual course that allowed us to reach 1,983 collaborators of GyM (79% of payroll employees) and 93 collaborators of Viva GyM. Also, the SOX Compliance Area was created in late 2013 to generate the internal control mechanisms to comply with the new transparency and reporting standards required under the Sarbanes-Oxley Act. 45 80 yeArs GroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance BoArd oF dIrectors The members of the Board of Directors are the following José Graña Miro Quesada Chairman External Director Carlos MonTero Graña Vice Chairman External Director HuGo sanTa María GuzMán Independent External Director José anTonio ColoMer Guiu Independent External Director roberTo abusada salaH Independent External Director luis Miró Quesada ValeGa External Director José CHliMPer aCkerMan Independent External Director Hernando Graña aCuña Internal Director Mario alVarado PfluCker Internal Director- CEO 46 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menu corporate governance proFIle oF tHe BoArd oF dIrectors Jose Graña Miró Quesada. Mr. Graña joined the group in 1968 and has been a director and Chairman of our board of directors since August 1996. He is an architect graduated from Universidad Nacional de Ingeniería. For graduate studies, he attended ESAN and the Universidad de Piura Senior Management Program. In addition, Mr. Graña serves as Chairman of the board of directors of our subsidiary Viva GyM and as a director of our subsidiaries GyM and GMD. In addition, Mr. Graña serves as a director of Empresa Editora El Comercio S.A., Prensa Popular S.A., Servicios Especiales de Edición S.A. and Mexichem Amanco Holding. He has previously served as a member of the board of directors of our subsidiaries Concar, GMP, as well as GMI Refinería La Pampilla S.A.A., Edegel S.A.A. and Telefónica S.A.A. He served as Chairman and First Executive of Graña y Montero S.A.A. until March 2011, when he decided to retire from his executive responsibilities and the position of President was eliminated. Carlos MonTero Graña. Mr. Montero has been a director since August 1996 and is currently the Vice Chairman of our board of directors. He graduated from Universidad Nacional de Ingeniería as a civil engineer. For graduate studies, he attended the Universidad de Piura Senior Management Program. Mr. Montero is also the Chairman of the board of directors of our subsidiary Concar and a director of our subsidiaries Survial and GyM. He has previously served as Vice Executive Chairman of our subsidiary GyM until 2007. 47 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance proFIle oF tHe BoArd oF dIrectors roberTo abusada salaH. Mr. Abusada has been a director since March 1998. He holds a Ph.D. in Economics, having studied at Pontificia Universidad Católica del Perú, Cornell University and Harvard University. In addition, Mr. Abusada is the Chairman of the board of directors of our subsidiary GMD and a director of TECSUP. He has previously served as a director of Post Graduate Studies in Economy at Pontificia Universidad Católica del Perú, member of the board of directors of the Peruvian Central Bank and Corporación Andina de Fomento (CAF), as well as Peru’s Vice-Minister of Economy. He is a founder and director of the Peruvian Institute of Economy (IPE). Jose CHliMPer aCkerMan. Mr. Chlimper has been a director since March 2006. He received a degree in Economics and Business Administration from North Carolina State University. In addition, Mr. Chlimper is the Chairman of the board of directors and CEO of Agrokasa S.A. and a member of the board of directors of Corporación Drokasa S.A., Maestro Home Center Perú S.A., Aeropuertos del Perú S.A., ComexPerú, Instituto de Formación Bancaria (IFB) and our subsidiary GyM. He is Chairman of the board of directors of Compec. He is a member of the Agrarian Consultative Council for the master’s degree in Agrobusiness at Universidad del Pacífico. He has previously served as councilman for the municipality of Lima, President of the Fondo de Las Américas, Peru’s Minister of Agriculture and member of the board of directors of the Peruvian Central Bank. 48 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance proFIle oF tHe BoArd oF dIrectors José anTonio ColoMer Guiu. Mr. Colomer has been a director since March 2009. He received a certificate in Corporate Management and another in Leadership and Innovation from Universidad de Navarra in Spain, a certificate in Business Administration and Marketing from ESADE in Spain and a certificate in Quality and Strategic Marketing from AEDEM – Alta Escuela de Dirección de Empresas in Spain. In addition, Mr. Colomer is a member of the board of directors of BBVA Banco Continental, Holding Continental, MAPFRE/Catalunya and our subsidiary Viva GyM. He is also a director of ADOPEM Bank in the Dominican Republic. He has previously served as member of the board of directors of BBVA Provincial Venezuela and FC Barcelona. HuGo sanTa Maria GuzMan. Mr. Santa María has been a director since March 2011. He is an Economist from Universidad del Pacífico and has a doctorate in Economics from Washington University in St. Louis, Missouri. He is also the Chairman of the board of directors of MiBanco and a director of APOYO Comunicación Corporativa, as well as a partner and chief economist at APOYO Consultoría. Mr. Santa María previously served as director of Fondo Consolidado de Reserva (FCR) and Compañía Minera Atacocha. 49 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance proFIle oF tHe BoArd oF dIrectors luis Miró Quesada ValeGa. Mr. Miró Quesada has been a director since March 2011. He has been a member of the board of directors of Empresa Editora El Comercio S.A. since 1990. Mr. Miró Quesada has also been director and President of Grupo TV S.A.C, Plural TV S.A.C. and Compañía Peruana de Radiodifusión S.A. since 2007, as well as director of Zetta Comunicadores del Perú S.A. EMA since 1995. Hernando Graña aCuña. Mr. Graña joined the group in 1977 and has been director since august 1996. He is an Industrial Engineer graduated from Texas A&M University. Mr. Graña also completed post-gradute studies in Mine Engineering at the University of Minnesota, USA. In addition, he is the President of the Board of Directors of our subsidiaries GyM, GMI and Stracon GyM as well as director of our subsidiaries Norvial, Survial, CAM, Vial y Vives y La Chira y Transportadora de Gas del Perú. Mr. Graña has participated as Executive Director of GyM since 1996. 50 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance proFIle oF tHe BoArd oF dIrectors Mario alVarado PfluCker. Mr. Alvarado joined the group in 1980 and has been Chief Executive Officer of Graña y Montero since 1996 and a director since April 2003. He is a Civil Engineer with a master’s degree in Administration Engineering from George Washington University and graduate studies in the CEO Management program at Kellogg School of Management, Northwestern University. In addition, he is a member of the board of directors of our subsidiaries GyM, Vial y Vives, Viva GyM, CAM Chile, Survial, GyM Ferrovías, Almonte, as well as Larrain Vial Safi. He is also a member of the Consultive Council of the Tecnológico de Monterrey (Peru Site). Mr. Alvarado has previously served as member of the board of directors of Amerika Financiera S.A. 51 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance coMMIttees oF tHe BoArd oF dIrectors operAtInG coMMIttees oF tHe BoArd oF dIrectors • Audit And Processes committee: Made up of Independent Directors roberto abusada salah | Chairman José Chlimper ackerman José antonio Colomer Guiu This committee held five meetings during the year • HumAn resources mAnAgement And sociAl responsIBIlIty coMMIttee: Made up of Independent Directors José Chlimper ackerman | Chairman roberto abusada salah Hugo santa María Guzmán This committee held three meetings during the year investment And risk committee: • Made up of External and Independent Directors José Graña Miró Quesada | Presidente José antonio Colomer Guiu luis Miró Quesada Valega This committee held three meetings during the year. • engineering And construction coMMIttee: José Graña Miró Quesada | Chairman Mario alvarado Pflucker José Chlimper ackerman Hernando Graña acuña Carlos Montero Graña This committee held twelve meetings during the year • infrAstructure committee: José Graña Miró Quesada | Chairman Mario alvarado Pflucker Hugo santa María Guzmán luis Miró Quesada Valega Hernando Graña acuña This committee held eleven meetings during the year • reAl estAte committee: • tecHnicAl services committee: José Graña Miró Quesada | Chairman José Graña Miró Quesada | Chairman Mario alvarado Pflucker Mario alvarado Pflucker roberto abusada salah Carlos Montero Graña This committee held ten meetings during the year José antonio Colomer Guiu This committee held ten meetings during the year 52 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu corporate governance executIVe coMMIssIon The Executive Commission in charge of coordination of the Group is made up of the CEO, CEOs, of the subsidiaries companies and corporate officers of the Group: Mario Alvarado Pflucker Mónica Miloslavich Hart Antonio Rodríguez Canales Claudia Drago Morante Juan José Arrieta Ocampo Jose Carlos Ascarza Revoredo Antonio Cueto Saco Hernando Graña Acuña Francisco Dulanto Swayne Gonzalo Ferraro Rey Juan Manuel Lámbarri Luis Díaz Olivero Jaime Dasso Botto Chief Executive Officer Chief Financial Officer Chief Investment Officer Chief Legal Officer Chief Corporate Responsibility Officer Chief Human Resources Officer Merger and Acquisitions Officer Executive President of GyM Executive President of GMP President of the Infrastructure Area Chief Executive Officer of GyM Chief Executive Officer of GMP and Chief Corporate Officer of the Infrastructure Area Chief Executive Officer of GMD Walter Silva Santisteban Requejo Chief Executive Officer of GMI Jaime Targarona Arata Rolando Ponce Vergara Klaus Winkler Speringer Chief Executive Officer of Concar Chief Executive Officer of Viva GyM Executive Vice President of CAM The Executive Commission held eleven meetings during 2013. 53 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menucorporate governance sHAreHolder´s serVIces oFFIce Mr. Dennis Gray Febres is the Investor Relations Manager and Stock Exchange representative of the company before the Securities Market Superintendence, the Lima Stock Exchange and the New York Stock Exchange. Due to the visits to institutional investors during the road show intended to place the shares of the company in the New York Stock Exchange, Mr. Gray attended four international conferences in Santiago, New York and Lima, where he met with approximately 92 investors. selF-eVAluAtIon oF tHe BoArd oF dIrectors A Board of Directors’ Self-Evaluation Process took place at Graña y Montero S.A.A. and its subsidiaries in 2013. As a result of the self-evaluation the company decided to hold a special meeting of the Board with the sole purpose of discussing the Strategic Plan of the Group, and visits to the Group’s projects continued during the year, including visits to the second stage of Line One of the Lima Metro and to Contugas. 54 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance senIor executIVes Mario alvarado Pflucker. Mr. Alvarado joined the group in 1980 and has been Chief Executive Officer of Graña y Montero since 1996 and a director since April 2003. He is a Civil Engineer with a master’s degree in Administration Engineering from George Washington University and graduate studies in the CEO Management program at Kellogg School of Management, Northwestern University. In addition, he is a member of the board of directors of our subsidiaries GyM, Vial y Vives, Viva GyM, CAM Chile, Survial, GyM Ferrovías, Almonte, as well as Larrain Vial Safi. He is also a member of the Consultive Council of the Tecnológico de Monterrey (Peru Site). Mr. Alvarado has previously served as member of the board of directors of Amerika Financiera S.A. Juan Jose arrieta ocampo. Mr. Arrieta joined the group in 1999 and has been our Chief Corporate Rersponsibility Officer since 2011. He received a Bachelor’s degree in Sociology from Pontificia Universidad Católica del Perú, a postgraduate diploma in Business Administration from ESAN and a postgraduate diploma from Tecnológico de Monterrey. He previously served as our Chief Human Resources and Social Responsibility Officer from 2007 to 2011 and as Human Resources Manager of our subsidiary GyM from 1999 to 2007. José Carlos ascarza revoredo. Mr. Ascarza joined the group in 2004 and has been our Chief Human Resources Officer since 2012. He is an Industrial Engineer graduated from Universidad de Lima with master in Business Strategic Management in Centrum from Pontificia Universidad Catolica del Peru and General Strategic Management from Maastrich School of Management (Holland) and received a postgraduate diploma from Tecnológico de Monterrey. He previously served as Human Resources Manager at our subsidiary GyM from 2007 to 2012. antonio Cueto saco. Mr. Cueto joined the group in 1996 and has been the Mergers and Acquisitions Officer since April 2013. He is an Economist graduated from Pontificia Universidad Católica del Perú and received a master’s degree in Management and Finance from HEC in France. He previously held the positions of Corporate Country Manager in Chile from February 2011 to April 2013, Business Development Manager of Graña y Montero from 2007 to 2011, Commercial Manager and Project Manager of our subsidiary GyM from 2000 to 2007 and General Manager of Servisel S.A. from 1996 to 2000. Jaime dasso botto. Mr. Dasso joined the group in 1991 and has been the Chief Executive Officer of our subsidiary GMD since 2000. He is an electronic engineer and received a master’s degree in Software Development from Stevens Institute of Technology in the United States of America and a postgraduate diploma from Tecnológico de Monterrey. He previously served as Commercial Manager of GMD from 1994 to 1999. Currently, he is a member of the board of directors of GMD and the Chairman of the board of directors of our subsidiaries GSD and Concar. 55 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance senIor executIVes luis francisco diaz olivero. Mr. Díaz joined the group in 1993 and has been the Chief Executive Officer of our subsidiary GMP since March 2011 to December 2013 as well as our Chief Corporate Infrastructure Officer since April 2013. He is also a member of the board of directors of GMP. He is an Industrial Engineer with a master’s degree in Business Administration from the University of Pittsburgh and received a postgraduate diploma from Tecnológico de Monterrey. He previously served as Deputy Chief Executive Officer of GMP from 2009 to 2011, Chief Financial Officer of Graña y Montero from 2004 to 2009, and Financial Manager of our subsidiary GyM from 2001 to 2004. francisco dulanto swayne. Mr. Dulanto joined the group in 1974 and is the Executive President and Chairman of the board of directors of GMP. He graduated from Universidad Nacional de Ingeniería and pursued graduate studies at ESAN and the Universidad de Piura Senior Management Program. He also received a postgraduate diploma from Tecnológico de Monterrey. He served as Chief Executive Officer of our subsidiary GMP between 1984 and 2011; as well as President of the Society of Petroleum Engineers (SPE), Lima Section, in 1991; and director of the Sociedad Nacional de Minería y Petróleo y Energía. Claudia drago Morante. Ms. Drago joined the group in 1997 and she has been our Chief Legal Officer since 2007. She received a Bachelor of Laws from Universidad de Lima and pursued postgraduate studies in Finance and Corporate Law at ESAN, received a postgraduate diploma from Tecnológico de Monterrey and completed the Management Program for Lawyers at Yale School of Management. She has previously served as Legal Counsel of Graña y Montero from 2000 to 2007 and of our subsidiary GMD from 1997 to 2000. Ms. Drago is the Secretary of the board of directors. Gonzalo ferraro rey. Mr. Ferraro joined the group in 1996 and has been President of the Infrastructure Area since April 2013. He has also held a number of managerial positions, including Corporate Infrastructure Manager from 2010 to 2013. He is an Industrial Engineer graduated from Universidad Nacional de Ingeniería and Universidad de Lima, he completed additional graduate studies at the Universidad de Piura Senior Management Program and received a postgraduate diploma from Tecnológico de Monterrey. Mr. Ferraro is currently the Chairman of the board of directors of subsidiaries Survial, Norvial, La Chira, GyM Ferrovías, as well as Concesionaria Vía Expresa Sur, and a member of the board of directors of our subsidiary GMP. Hernando Graña acuña. Mr. Graña joined the group in 1977 and has been director since august 1996. He is an Industrial Engineer graduated from Texas A&M University. Mr. Graña also completed post- gradute studies in Mine Engineering at the University of Minnesota, EEUU. In addition, he is the President of the Board of Directors of our subsidiaries GyM, GMI and Stracon GyM as well as director of our subsidiaries Norvial, Survial, 56 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance senIor executIVes CAM, Vial y Vives y La Chira y Transportadora de Gas del Perú. Mr. Graña has participated as Director-Manager of GyM since 1996. dennis Gray febres. Mr. Gray joined the group in 2011 and has since been our Corporate Finance and Investor Relations Manager. He is an Economist with a degree from Universidad del Pacífico specializing in Finance and received a postgraduate diploma from Tecnológico de Monterrey. He previously served as Corporate Vice President of Finance at Citibank del Perú, General Manager of Citicorp Perú S.A.B. and Product Development Manager at Banco de Crédito del Perú. Jorge luis izquierdo ramírez. Mr. Izquierdo joined the group in 1999 and he has been our Corporate Learning Center Manager since 2011, having previously served as manager of the Project Management Office. He is a Civil Engineer with a degree from the Pontificia Universidad Católica del Perú and a master’s degree in Construction Management from the University of California, Berkeley. Juan Manuel lambarri Hierro. Mr. Lambarri joined the group in 1982 and has been the Chief Executive Officer of our subsidiary GyM since 2001. He is a Civil Engineer graduated from Pontificia Universidad Católica del Perú. He also pursued graduate studies from Universidad de Piura Senior Management Program and received a postgraduate diploma from Tecnológico de Monterrey. He is currently a member of the board of directors of our subsidiaries GyM, Stracon GyM, Vial y Vives and GMI. Monica Miloslavich Hart. Ms. Miloslavich joined the group in 1993 and she has been our Chief Financial Officer since 2009. She is an Economist graduated from Universidad de Lima and received a postgraduate diploma from Tecnológico de Monterrey. She previously served as Chief Financial Officer of Graña y Montero Edificaciones S.A.C. from 1998 to 2004 and Chief Financial Officer of our subsidiary GyM from 2004 to 2009. Additionally, Ms. Miloslavich is a member of the board of directors of our subsidiary GyM Ferrovías. César neyra rodríguez. Mr. Neyra joined the group in 2003 and has been our Manager of Internal Auditing and Management Processes since 2003. He received an Accounting degree from Universidad Nacional Federico Villareal and a master’s degree in Business Administration and Finance from Universidad del Pacífico. He has also studied Quality Improvement Systems and graduated from the Six Sigma Methodology program at Caterpillar University in Mexico and the United States of America. rolando Ponce Vergara. Mr. Ponce joined the group in 1993 and has been the Chief Executive Officer of our subsidiary Viva GyM since 2008. He is a Civil Engineer graduated from Universidad Ricardo Palma and received a master’s degree in Construction and Real Estate Business Management from Pontificia Universidad Católica de Chile – Politécnica de Madrid (Spain) and a postgraduate diploma from Tecnológico de Monterrey. He has previously served as manager 57 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance senIor executIVes of GyM’s Real Estate Division. Mr. Ponce joined the group in 1993 and is currently a member of the board of directors of our subsidiaries Viva GyM and Almonte. Engineer graduated from Universidad Nacional de Ingeniería and received a postgraduate diploma from Tecnológico de Monterrey. Currently, he is a member of the board of directors of GMI and Ecotec. antonio rodríguez Canales. Mr. Rodriguez joined the group in 1999 and he has been our Chief Investment Officer since 2010. He is an Accountant graduated from Universidad de Lima, with a master’s degree in Business Administration from ESAN and a master’s degree in Business Administration from The Birmingham Business School in the United Kingdom. He previously served as Chief Executive Officer of Larcomar from 1999 to 2010. Currently, he is a director of our subsidiaries Concar, CAM Chile, Survial and GMD. Walter silva santisteban requejo. Mr. Silva Santisteban joined the group in 1981 and has been the Chief Executive Officer of our subsidiary GMI since 1998. He is a Civil Jaime Targarona arata. Mr. Targarona joined the group in 1996 and has been the Chief Executive Officer of Concar since 2005. He is a Civil Engineer graduated from Universidad Autónoma de Guadalajara (Mexico), with a master’s degree in Business Administration from Universidad San Ignacio de Loyola. He also completed the Universidad de Piura Senior Management Program and received a postgraduate diploma from Tecnológico de Monterrey. He previously held positions as Civil Engineer on different projects, Commercial Manager of our subsidiary GyM’s Special Projects Divisions and as Chief Executive Officer of Graña y Montero Mexico. Additionally, Mr. Targarona is a member of the board of directors of our subsidiaries Concar and GMI. klaus Winkler speringer. Mr. Winkler joined the group in 2011 and has been the Executive Vice President of CAM Chile S.A. since 2007 as well as Country Manager – Chile since April 2013. He is a Commercial Engineer graduated from Universidad Gabriela Mistral in Chile. He also has a master’s degree in Business Administration from Stanford University and a postgraduate diploma from Tecnológico de Monterrey. He previously served as Chief Executive Officer of Compañía Americana de Multiservicios Ltda. (currently, CAM Chile) from 2007 to 2011; and held several managerial positions over 15 years in Endesa group in Chile, Spain and the United States. Maritza zavala Hernández. Ms. Zavala, joined the Group in 1997 and has been our Corporative Technology Manager since September 2013. She is an Industrial Engineer graduated from University of Lima, with a masters degree in International Business Administration from Nova Southeastern University, Ft. Lauderdale, Florida, USA class of 1995. 58 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance kInsHIp: Mr. José Graña Miró Quesada, Chairman of the Board of Directors, has third-degree kinship with Ms. Yamile Brahim Graña, a share¬holder of the company, and fourth-degree kinship with directors Hernando Graña Acuña and Luís Miró Quesada Valega. corporAte nAMe: Graña y Montero S.A.A. was incorporated by public instrument dated August 12, 1996, as a result of the corporate spin-off of Inversiones Graña y Montero S.A. The incorporation was entered in Record 131617 and Electronic Registry File 11028652 of the Lima Registry of Legal Entities. cApItAl The capital of the company as of December 31, 2013 is S/.660,053,790 represented by 660,053,790 shares, S/.1.00 par value each. MAIn sHAreHolders As of December 31, 2013 we have 1,378 shareholders, of which about 99.20% are holders of less than 1% of the capital stock and about 0.58% hold 1% to 5%. Our principal shareholders are GH Holding Group, represented by José Graña Miro Quesada, Chairman of the Board, and JP Morgan Chase Bank NA as depositary and on behalf of all ADS holders. 59 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance lIst oF prIncIpAl sHAreHolders As oF 12.31.2013 full name jp Morgan chase bank nA as depositary and on behalf of all ADs holders number of shares 266,525,640 gh holding group bethel enterprises inc. AFp integra (ing group) profuturo AFp (scotiabank group) subtotal other shareholders total 117,538,203 33,785,285 41,154,651 35,107,053 494,110,832 165,942,958 660,053,790 interest 40.38% 17.81% 5.12% 6.24% 5.32% 74.87% 25.13% 100% nationality united states panamá panamá perú perú 60 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance dIVIdend polIcy The Dividend Policy of the company in force in 2013 was to distribute between 30% and 40% of the profits generated in each fiscal period. corporAte purpose The company’s main purpose is to engage in investments and commercial operations in general, and in engineering services, management consultancy, real estate investments, concessions and the acquisition, transfer and negotiation of shares of companies and other securities. CIIU – 6719 durAtIon oF tHe coMpAny Graña y Montero S.A.A. was incorporated for an indefinite term. eVolutIon oF tHe sHAres The price quoted at the year-end was S/. 11.90 per share. The volume traded during the year was 74,585,837.79. Lastly, the IGBVL (general index) decreased by 23.63% from 2012, and the ISBVL (selective index) decreased by 26.20% from 2012. It should be noted that variation in the GRAMONC1 share increased 22.7% vis-à-vis the 2012 year-end price (including the effect of the issue of stock dividends). 61 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu corporate governance stock perForMAnce isin code mnemonic year-month opening s/. closing s/. maximum s/. minimum s/. average price s/. pricing 2013 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 pep736581005 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 grAMonc1 2013-01 2013-02 2013-03 2013-04 2013-05 2013-06 2013-07 2013-08 2013-09 2013-10 2013-11 2013-12 9.75 10.86 11.42 11.50 11.46 10.80 11.01 11.74 10.85 11.10 12.10 11.15 10.85 11.42 11.40 11.45 10.85 11.01 11.70 10.85 11.05 12.05 11.00 11.90 10.90 11.70 12.00 11.71 13.00 12.45 12.50 11.84 11.90 12.05 12.30 12.00 9.72 10.85 11.28 11.10 10.85 10.50 10.80 10.85 10.85 10.35 10.90 10.40 10.54 11.33 11.52 11.36 11.98 11.19 11.37 11.59 11.46 11.07 11.61 11.29 62 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance stock perForMAnce 35,000 30,000 25,000 20,000 15,000 10,000 5 8 . 0 1 2 4 . 1 1 0 4 . 1 1 5 4 . 1 1 5 8 . 0 1 1 0 . 1 1 0 7 . 1 1 5 8 . 0 1 5 0 . 1 1 5 0 . 2 1 0 0 . 1 1 0 9 . 1 1 5 7 7 , 2 2 5 2 0 , 3 2 1 2 9 , 7 1 4 7 3 , 9 2 9 7 4 , 2 2 8 4 4 , 1 2 8 9 9 , 7 2 9 0 9 , 0 2 0 4 9 , 0 2 0 2 3 , 2 3 9 1 9 , 4 1 8 0 8 , 6 2 Jan. 2013 feb. 2013 mar. 2013 apr. 2013 may. 2013 Jun. 2013 Jul. 2013 aug. 2013 sep. 2013 oct. 2013 nov. 2013 dec. 2013 negotiated volume (thousands of us$) closing price (s/.) 12.00 11.50 11.00 10.50 10.00 9.50 9.00 8.50 8.00 63 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu corporate governance GrAñA y Montero s.A.A. corporate name: graña y Montero s.A.A. address: Av. paseo de la república 4667, surquillo telephone: fax: investor relations manager: 51-1-213 6565 51-1- 213 6590 51-1-2136566 officers electronic mail incorporation public registry capital stock shares treasury stock Mónica Miloslavich hart / Dennis gray Febres mmiloslavich@gym.com.pe / dgray@gym.com.pe public instrument dated August 12, 1996 record 131617- electronic registry File 11028652 s/. 660,053,790 660,053,790 fully subscribed and paid in none principal shareholders and economic group see corporate governance section corporate purpose see corporate governance section ciiu term events 6719 indefinite see historical summary 64 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance sector and competence net sales investment plans us$ 292 million principales activos gyM s.A. shares gMi s.A. shares gMp s.A. shares norvial s.A. shares canchaque s.A. shares survial s.A. shares gyM La chira shares gyM Ferrovías shares gMD s.A. shares concar s.A. shares cAM chile s.A. shares tgp s.A. shares Note: Net sales corresponds to Graña y Montero S.A.A. (Separated Financial Statements) Acciones concesionaria vía expresa sur s.A. graña y Montero s.A.A. is an investment company whose principal subsidiaries belong to the construction, engineering, petroleum, information technology, concessions and shopping and entertainment center sectors. in addition, it provides management services exclusively to its subsidiaries, for which reason it does not compete in the market. leases management All services have been rendered in-country. 2013 3,124,220 47,423,660 2012 3,068,599 40,339,350 93.66% 89.41% 95% 67.00% 99.96% 99.00% 50% 75% 89.15% 99.74% 75% 1.64% 99.99% 65 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu corporate governance administrative or arbitration proceedings see notes to the Audited Financial statements persons responsible for preparing and reviewing financial information gonzalo rosado solís general Accountant Mario Alvarado pflucker chief executive officer external auditors price waterhouse coopers 66 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance HIstorIcAl suMMAry 1933 6 graña y montero is founded on June 22, 1933 under the name gramonvel by engineers carlos graña elizalde, alejandro graña garland and carlos montero bernales. 1944 6 las palmas air force base. 1949 6 1952 6 merged with morris y montero to acquire capacity for the execution of paving and earth moving works under the new name graña y montero. consorcio de ingenieros contratistas generales s.a. was formed to execute more complex projects. 67 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menugobierno corporativo HIstorIcAl suMMAry 1953 6 1957 6 1961 6 1976 6 construction of the south pan-american highway. the ministry of economy is built the following year. the cañón del pato hydroelectric plant and the ministry of labor are built. the chimbote steel mill was built the following year. Jorge chávez airport is completed. focuses its growth on major private projects such as the cuajone and cerro verde mines, in shell, mobil and occidental oil projects. 68 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menucorporate governance HIstorIcAl suMMAry 1983 6 upon the celebration of its 50th anniversary in 1983, the strategic diversification plan aimed at other engineering services was launched, leading to the formation of gmp, the petroleum services company; gmd, the information technology service company; and gmi, the engineering consulting company. these companies were the origin of what is now the graña y montero group. 1988 6 the chavimochic irrigation project is completed. 1997 6 2005 6 the graña y montero holding is created. graña y montero participated actively in the peruvian privatization process as telefónica’s local partner in telefónica del perú, as endesa’s partner in empresa de generación eléctrica de lima, and as repsol’s partner in la pampilla refinery. we listed in the lima stock exchange. a major international development has taken place in recent years, participating in the construction of mining projects in chile, bolivia, the dominican republic and panama. Graña y MOnterO 69 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menucorporate governance HIstorIcAl suMMAry 2010 6 2011 6 2012 6 2013 6 we acquired the electricity services company cam, which operates in chile, peru, colombia and brazil. the following year we formed stracon gym for mining services with australian. in recent years, graña y montero has been the first company to participate in the infrastructure concession program and it is currently the largest infrastructure concession holder in peru, with three highways, line one of the lima metro, and la chira waste water treatment plant. we acquired 74% of the chilean company vial y vives, a construction company specialized in the mining sector which, added to the experience of gym, makes us the group with the most extensive experience in the construction of mining projects in latin america. our company was listed on the new york stock exchange. as of the 2013 year-end, the group has 3,657 engineers and is clearly the leader in the country’s engineering and infrastructure sector, has activities in six other latin american countries in addition to peru and is a leader in mining construction in the region. 70 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menucorporate governance 22 recognitions in two years awards and recognitions 2013 • The 10 Most admired Companies, conferred by • Viva GyM: Business Creativity Award 2013, Revista G de Gestión and Price Waterhouse. conferred by Universidad Peruana de Ciencias • ranked 4th among the 100 Peruvian Aplicadas, in the Real Estate, Construction Companies with the best reputation, according and Equipment category, for the “Ayni Social to the survey conducted by the international Accompaniment Program”. consulting firm Merco and KPMG. • GMi: Business Creativity Award 2013, conferred • ranked 19th among the 100 Peruvian by Universidad Peruana de Ciencias Aplicadas, Companies with the best reputation, according in the Technological and Information Systems to the survey conducted by the international Development category, for its knowledge consulting firm Merco and KPMG. management system. • socially responsible Company 2013, awarded • Viva GyM: Ranked 7th among the best places to by the Mexican Center for Philanthropy work in Peru, in the 30 – 250 employees category, (CEMEFI) and Perú 2021. awarded by the Great Place to Work Institute. • GMP: Ranked 9th among the best places to work also, our companies were awarded the following in Peru, in the 251 - 1,000 employees category, recognitions: awarded by the Great Place to Work Institute. • ferrovías GyM - line one of the lima Metro: • Viva GyM: First place in the real estate sector Perú 2021 Corporate Social Responsibility in the “Employer Brand” ranking of Arellano and Sustainable Development Award, in the Marketing and Laborum. Customers and Multistakeholders category, for its • GyM: First place in the construction sector and “Metro Culture” program. second in the “Employer Brand overall ranking of • ferrovías GyM - line one of the lima Metro: Arellano Marketing and Laborum. Ciudadanos al Día Award for Citizen Service in Private Entities managing Public Assets, for its “Metro Culture” program. 71 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menucorporate governance AnAlysIs oF results to deceMBer 31, 2013 • Revenues for 2013 increased 14.1% in nuevos soles, compared to 2012, reaching S/. 5,967.3 MM (US$ 2,134.2MM, 4.1% growth in dollars) • Net profit for 2013 was S/.320.4 MM (US$114.6 MM), which represents 5.4% of the revenues. • EBITDA for 2013 amounted to S/.1,030.7 MM (US$368.6 MM) which represents 17.3% of the revenues. • Consolidated Backlog for 2013 amounted to S/.11,002.1 (US$ 3,935.0 MM) which represents an increase of 3.5% (in dollars represents a decrease of 5.5%) compared to 2012. From the consolidated backlog as of 2013, S/. 5,433.5 (US$1,943.3 MM) will be executed during 2014, S/.3,098.4MM (US$1,108.1 MM) in 2015 and the remaining in 2016 and the following years. 72 80 YEARSGROWING WITH VISIONANNUAL REPORT 2013< menucorporate governance BAckloG By sector 16% transportation 8% real estate 4% water and sewage 17% electricity 2% others 19% mining proJects 32% mining operations 2% oil and gas 73 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menucorporate governance eBItdA By AreA (us$ MM) reVenues By AreA (us$ MM) 10% technical services us$39 13% real estate us$48 24% infrastructure us$87 53 % engineering and construction us$195 19% technical services us$418 5% real estate us$112 11% infrastructure us$244 65% engineering and construction us$1,457 74 80 yeArsGroWInG WItH VIsIonAnnuAl report 2013< menu80 years reliability ... such as the Grow and Share policy, that make up what we call the Graña y Montero Style, for which this year we have been awarded 12 major recognitions. Informes CONSOLIDATED FINANCIAL STATEMENTS GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2011, 2012 AND 2013 REpORT OF INDEpENDENT REGISTERED pUBLIC ACCOUNTING FIRM CONSOLIDATED STATEMENT OF FINANCIAL pOSITION CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMpREhENSIvE INCOME CONSOLIDATED STATEMENT OF ShAREhOLDERS’ EqUITY CONSOLIDATED STATEMENT OF CASh FLOwS NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS 76 80 YEARS AnnuAl REPORT2013< menú GROWING WITH VISIONREpORT OF INDEpENDENT REGISTERED pUBLIC ACCOUNTING FIRM 77 < menú CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Current assets Cash and cash equivalents Trade accounts receivables Outstanding work in progress Accounts receivable from related parties Other accounts receivable Inventories Prepaid expenses Non-current assets classified as held for sale Total current assets Note 2012 2013 As of December 31 8 10 11 12 13 14 16 780,114 456,315 513,529 49,761 447,208 747,416 22,839 - 3,017,182 959,415 521,872 971,743 83,850 553,218 762,797 25,686 21,473 3,900,054 78 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF FINANCIAL POSITION NoN-currENT ASSETS Non-current assets Long-term trade accounts receivable Other long-term accounts receivable Available-for-sale financial assets Investments in associates and joint ventures Investment property Property, machinery and equipment Intangible assets Derivative financial instruments Deferred income tax asset Total non-current assets Note 2012 2013 As of December 31 10 13 9 15 16 17 7 23 305,887 93,489 5,005 37,446 35,972 953,531 480,398 128 71,078 1,982,934 5,000,116 591,917 38,151 88,333 87,967 36,945 952,596 481,392 - 135,521 2,412,822 6,312,876 79 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABILITIES AND EQuITY Current liabilities Borrowings Trade accounts payable Accounts payable to related parties Current taxes Other accounts payable Provisions Total current liabilities Non-current liabilities Borrowings Long-term trade accounts payable Other long-term accounts payable Other provisions Derivative financial instruments Deferred income tax liability Total non-current liabilities Total liabilities Note 2012 2013 As of December 31 18 19 12 20 21 18 19 20 21 7 23 486,119 991,397 25,585 159,235 745,094 8,895 2,416,325 309,703 2,157 205,396 40,387 3,911 138,157 699,711 3,116,036 452,819 937,287 42,734 158,834 1,015,129 11,312 2,618,115 392,655 - 52,776 46,191 18,696 88,442 598,760 3,216,875 80 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABILITIES AND EQuITY Equity Capital Legal reserve Premium for share issuance Other comprehensive income Retained earnings Equity attributable to controlling interest in the Company Non-controlling interest Total equity Note 22 As of December 31 2012 2013 558,284 107,011 6,656 (3,716) 723,972 1,392,207 391,034 1,783,241 5,000,116 660,054 111,657 1,027,533 18,423 948,112 2,765,779 431,061 3,196,840 6,312,876 81 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED INCOME STATEMENT Note 2011 Revenues from construction activities Revenues from services provided Revenue from real estate and sale of goods Cost of construction activities Cost of services provided Cost of real estate and goods sold Gross profit Administrative expenses Other income and expenses Profit from the sale of investments Other (losses) gains, net Gain from business combination Operating profit 2,650,334 1,316,682 274,250 4,241,266 (2,360,521) (1,077,236) (171,760) (3,609,517) 631,749 (199,582) 4,330 4,769 (2,845) 45,152 483,573 For the year ended December 31 2012 3,820,208 1,748,128 398,979 5,967,315 (3,353,696) (1,349,850) (259,108) (4,962,654) 1,004,661 (361,792) 26,034 5,722 (733) - 673,892 2013 3,341,539 1,536,275 354,071 5,231,885 (2,969,687) (1,335,092) (215,040) (4,519,819) 712,066 (257,180) 75,944 - (325) - 530,505 82 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED INCOME STATEMENT Financial expenses Financial income Share of the profit or loss in associates and joint ventures under the equity method of accounting Profit before income tax Income tax Profit for the year profit attributable to: Owners of the Company Non-controlling interest Earnings per share from continuing operations attributable to owners of the Company during the year Note 2011 2013 2012 For the year ended December 31 26 26 15 28 33 (188,456) 182,305 223 477,645 (141,447) 336,198 289,076 47,122 336,198 0.518 (310,672) 300,389 604 520,826 (154,575) 366,251 289,954 76,297 366,251 0.519 (583,452) 471,003 33,562 595,005 (182,430) 412,575 320,363 92,212 412,575 0.534 83 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Profit for the year Other comprehensive income: Items that will not be reclassified to profit or loss Adjustment for actuarial gains and losses, net of tax Items that may be subsequently reclassified to profit or loss Cash flow hedge, net of tax Foreign currency translation adjustment, net of tax Change in value of available-for-sale financial assets Other comprenhensive income for the year, net of tax Total comprehensive Income for the year Comprehensive income attributable to: Controlling interest in the Company Non-controlling interest Note 29 29 9 For the year ended December 31 2011 336,198 2013 366,251 2012 412,575 - (3,678) (6,121) 695 (3,940) - (3,245) (3,245) 332,953 285,796 47,157 332,953 3,733 (1,356) 19,060 21,437 15,316 427,891 337,911 89,980 427,891 (2,369) (2,019) - (4,388) (8,066) 358,185 282,870 75,315 358,185 84 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF CHANGES IN NET SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 Attributable to the controlling interests of the company Number of shares in thousands capital Legal reserve Premium for issuance of shares other comprehensive income retained earnings Total Non-controlling interest Total Balances as of January 1, 2011 558,284 390,518 54,605 5,091 Profit for the year Cash flow hedge Foreign currency translation adjustment Comprehensive income of the year Transactions with shareholders: - Transfer to legal reserve - Dividend distribution (Note 32 and 34 g) - Purchase of subsidiaries (Note 31 d) - Contributions of non-controlling shareholders (Note 34) - Subsidiaries constitution - Sale and purchase of treasury shares - Others Total transactions with shareholders Balances as of December 31, 2011 Balances as of January 1, 2012 Profit for the year Cash flow hedge Adjustment for actuarial gains and losses - - - - - - - - - - - - 558,284 558,284 - - - - - - - - - - - - (30) - - - - - 23,499 - - - - - - (30) 23,499 390,488 78,104 390,488 78,104 - - - - - - - - - - - - - - - (211) - (211) 4,880 4,880 - - - 2,970 - 660 (3,940) (3,280) - - - - - - - - (310) (310) 506,677 289,076 - - 289,076 (23,499) (55,015) - - - - (1,379) (79,893) 715,860 715,860 - - - (241) (1,379) (56,635) 1,189,022 1,189,022 - 289,954 289,954 (2,251) - - (3,678) (2,251) (3,678) 959,861 289,076 660 (3,940) 285,796 189,047 1,148,908 47,122 336,198 35 - 47,157 695 (3,940) 332,953 - - - (55,015) (14,850) (69,865) 24,722 (13,328) 30,776 - 540 24,722 (13,328) 30,776 (241) (839) 27,860 (28,775) 264,064 1,453,086 264,064 1,453,086 366,251 (2,369) (3,678) 76,297 (118) - 85 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF CHANGES IN NET SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 Attributable to the controlling interests of the company Number of shares in thousands capital Legal reserve Premium for issuance of shares other comprehensive income retained earnings Total Non-controlling interest Total Foreign currency translation adjustment Comprehensive income of the year Transactions with shareholders: - Transfer to legal reserve - Dividend distribution (Note 32 and 34 g) - Capitalization - Subsidiaries constitution - Purchase of subsidiaries (Note 31 b-c) - Debt capitalization (Note 34 f) - Contributions of non-controlling shareholders (Note 34 d) - Acquisition of non-controlling interest in Survial S.A. (Note 34 a.iii) - Sale of non-controlling interest in GyM S.A. and Concar S.A. (Note 34 b) - Sale and purchase of treasury shares - Others Total transactions with shareholders Balances as of December 31, 2012 - - - - - - - - - - - - - - - - - - 167,485 - - - - - - 140 171 - - 28,907 - - - - - - - - - - 167,796 28,907 558,284 558,284 107,011 - - - - - - - - - 364 291 1,292 (171) 1,776 6,656 (1,155) (3,406) - (1,155) 286,276 282,870 (864) 75,315 (2,019) 358,185 - - - - - - - - - - - - (28,907) (86,723) (167,485) - - - - - - - 4,951 - - - (86,723) (37,512) (124,235) - - - - - 364 291 1,432 4,951 - 5,750 48,055 12,232 26,096 (4,757) 902 - 889 - 5,750 48,055 12,232 26,096 (4,393) 1,193 1,432 5,840 (278,164) (79,685) 51,655 (28,030) (3,716) 723,972 1,392,207 391,034 1,783,241 86 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF CHANGES IN NET SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 Attributable to the controlling interests of the company Number of shares in thousands capital Legal reserve Premium for issuance of shares other comprehensive income retained earnings Total Non-controlling interest Total Balances as of January 1, 2013 558,284 558,284 107,011 6,656 Profit for the year Cash flow hedge Adjustment for actuarial gains and losses Foreign currency translation adjustment Change in value of available-for-sale financial assets Comprehensive income of the year Transactions with shareholders: - Transfer to legal reserve - Dividend distribution (Note 32 and 34 g) - - - - - - - - - - - - - - - - - Issuance of shares (Note 22 c) 101,770 101,770 - Purchase of subsidiaries (Note 31 a) - Deconsolidation of subsidiaries (Note 34 e) - Contributions of non-controlling shareholders (Note 34 e) - Additional acquisition of non-controlling (Note 34 a.i) - Additional acquisition of non-controlling - Norvial (Note 34 a.ii) Total transactions with shareholders Balances as of December 31, 2013 - - - - - 660,054 660,054 - - - - - - 4,646 - - - - - - - - - - - - - - - 1,055,488 - - - (2,905) (31,706) - - - - - (3,716) - 3,546 723,972 320,363 - - (4,591) - - 315,772 (4,646) (86,986) - - - - - (467) 19,060 22,139 - - - - - - - - - 1,392,207 320,363 3,546 (4,591) (467) 19,060 337,911 - (86,986) 1,157,258 - - - (2,905) (31,706) 391,034 1,783,241 92,212 187 (1,530) (889) - 89,980 412,575 3,733 (6,121) (1,356) 19,060 427,891 - - (51,794) (138,780) - 1,157,258 15,701 (19,377) 34,774 (9,528) (19,729) 15,701 (19,377) 34,774 (12,433) (51,435) 101,770 4,646 1,020,877 (91,632) 1,035,661 (49,953) 985,708 660,054 111,657 1,027,533 18,423 948,112 2,765,779 431,061 3,196,840 87 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF CASH FLOWS oPErATING AcTIVITIES Profit before income tax Adjustments to profit not affecting cash flows from operating activities: Depreciation Impairment of intangibles Amortization of other assets Impairment of inventory Impairment of accounts receivable Impairment of other assets Provisions Share of the profit and loss in associates under the equity method of accounting Business combination gain Reversal of provisions Profit on sale of property, plant and equipment Profit on sale of investments in associates Net variations in assets and liabilities: Decrease in trade accounts receivable Decrease in other accounts receivable Nota 2011 2012 2013 For the year ended December 31 477,645 520,826 595,005 16 17 14 10 21 15 a-b 31 d 27 16 15 a 127,023 3,436 51,223 - - (223) (45,152) - 1,661 (4,769) (177,076) (183,468) 173,018 - 71,485 10,981 2,707 (604) - (67,556) (1,261) - (49,897) (346,429) 88 181,369 - 77,770 2,239 110 774 15,084 (33,562) - (14,556) (734) (5,722) (783,780) (33,606) < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF CASH FLOWS Decrease in other accounts receivable from related parties Decrease in inventories Increase in pre-paid expenses and other assets Increase in trade accounts payable Increase (decrease) in other accounts payable Increase in other accounts payable to related parties Decrease in other provisions Payments for intangible purchase - Concessions Payment of income tax Net cash provided by (applied to) operating activities Note For the year ended December 31 2011 (812) (140,410) (4,256) 265,626 (68,469) 2,022 (5,973) (25,378) (139,311) 133,339 2012 (24,451) (197,802) 21,644 224,935 373,637 23,069 (3,759) (28,406) (159,408) 542,729 2013 (34,089) (21,071) (539) 56,836 (145,376) (14,677) (16,269) (2,329) (190,556) (367,679) 89 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF CASH FLOWS INVESTING AcTIVITIES Sale of investment in associates Sale of available-for-sale investment Sale of property, machinery and equipment Dividends received Payment for purchase of available-for-sale investment Payment for purchase of property investments Payments for intangible purchase Direct cash inflow (outflow) from acquisition of subsidiaries Payments for fixed asset purchase Net cash applied to investing activities Note 2011 2012 2013 For the year ended December 31 15 -a,b 31 26,565 - 6,436 34,709 - - (44,146) 31,660 (140,803) (85,579) - 342 23,471 2,057 - (956) (10,851) (133,648) (280,402) (399,987) 6,800 - 15,861 4,688 (56,100) (2,974) (22,375) (88,342) (197,553) (339,995) 90 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF CASH FLOWS Note 2011 2012 2013 For the year ended December 31 FINANcING AcTIVITIES Loans received Amortization of loans received Interest payment Dividends paid to owners of the parent Dividends paid to non-controlling interest Cash received (contribution return) to non-controlling shareholders 34-d Acquisition or sale of interest in a subsidiary of non-controlling shareholders Capital contribution Issuance of shares, net of related expenses Repurchase of shares Net cash (applied to) provided by financing activities (Net decrease) net increase in cash Cash decrease in deconsolidation Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 185,701 (181,307) (24,198) (55,015) (14,850) (13,328) - 30,776 - (241) (72,462) (24,702) - 682,889 658,187 1,351,964 (1,378,359) (61,013) (86,986) (51,794) 34,774 (63,868) - 1,147,418 - 892,136 184,463 (5,162) 780,114 959,415 610,399 (490,398) (46,659) (86,723) (37,512) 26,096 (3,200) 5,750 - 1,432 (20,815) 121,927 - 658,187 780,114 91 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013CONSOLIDATED STATEMENT OF CASH FLOWS NoN-cASH TrANSAcTIoNS: Capitalization of retained earnings Debt capitalization Acquisition of assets through finance leases Net assets transferred for acquisition to Stracon GyM Adjustment for deconsolidation LQS SA and SEC Change in fair vaue of available-for-sale financial asset Note 2011 2012 2013 For the year ended December 31 - - 146,580 - - 167,485 12,232 123,815 24,994 - - 7,989 43,812 - (19,943) 19,060 92 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 20131. GENERAL INFORMATION a. Incorporation and operations - Graña y Montero S.A.A. (hereinafter the Company or the Parent) was established in Peru on August 12, 1996 as a result of the equity spin-off of Inversiones GyM S.A. (formerly Graña y Montero S.A.). The Company’s legal address is Av. Paseo de la República 4675, Surquillo Lima, Peru and it is listed on the Lima Stock Exchange and the New York Stock Exchange (NYSE). The Company is the parent company of the Graña y Montero Group (hereinafter the Group) and its principal activity is the holding of the investments in the different companies of the Group. Additionally, the Company provides services of general management, financial management, commercial management, legal advisory and human resources management to the Group´s companies; it is also engaged in the leasing of offices to the Group’s companies and third parties. The Group is a conglomerate of companies with operations including different business activities, of which the most significant are engineering and construction, infrastructure (public concession ownership and operation), real estate businesses and technical services. See details of operating segments in Note 6. b. Issuance of new common shares - At the Board of Shareholders´ General Meeting held on March 26, 2013, and the subsequent Board of Directors’ meetings held on May 30, July 23 and August 22, 2013, shareholders agreed to the issuance of common shares through a public offering of American Depositary Shares (ADS) registered with the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE). As a consequence in July and August 2013, the Company issued 101,769,600 new common shares, equivalent to 20,353,920 ADS in two tranches, with a unit price of US$21.13, resulting total proceeds of US$430,078, equivalent to S/.1,195,793 before the issuance related costs. The total outstanding common shares as of the date of the financial statements are 660,053,790 shares, from these 101,769,600 are listed on the NYSE and 558,284,190 on the Lima Stock Exchange. 93 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The excess of the total proceeds obtained by this transaction in comparison with the nominal value of these shares amounted to S/.1,055,488 (net of commissions, other related costs and tax effects for S/.38,536) recorded in the premium for issuance of shares in the consolidated statement of changes in equity (Note 22). c. Authorization for issue of the financial statements - The consolidated financial statements for the year ended December 31, 2013 have been prepared and authorized by Management on January 30, 2014, which will submit them for the consideration of the Board and Annual Shareholders’ Meeting to be held within the term established by law. Management considers that the accompanying financial statements will be approved by the Board and the General Shareholders’ Meeting with no changes. 2. SUMMARY OF SIGNIFICANT ACCOUNTING pOLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. The consolidated financial statements have been prepared under the historical cost convention, except for derivative financial instruments and available-for-sale financial assets which are measured at fair value. The financial statements are presented in thousands of New Peruvian Soles, unless otherwise stated. The preparation of the consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. 94 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.2 Consolidation of financial statements a. Subsidiaries - Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity instruments issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of acquirer’s identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss. Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. 95 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss at the time of acquisition. Balances, income and expenses from transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognized as assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. b. Changes in ownership interests in subsidiaries without change of control - Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests, are also recorded in equity at the time of disposal. c. Disposal of subsidiaries - When the Group ceases to have control over a subsidiary any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss at such date. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. d. Joint arrangements - The Group has applied IFRS 11 to all joint arrangements as of January 1, 2012. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to both joint ventures as well as joint operations. 96 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Joint ventures are accounted for using the equity method (Note 2-e). Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the group’s net investment in the joint ventures), the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the group’s interest in the joint ventures. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the group. Joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Each party recognizes its assets, liabilities, revenue and expenses and its share of any asset and liability jointly held and of any revenue or expense arisen from the joint operation. No significant effect has arisen from the application of IFRS 11 Joint Arrangements on the financial statements (on the Group’s statements of financial position, of comprehensive income and of cash flows) at January 1, 2012 and December 31, 2012. e. Associates - Associates are all entities over which the Group has significant influence but not control, generally accompanying a holding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill identified on acquisition. 97 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS If ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate. The Group’s share of post-acquisition profit or loss is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the cost of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount adjacent to its share of profit of an associate’ in the income statement. Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognized in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses arising in investments in associates are recognized in the income statement. 2.3 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker of the Group. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee, led by the Corporate General Manager. If an entity changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change, the Group restates the information for earlier periods unless the information is not available. 98 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.4 Foreign currency translation a. Functional and presentation currency - Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (the functional currency). The consolidated financial statements are presented in New Peruvian Soles, which is the Company’s functional currency and the Group’s presentation currency. All subsidiaries, joint arrangement and associates use the New Peruvian Sol as their functional currency, except for foreign entities, for which the functional currency is the currency of the country in which they operate. b. Transactions and balances - Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions or valuation when items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the changes at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges. Foreign exchange gains and losses of all monetary items are presented in the income statement within financial expenses and financial income. c. Group companies - The results, assets and liabilities of Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: i. ii. assets and liabilities for each statement of the financial position presented are translated using the closing rate at the date of the statement of financial position; income and expenses for each income statement are translated at the average exchange rate (unless this average is not a reasonable approximation of the cumulative effect of 99 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS iii. iv. the rates prevailing on the transaction dates, in which case income and expenses are changed using the rate on the date of the transaction); capital is translated by using the historical exchange rate for each capital contribution made; and all resulting exchange differences are recognized as separate components in other comprehensive income. As of December 31, 2013 and 2012 the translation of foreign investments, with a currency other than the nuevo sol (Global translation), did not generate relevant exchange differences. Goodwill and fair value adjustments arising because of the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate. Exchange differences arising are recognized in other comprehensive income. 2.5 public services concession agreements Concession agreements signed between the Group and the Peruvian Government entitles the Group, as a Concessionaire, to assume obligations for the construction or improvement of infrastructure and which qualify as public service concessions as defined by IFRIC 12, “Service Concession Arrangements”. The consideration to be received from the Government for the services of constructing or improving public infrastructure is recognized as a financial asset or as an intangible asset, as set forth below. Under these agreements, the government controls and regulates services provided by the Group with the infrastructure and dictates to whom it must provide them and at what price. The concession agreement establishes the obligation for the Group to return the infrastructure to the grantor at the end of the concession period or when there is an expiration event. This feature gives the grantor control of the risks and rewards of the residual value of the assets at the end of the concession period. For this reason, the Group will not recognize the infrastructure as part of its property, plant and equipment. The Group manages three types of concessions which accounting recognition is as follows: a. Recognizes a financial asset to the extent that it has a contractual right to receive cash or another financial assets either because the Government secures the payment of specified or determinable amounts or because the Government will cover any difference arising from the amounts actually received from public service users in relation with the specified or determinable amounts. These financial assets are recognized initially at fair value and subsequently at amortized cost (the financial model). b. Recognizes an intangible asset to the extent that the service agreement grants the Group a contractual right to charge users of the public service. The resulting intangible asset is measured at cost and is amortized as described in Note 2.16 (the intangible asset model). 100 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c. Recognizes a financial asset and an intangible asset when the Group recovers its investment partially by a financial asset and partially by an intangible asset (the bifurcated model). 2.6 Cash and cash equivalents In the consolidated statement of cash flows, cash and cash equivalents include cash on hand, on-demand bank deposits, other highly liquid investments with original maturities of three months or less and bank overdrafts. In the consolidated financial statements, bank overdrafts are included in the balance of financial obligations as current liabilities in the statement of financial position. 2.7 Financial assets 2.7.1 Classification The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, financial assets held-to-maturity, loans and account receivables and financial assets available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. As of the date of the financial statements, the Group has classified its financial assets in the following two categories: a. Loans and accounts receivable - Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those which maturity is greater than 12 months after the statement of financial position. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’, ‘outstanding work in progress’ (Note 2.12) and ‘cash and cash equivalents’. b. Available-for-sale financial assets - Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless Management intends to dispose of them within 12 months of the date of the statement of financial position. 101 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Available-for-sale financial assets are measured at fair value and changes in their value are recognized in other comprehensive income. 2.7.2 Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method. If the fair value of available-for-sale assets cannot be estimated initially, they are maintained at cost. When a financial asset classified as available for sale is sold or impaired, the accumulated fair value adjustments recognized in equity are recycled in the income statement. Dividends on available-for-sale equity instruments are recognized in the income statement as part of “other income” when the Group’s right to receive payments is established. 2.8 Offsetting financial instruments Financial assets and liabilities are offset and its net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. 2.9 Impairment of financial assets a. Assets carried at amortized cost - The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. If a financial asset or a group of financial assets is impaired, the impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the 102 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For the loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the statement of comprehensive income. If a loan or an account receivable has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the income statement. b. Assets classified as available for sale - The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the Group uses the criteria referred to in (a) above. In the case of equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss - is removed from equity and recognized in profit or loss. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement. 103 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.10 Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of a particular risk associated with a recognized asset or liability (fair value hedge) or a highly probable forecast transaction (cash flow hedge). The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative instruments used for hedging purposes and changes in the account reserves for hedging in equity are disclosed in Note 7. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. Cash flow hedge - The effective portion of changes in the fair value of derivatives that are designated and qualify as fair value hedges is recognized as other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecasted sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the income statement as ‘Financial income and expenses’. However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and are included in the initial measurement of the cost of the non-financial asset. The deferred amounts are ultimately recognized in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecasted transaction is ultimately recognized in the income statement. When 104 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within ‘other (losses) gains- net’. 2.11 Trade accounts receivable Trade accounts receivable are amounts due from customers for goods or services sold by the Company’s subsidiaries. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade accounts receivable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. 2.12 Outstanding work in progress Outstanding work in progress comprises the estimation made by the Management of the Engineering and Construction segment related to the unbilled rights receivable for services rendered and not yet approved by the client (valuation based on the percentage of completion). It also includes the balance of work in progress costs incurred that relates to future activities of the construction contracts. 2.13 Inventories Inventory mainly includes land, work in progress and finished property which is assigned to the real- estate activity carried out by the Group. It also includes material used in the construction activity. Goods and supplies correspond to goods that the Group trades as part of its IT segment. Materials and supplies used in construction activities and IT equipment are determined under the weighted average cost method. 105 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Land intended to carry out real estate projects is recognized at acquisition cost. Work in progress and finished property comprise design costs, material, labor costs, other indirect costs and general expenses related to the construction and do not include exchange differences. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. For the reductions in the carrying amount of inventories to their net realizable value, a provision is made for inventory impairment with a charge to the results of the period in which such reductions are made. IT equipment is stated at the lower of cost or net realizable value. Materials and other supplies are not written down below cost if the finished products in which they will be incorporated are expected to generate margin. When a decline in the price of materials indicates that the cost of the finished products exceeds net their realizable value, the materials are written down to their replacement cost which is the best available measure of their net realizable value. 2.14 Investment properties Investment properties are shown at cost less accumulated depreciation and impairment losses, if any. Subsequent costs attributable to investment properties are capitalized only if it is probable that future economic benefits will flow to the Company and the cost of these assets can be measured reliably; if not, they are recognized as expenses when incurred. Repair and maintenance expenses are recognized in profit and loss when they are incurred. A property’s carrying amount is written down immediately to its recoverable amount if the property’s carrying amount is greater than its estimated recoverable amount. The cost and accumulated depreciation on disposals are eliminated from the respective accounts and the resulting gain or loss is recognized in profit or loss for the period. The depreciation of this asset is calculated under the straight-line method at a rate that is considered sufficient to absorb the property’s cost over its estimated useful life. The estimated useful life of this property is approximately 25 years. The Group maintains only one investment property, a Shopping Mall owned by the subsidiary Viva GyM S.A. The stores in this mall are leased to third parties under operating leases. 106 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.15 property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of these items. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced asset is derecognized. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Assets in the construction stage are capitalized as a separate component. At their completion, the cost of such assets is transferred to their definitive category. Replacement units are major spare parts which depreciation starts when are installed for use within the related asset. Land is not depreciated. Depreciation of buildings, machinery and equipment and vehicles recognized as “Major equipment” are depreciated based on their hours of use. Under this method, the total number of work hours that machinery and equipment is capable to produce is estimated and a charge per hour is determined. The depreciation of other assets that do not qualify as “Major equipment” is calculated under the straight-line method to allocate their cost less their residual values over their estimated useful lives, as follows: Own occupied buildings Machinery and equipment Vehicles Furniture and fixtures Other equipment Replacement units Años 33 From 4 to 10 From 4 to 10 From 2 to 10 From 2 to 10 5 107 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The assets’ residual values and useful lives are reviewed, and adjusted as appropriate, at each date of the statement of financial position. An asset’s carrying amount is written-down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in “Other income and expenses” in the income statement. 2.16 Intangible assets a. Goodwill - Goodwill arises on the acquisition of subsidiaries and represents the excess of the cost of acquisition as compared to the fair value of the Group’s share in the identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of non-controlling interest at the acquisition date. Goodwill acquired in a business combination is allocated to each of the cash-generating units (CGU), or group of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognized immediately as an expense and is not subsequently reversed. b. Trademarks - Separately acquired trademarks are shown at historical cost. Trademarks acquired in a business combination are recognized at fair value at the acquisition date. Trademarks have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost of trademarks to profit or loss over their estimated useful lives, which has been estimated to be 30 years. 108 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c. Concessions rights - The intangible asset related to the right to charge users for the services related to service concessions agreements (Note 5.b and 2.5) is amortized under the straight-line method, from the date when toll collection started using the lower of its estimated expected useful life or effective period of the concession agreement. d. Contractual relationships with customers - Contractual relationships with customers are assets resulting from business combinations that were initially recognized at fair value, as determined based on the future cash flows expected from those relationships over an estimated period of time based on the time period those customers will remain as customers of the Group (the estimation of useful life is based on the contract terms which fluctuate between 2 and 5 years). The useful life and the impairment of these assets are individually assessed. e. Block I and Block V costs - Costs incurred to prepare the wells to extract the hydrocarbons associated with Block I and Block V, are capitalized as intangible asset. The Company capitalizes the development stage costs associated with preparing the wells for extraction. These costs are amortized based on the useful life of the wells (Block I 9 years and Block V 10 years), which is less than the overall period of the service contract with Perupetro. f. Internally generated software and development costs - Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met: it is technically feasible to complete the software product so that it will be available for use; • • management intends to complete the software product and use or sell it; • • there is an ability to use or sell the software product; it can be demonstrated how the software product will generate probable future economic benefits; 109 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS • • adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and the expenditure attributable to the software product during its development can be reliably measured. Directly attributable costs, such as development employee costs and an appropriate portion of relevant overhead, are capitalized as part of the software. Other development expenditures that do not meet these recognition criteria are expensed as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Computer software development costs recognized as assets are amortized over their estimated useful lives not exceeding three years. g. Rights of use of land - This item comprises the land use rights of a physical space located in the district of Miraflores in Lima, the surface area comprises 8,800 m2 and has been designated for the construction of a five star hotel. The Group held these rights for a 60 years period under the agreement signed and their effective period may be extended if agreed by the parties. Amortization will begin when it becomes ready for its intended use by Management. 2.17 Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment and whenever there is an impairment indicator. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that were adjusted for impairment are reviewed for possible reversal of such impairment at each reporting date. 2.18 Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. 110 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. 2.19 Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method. Fees paid for entering into loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. 2.20 Borrowing costs General and specific borrowing costs directly attributable to acquisitions, construction or development of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred. 2.21 Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in statement of comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax 111 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS regulation is subject to interpretation. Management, where appropriate, establishes provisions on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority. The deferred income tax arising from the temporary differences in subsidiaries, associates and interest in joint-controlled businesses is not recognized due the tax legislation in Chile and Peru does not consider the income from de dividends as a taxable item and the Group expects to recover the investment through the dividends rather than their sale. 2.22 Employee benefits a. Profit sharing - The Group recognizes a liability and an expense for statutory workers’ profit sharing, based on the Peruvian legal regulations in force for its Peruvian employees. Workers’ profit sharing is equivalent to 5% of the taxable income determined by each of the Group’s Peruvian entities, according to the income tax law currently in force. The branch based in the Dominican Republic has a similar profit sharing scheme, which rate is 10% of the taxable income. 112 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Bonuses - The Group recognizes an expense and the related liability for statutory bonuses based on applicable laws and regulations effective in Peru for its Peruvian employees. Statutory bonuses comprise two additional one-month salaries paid every year in July and December, respectively. According to the Chilean legislation, employees receive a fixed amount of $65 thousand of Chilean pesos (equivalent to S/.3 hundred nuevos soles) in September and December. In Brazil, Colombia and Dominican Republic these benefits are not provided to employees. c. Severance indemnities - The employees’ severance payments for time of service of the Group’s Peruvian staff comprise their indemnification rights, calculated in accordance with the regulations in force, which have to be credited to the bank accounts designated by workers in May and November each year. The compensation for time of service amounts to an additional one-month’s salary effective at the date of bank deposits. The Group has no obligations to make any additional payments once the annual deposits to which workers are entitled have been made. d. Vacation leave - Annual vacation leave is recognized on an accrual and cumulative basis. Provision for the estimated obligations of annual vacations is recognized at the date of the statement of financial position and it corresponds to one month for Peruvian and Brazilian employees and fifteen days for Chilean, Dominican and Colombian employees, per year. e. Pension plans - The subsidiary CAM has in place a pension plan scheme with its workers. These commitments comprise both defined benefit and defined contribution plans. A defined benefit plan defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined 113 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. 2.23 provisions a. General - Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. If the time value of money is significant, provisions are discounted using a pre-tax rate that reflects, when applicable, the specific risks related to the liability. Reversal of the discount due to the passage of time results in the obligation being recognized with a charge to the income statement as a financial expense. Provisions are not recognized for future operating losses. Contingent obligations are disclosed only when their existence will be confirmed with future events or when their amount cannot be reliably estimated. Contingent assets are not recognized and only disclosed if it is probable that future economic benefits will flow to the Company. b. Provision for the closure of production wells - Group entities recognize a provision for the closure of operating units that correspond to the legal obligation to close oil production wells once the production phase has been completed. At the initial date of recognition, the liability that arises from said obligation is measured at cash flow discounted to present value, the same amount is simultaneously charged to the intangible account in the statement of financial position. 114 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Subsequently, the liability will increase in each period to reflect the financial cost considered in the initial measurement of the discount, and the capitalized cost is depreciated based on the useful life of the related asset. When a liability is settled, the Group’s entities will recognize any gain or loss that may arise. The fair value changes estimated for the initial obligation and interest rates are recognized as an increase or decrease of the carrying amount of the obligation and related asset, according to IFRIC 1 ‘Changes in Existing Decommissioning, Restoration and Similar Liabilities’; any decrease in the provision, and any decrease of the asset that may exceed the carrying amount of said asset is immediately recognized in the income statement. If the review of the estimated obligation results in the need to increase the provision and, accordingly, increase the carrying amount of the asset, the Group’s entities will also take into consideration if said increase corresponds to an indicator that asset has been impaired and, if so, impairment tests are carried out, according to the guidelines of IAS 36, “Impairment of assets” (Note 2.16). c. Provision for periodic maintenance - The service concession arrangement of Norvial have maintenance obligations that it must fulfill during the operation phase to maintain the infrastructure to a specific level of service at all times and to restore the infrastructure to a specified level condition before it is handed back to the grantor. The Group recognizes and measures such obligations, except for an upgrade element, in accordance with IAS 37, ‘Provisions, contingent assets and liabilities. The Company apply a criteria of maintenance provision based on the use of the infrastructure, so the level of use of the road is the fact or that determines the amount of the obligation over the time 2.24 Capital Common shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity, as a deduction, net of taxes, of the proceeds. 115 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Where any Group company purchases the company’s equity shares (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects is included in equity attributable to the Group’s equity holders. 2.25 Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is stated net of sales rebates, discounts and after eliminating sales between Group companies. The Group recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities. The Group’s revenue recognition policy is described as follows: i. Revenue from construction activities - Revenues from construction contracts are recognized using the percentage-of-completion method based on the costs incurred method or the units of work method, considering total costs and revenues estimated at the end of the project, in accordance with IAS 11, Construction Contracts. Under this method, revenues are determined based on the contract costs incurred in comparison to total contract costs, representing the profits that can be attributed to the portion of work completed. Revenue is billed once approval is received by the owners of the work in progress. With respect to services that have been provided but not billed, due to a lack of approval on behalf of owners, the Company recognizes revenue with an increase in accounts receivable - “Outstanding work in progress”. Accounts receivable derived from work services are shown net of the advances received from customers to the extent the related contracts include liquidation provisions. 116 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A variation is an instruction by the customer for a change in the scope of the work to be performed under the contract. A variation may lead to an increase or a decrease in contract revenue. A variation is included in contract revenue when it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and the amount of revenue can be reliably measured. A claim is an amount that the Group seeks to collect from the customer or another party as reimbursement for costs not included in the contract price. Claims are included in contract revenue only when negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and the amount that it is probable will be accepted by the customer can be measured reliably. ii. Revenue from engineering, advisory and consulting services - Los ingresos por servicios se reconocen en el periodo contable en el que se ofrecen, sobre la base de los servicios realizados a la fecha como un porcentaje del servicio total a ser realizado. iii. Sales of real-estate properties - Revenue from sales of real estate properties is recognized in the results of the period when sales occur, that is, when the properties are delivered and the risks and rewards inherent to ownership are transferred to the buyer and the collection of the corresponding receivables is reasonably assured. iv. Revenue from IT services - The sale of computer equipment includes some services to be provided in a subsequent date to the asset sale as installation and maintenance. When sales agreements include multiple elements, the amount of the revenue is attributed to each element based on the related fair values. The fair value of each element is determined based on the market price prevailing for each element when sold separately. Revenue derived from computer equipment is recognized when the related risks and rewards are transferred to the customer, which occurs upon delivery. Revenue relating to each service element is recognized as a percentage of the total services to be performed during the period of service. 117 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS v. Interest income - Revenue from interest is recognized on a time-proportion basis, using the effective interest method. vi. Dividend income - Dividend income is recognized when the right to receive payment is established. vii. Revenue for concession services - Revenue for concession services is recognized according to its nature. Construction and restoration activities are accounted for applying the percentage-of-completion method as described above and operation and maintenance services in the accounting period when they are provided (see Note 2.5). 2.26 Construction contract costs Construction contract costs are recognized as an expense in the period in which they are incurred. Contract costs include all direct costs such as materials, labor, subcontracting costs, manufacturing and supply costs of equipment, start-up costs and indirect costs. Periodically, the Company evaluates the reasonableness of the estimates used in the determination of the percentage-of-completion. If, as a result of this evaluation, there are modifications to the revenue or cost previously estimated, or if the total estimated cost of the project exceeds expected revenues, an adjustment is made in order to reflect the effect in results of the period in which the adjustment or loss is incurred. When the outcome of a construction work cannot be estimated reliably, the revenue of the contract is recognized only up to the amount of the contractual costs incurred and that are likely to be recovered. 118 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Changes in contract relating to the work to be performed, lawsuits and payment of incentives are included in the revenue from the contract to the extent that they have been agreed with the client and can be measured reliably. 2.27 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the profit or loss of the period on a straight-line basis over the period of the lease. The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially assumed all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges in order to obtain a constant rate on the balance pending payment. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. 2.28 Dividend distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders. 2.29 Contingent liabilities and assets Contingent liabilities are not recognized in the financial statements; they are only disclosed in the Notes to the financial statements, unless it is probable that the use of resources is remote. Contingent assets are not recognized in the financial statements and are only disclosed when it is probable that an inflow of resources will flow to the Company. 119 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2.30 Significant non-operating items Significant non-operating items are separately shown in the financial statements when they are necessary to provide a better understanding of the Group’s financial performance. These material items are income or expenses shown separately due to the significance or their nature or amount. 2.31 New standards, amendments and interpretations a. New and amended standards adopted by the Group in 2013 The following standards have been adopted by the Group for the first time for the 2013 financial statements. Most of the impact of the adoption of these standards was restricted to presentation and disclosures in the financial statements: - - - - Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). IFRS 10, ‘Consolidated financial statements’ builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. IFRS 11, ‘Joint arrangements’ focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted. IFRS 12, ‘Disclosures of interests in other entities’ includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. 120 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - - - IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. IAS 19, ‘Employee benefits’ was revised in June 2011. The changes on the group’s accounting policies has been as follows: to immediately recognize all past service costs; and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). Amendment to IFRS 7, ‘Financial instruments: Disclosures’, on asset and liability offsetting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. b. New standards and interpretations not yet effective and not early adopted - IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group is yet to assess the impact of this new standard. - IFRIC 21, ‘Levies’, sets out the accounting for an obligation to pay a levy that is not an income tax. The interpretation addresses what the obligation event is that gives rise to pay a levy and when a liability should be recognized. The Group is in the process of assessing the impact of this new standard. There are no other IFRS or IFRIC interpretations that are not yet effective that would be expected to have a significant impact on the Group’s financial statements. 121 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 FINANCIAL RISK MANAGEMENT Financial risk management is carried out by the Group’s Management. Management oversees the general management of risks in specific areas, such as foreign exchange rate risk, price risk, cash flow and fair value interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investment of excess liquidity as well as financial risks, and carries out periodic supervision and monitoring. 3.1 Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures in one of its subsidiaries and considers the use of other derivatives, in the event that it identifies risks that may generate an adverse effect for the Group in the short- and medium-term. a. Market risks - i. Foreign exchange risk - The Group is exposed to exchange rate risk as a result of the transactions carried out locally in foreign currency and due to its operations abroad. As of December 31, 2013 and 2012, this exposure is mainly concentrated in fluctuations of the U.S. dollar and Chilean pesos. The foreign exchange risk of the investments in Brazil, Colombia and Dominican Republic are not significant due their level of operations. Management has set up a policy to require Group companies to manage their foreign exchange risk against their functional currency. The Group companies are required to hedge their entire foreign exchange risk exposure in coordination with the Group treasury. To manage their foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, Group companies sometimes use forward contracts, previously approved by Group treasury. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency other than the entity’s functional currency. 122 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013, the consolidated statement of financial position includes assets and liabilities in foreign currency equivalent to S/.1,886 million and S/.2,746 million, respectively (S/.1,673 million and S/.1,568 million, respectively, as of December 31, 2012) equivalent to US$0.47 million and US$0.81 million respectively (US$0.52 million and US$0.59 respectively as of December, 2012); US$90,904 million Ch$77,415 million respectively (Ch$48,833 million and Ch$23,939 million, respectively as of December, 2012), Col$38,545 million and Col$27,595 million respectively (Col$31,195 million and Col$24,717 million, respectively as of December, 2012), R$0.028 million and R$0.022 million respectively (R$0.031 million and R$0.025 million, respectively as of December, 2012), During 2013 the Nuevo Sol has weakened against the U.S. dollar. The Group’s exchange gains and losses for 2013 amounted to S/.431 million and S/.501 million, respectively (S/.264 million and S/.243 million respectively in 2012). If, at December 31, 2013, the new Peruvian sol had strengthened/weakened by 2% against the U.S. dollar, with all variables held constant, the pre-tax profit for the year would have increased/decreased by S/.1.4 million (S/.0.4 million in 2012 and S/.0.1 million in 2011). ii. Price risk - Investments classified as available for sale on the consolidated financial statements correspond to equity securities which exposure to price risk is immaterial due to the low amount invested. The Group does not have any other financial instruments exposed to price risk. iii. Cash flow and fair value interest rate risk - The Group’s interest rate risk mainly arises from its long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain most of its borrowings in fixed rate instruments; 86% of total debt in 2013 and 2012 was contracted at fixed rates. Management has established mechanisms with the banks to negotiate in time intervals the interest rates of loans. 123 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS During 2013 and 2012 the Group’s borrowings at variable rates were denominated in U.S. dollars and the Group’s policy is to manage this risk by using interest-rate swaps, which are recognized under hedge accounting. The variable portion of the hedging derivative only comprises 14% of the total debt for 2013 and 2012 and any increase or decrease in interest rate would not have a material effect on the Group’s results. There was no material ineffectiveness on cash flow hedges occurred in fiscal years 2013 and 2012. b. Credit risk - Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as customer credit counterparties, including the outstanding balance of accounts receivable and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. The Management of each of the Group’s companies evaluates the credit quality of the client taking into consideration its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The utilization of credit limits is regularly monitored. With respect to loans to related parties, the Group has measures in place to ensure the recovery of these loans through the controls maintained by the Corporate Finance Management and the performance evaluation conducted by the Board. No credit limits were exceeded during the reporting period, and Management does not expect the Group to incur any losses from non-performance by these counterparties. c. Liquidity risk - Prudent liquidity risk implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. In this sense, the Group has no significant liquidity risks given the fact that historically its operating cash flows have enabled it to maintain sufficient cash to meet its obligations. 124 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Group Corporate Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities (Note 18), so that the Group does not breach borrowing limits or covenants, where applicable, on any of its borrowing facilities. Less significant financing transactions are controlled by the Finance Management of each subsidiary. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal statement of financial position ratio targets and, if applicable, external regulatory or legal requirements; for example, currency restrictions. Surplus cash held by the operating entities over and above the balance required for working capital management are invested in interest-bearing checking accounts or time deposits, selecting instruments with appropriate maturities and sufficient liquidity. The following table analyzes the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the date of the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. As of December 31, 2012 Borrowing (except for finance leases) Finance leases liabilities Trade accounts payable Other accounts payable Trading and net settled derivative financial instruments (interest rate swaps) Accounts payable to related parties Less than 1 year From 1 to 2 years From 2 to 5 years Over 5 years Total 343,072 124,709 937,287 181,713 14,932 42,734 1,644,447 82,980 103,373 - 38,135 3,764 - 228,252 62,992 130,246 - - - - 25,440 22,119 - - - - 514,484 380,447 937,287 219,848 18,696 42,734 193,238 47,559 2,113,496 125 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 Borrowing (except for Borrowing (except for finance leases) Finance leases liabilities Trade accounts payable Other accounts payable Trading and net settled derivative financial instruments (interest rate swaps) Accounts payable to related parties Less than 1 year From 1 to 2 years From 2 to 5 years Over 5 years Total 371,302 115,698 991,397 215,413 1,773 25,585 1,721,168 118,347 82,492 2,157 28,745 2,138 - 233,879 64,698 87,829 - 2,166 - - - 22,912 - 2,354 - - 554,347 308,931 993,554 248,678 3,911 25,585 154,693 25,266 2,135,006 3.2 Capital management - The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings), less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated statement of financial position plus net debt. As of December 31, 2012, due to the fact that the Company has acquired significant borrowings, the Company’s strategy was to maintain a gearing ratio between 0.03 and 1.00. As of December 31, 2013, no gearing ratio was part of the analysis because cash surpluses were higher than financial obligations and equity had not been used to secure compliance with financial obligations as it is shown in the table below. 126 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2012 and 2013 the gearing ratio was as follows: Total borrowing Less: Cash and cash equivalents Net debt Total equity Total capital Gearing ratio 3.3 Fair value estimation - 2012 845,474 (780,114) 65,360 1,783,241 1,848,601 0.04 2013 795,822 (959,415) (163,593) 3,196,840 3,033,247 0.00 For the classification of the type of valuation used by the Group for its financial instruments at fair value, the following levels of measurement have been established. - - - Level 1: Measurement based on quoted prices in active markets for identical assets or liabilities. Level 2: Measurement based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Measurement based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs, generally based on internal estimates and assumptions of the Group). The main financial instruments measured at fair value by the Group are the interest rate swaps signed with subsidiary GMP S.A., by which a variable-interest instrument is changed to a fixed interest rate and forward foreign exchange contracts signed by subsidiaries GyM Ferrovías S.A. and Viva GyM S.A. to hedge its exposure to changes in the exchange rate of the Euros and U.S. dollars. The information used for determining the fair value of these instruments are Level 2 and has been determined based on the present value of discounted future cash flows applied to the interest-rate change projections of Citibank New York. 127 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In 2013, the fair value of the investment maintained in Transportadora de Gas del Perú S.A. (TGP) classified as available for sale financial asset was based on the price paid in one recent arm’s length transaction occurring in December 2013 among knowledgeable willing parties. The information used for determining the fair value of this investment is of Level 2 (see Note 9). The carrying amount of cash and cash equivalents corresponds to its fair value. The Company considers that the carrying amount of current and long-term accounts receivable and payable is similar to their fair values. The fair value of financial liabilities, disclosed in Note 18-c), has been estimated by discounting the future contractual cash flows at the interest rate currently prevailing in the market and which is available to the Company for similar financial instruments. There were no transfers between levels during the year. 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTSS Estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 4.1 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. a. Estimated impairment of goodwill Impairment reviews are undertaken annually to determine if goodwill arising from business acquisitions has suffered any impairment, in accordance with the policy described in Note 2.16-a). For this purpose, goodwill is attributed to the different CGUs to which it relates. The recoverable amount of the CGUs has been determined based on its value-in- use calculations. This evaluation requires the exercise of Management’s professional judgment to analyze any potential indicators of impairment as well as the use of estimates in determining the value in use, including the preparation of future cash flows, macro-economic forecasts as well as defining the interest rate at which said cash flows will be discounted. 128 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Value in use is usually determined on the basis of discounted estimated future net cash flows. Determination as to whether and how much an asset is impaired involves management estimates on highly uncertain matters such as future commodity prices, the effects of inflation on operating expenses, discount rates, production profiles and the outlook for global or regional market supply-and-demand conditions for crude oil, natural gas and refined products. If the Group experiences a significant drop in revenues or a drastic increase in costs or changes in other factors the fair value of business units might decrease. If management determines the factors that reduce the fair value of the business are permanent, those economic factors will be taken into consideration to determine the recoverable amount of the business units and, therefore, goodwill may be deemed to be impaired, which may cause a write-down of goodwill to be necessary. Based on the impairment tests performed by Group Management, no goodwill impairment losses were required to be recognized because the recoverable amount of the CGUs subject to testing was substantially higher than their related carrying amounts. The most significant assumptions are gross margin, growth rate and discount rate which are included in Note 17. The Group has performed a sensitivity analysis on the gross margin and discount rate which is included below. i. Gross margin The Group’s fair value is significantly above its book value and if the gross margin was adjusted down by 10% the fair value would be 188% higher than the book value and if the gross margin was adjusted up by 10% the fair value would be 262.5% higher than book value. Therefore the Group’s businesses would still be greater than the book value even under a significant decline in the Group’s gross margin and the Group would not need to impair its goodwill. ii. Discount rate The Group’s fair value is significantly above its book value and if the discount rate was adjusted down by 10% the fair value would be 193% higher than the book value and if the discount rate was adjusted up by 10% the fair value would be 264% higher than book value. Therefore the Group’s businesses would still be greater than the book value even under a significant upward adjustment to the discount rate in value and the Group would not need to impair its goodwill. 129 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Income taxes - Determination of the tax obligations and expenses requires interpretations of the applicable tax laws and regulations. The Company seeks legal tax counsel’s advice before making any decision on tax matters. Although Management considers its estimates to be prudent and appropriate, differences of interpretation may arise with the Peruvian Tax Authorities which may require future tax adjustments. Deferred tax assets and liabilities are calculated by taking the temporary differences of the tax basis of assets and liabilities and the financial statement basis using the tax rates in effect for each of the years in which the difference is expected to reverse. Any change in tax rates will affect the deferred tax assets and liabilities. This change will be recognized in income in the period the change takes effect. Management makes estimates for our deferred income tax asset valuation allowance. This allowance may be increased or decreased if the Group determines it to be more likely than not that our valuation allowance needs to be adjusted. If a tax position is not more likely than not to ultimately be realized, no tax benefit is recorded. The Group bases its estimates for the valuation allowance on all available evidence which includes historical data, projected income, current operations and tax planning strategies. The deferred tax asset is supported by the assumption that the Group will continue to generate income in the future. If management determines in the future revenues will not be sufficient to cover the deferred tax asset, it would adjust the valuation account for deferred income tax asset. The maximum exposure of the Company related to tax contingencies amounts to S/.35,948. c. Percentage of completion revenue recognition - Revenue from construction contracts is recognized under the percentage-of-completion method which requires the final margin from construction contracts to be estimated. Projections of these margins are performed by Management based on work execution budgets and adjusted periodically based on updated information reflecting the actual performance of work. The estimated contract revenue and total cost estimates are reviewed often as work advances and change orders are initiated and approved. In this regard, Management considers that the estimates made at the year-end closing are reasonable. When unapproved change orders are presented, revenue is recognized equal to costs incurred (no profit component recognized) until the additional work has been approved. 130 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Contract revenue is recognized as revenue in the income statement in the accounting periods in which the work is performed. Contract costs are recognized as cost of sales in the income statement in the accounting period in which the work to which they relate is performed. However, any expected and probable excess of total contract costs over total contract revenue for the contract is recognized as an expense immediately. Furthermore, any changes in contract estimates are recognized as a change in accounting estimates and recognized in the period the change is made and in future periods as applicable. In certain construction contracts, the terms of these agreements allow for an amount to be withheld by the customers until construction has been completed. Under these contracts the full amount may not be recognized until the next operating cycle. As of December 31, 2013, 2012 and 2011, a sensitivity analysis was performed considering a 10% increase/decrease in the Group’s gross margins, as follows: Sales Gross profit % Over 10% Increase in profit before taxes Less 10% Decrease in profit before taxes d. Provision for well closure costs - 2011 2,650,334 289,813 10.93 12.02 28,981 318,794 9.84 (28,981) 260,832 2012 3,341,539 371,852 11.13 12.24 37,185 409,037 10.02) (37,185) 334,667 2013 3,820,208 466,512 12.21 13.43 46,651 513,163 10.99) (46,651) 419,861 The Company estimates the present value of its future obligation for well closure costs, or well closure liability, and increases the carrying amount of the asset that will be withdrawn in the future and that is shown under the heading of intangibles in the statement of financial position. The discount pre-tax rate used for the present value calculation was 2.74% based on the 10 year bond rate as of December, 2013 (1.78% as of December, 2012). On December 31, 2013 the present value of the estimated provision for closure activities for the 131 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 83 wells amounted to S/. 4.85 million (S/.4.9 million as of December, 2012 for closure activities for the 85 wells). Subsequently, this liability is attributed to profit or loss during the useful life of the assets that gave rise to it. The well closure liability is adjusted to reflect the changes that resulted from the passage of time and from revisions of either the date of occurrence or the amount of the present value of the obligations originally estimated. If, at December 31, 2013, the estimated rate would have increased or decreased by 10%, with all variables held constant, the pre-tax profit for the year would have been as follows: +10% -10% Impact in pretax profit 2013 (59) 59 During 2013, the Company recorded S/.0.5 million, charged to the intangible asset account, credited to the well closure liability. This is to reflect estimated obligations to close productive wells included in the service agreements for Blocks I and IV. This provision is increased monthly and charged to results, on an incremental value basis. 4.2 Critical judgments in applying the entity’s accounting policies Consolidation of entities in which the Group hold less than 50% - The Company owns some direct and indirect subsidiaries on which the Group has control even though it has less than 50% of the voting rights. These are mainly related to indirect subsidiaries in the real-estate business owned through Viva GyM S.A., where even though the Group has interest between 30% and 50%, has the power to affect the activities that mostly impact the subsidiaries’ returns. Additionally, the Group owns de facto control on Promotora Larcomar S.A. on which owns 42.80% of equity interest considering the fact there is no history of other shareholders forming a group to exercise their votes collectively. 132 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5 INTERESTS IN OThER ENTITIES The consolidated financial statements of the Group include the accounts of the Company and of its subsidiaries. Additionally, the consolidated financial statements of the Group include its interest in joint operations in which the Company or certain subsidiaries have joint control with their joint operations partners (See note 2.2d). a. Principal subsidiaries - The following chart shows the principal direct and indirect subsidiaries allocated by operating segment (Note 6): Name Engineering and Construction: GyM S.A. Stracon GyM S.A. GyM Chile S.p.A. Vial y Vives S.A. DSD Construcciones y Montajes S.A GyM Minería S.A. GMI S.A. Country Economic activity Peru, Chile and Dominican Republic Civil construction, electro-mechanic assembly buildings, management and implementing housing development projects and other related services. Peru Chile Chile Chile Chile Perú Engaged in mining contracting activities, providing mining services and carrying out drilling, demolition and any other activity related to construction and mining operations. Electromechanical assemblies and services to energy, oil, gas and mining sector. Developing activities related to the construction of engineering projects, civil construction projects and electromechanical assemblies, as well as architectural design and installations in general. Construction and electromechanical assemblies and services in the areas of energy, oil and gas and mining. Electromechanical assemblies and services. Advisory and consultancy services in engineering, carrying out studies and projects, managing projects and supervision of works. 133 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Name Infrastructure: GMP S.A. Oiltanking Andina Services S.A. Transportadora de Gas Natural Comprimido Andino S.A.C. GyM Ferrovías S.A. Survial S.A. Norvial S.A. Concesión Canchaque S.A. Concesionaria Vía Expresa Sur S.A. Name Real estate: VIVA GyM S.A. Country Economic activity Peru Peru Peru Peru Peru Peru Peru Peru Concession of services for producing, treating and selling oil, natural gas and by-products as well as for storing and dispatching of fuel extracted from demonstrated feasible fields. Operation of the gas processing plant of Pisco – Camisea. Concession for constructing, operating and maintaining the supply system of compressed natural gas in certain provinces of Peru. Concession for operating the Lima Metro transportation system. Concession for constructing, operating and maintaining the Section 1 of the “Southern Inter-oceanic” road. Concession for restoring, operating and maintaining the “Ancón - Huacho - Pativilca” section of the Panamericana Norte road. Concession for operating and maintaining the Buenos Aires - Canchaque road. Concession for designing, constructing, operating and maintaining the the Via Expresa - Paseo de la República in Lima. Country Economic activity Peru Developing and managing real estate projects directly or together with other partners. 134 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Name Technical services: GMD S.A. Gestión de Servicios Digitales S.A. CAM Holding S.p.A. Country Economic activity Peru Peru Information technology services. Information technology services. Chile, Peru, Brasil y Colombia Electric and technological services. Concar S.A. Peru Operating and maintaining roads under concession. Name parent company operation: Generadora Arabesco S.A. Larcomar S.A. Promotora Larcomar S.A. Promotores Asociados de Inmobiliarias S.A. Country Economic activity Peru Peru Peru Peru Implementing projects related to electric power-generating activities. Exploitation of the land right to use the Larcomar Shopping Center. Construction of a hotel complex on a plot of land located in the district of Miraflores. Operating in the real-estate industry and engaged in the development and selling office facilities in Peru. 135 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSThe following are the Group’s subsidiaries and related interests on December 31, 2013: proportion of ordinary shares directly held by parent (%) proportion of ordinary shares held by Subsidiaries (%) proportion of ordinary shares held by the Group (%) proportion of ordinary shares held by non-controlling interests (%) Engineering and Construction: GyM S.A. GyM S.A. subsidiarias Stracon GyM S.A. GyM Chile SpA DSD Construcciones y Montajes S.A. Ingeniería y Construcción Vial y Vives S.A. GyM Minería S.A. GMI S.A. Infrastructure: GMP S.A. Oiltanking Andina Services S.A. Transportadora de Gas Natural Comprimido Andino S.A.C GyM Ferrovias S.A. Survial S.A. Norvial S.A. 93.67% - - - - - - 89.41% 95.00% - - 75.00% 99.99% 67.00% - - 74.15% 99.99% 85.95% 80.40% 99.90% - - 50.00% 99.93% - - - 93.67% - 74.15% 99.99% 85.95% 80.40% 99.90% 89.41% 95.00% 50.00% 99.93% 75.00% 99.99% 67.00% 136 6.33% 13.68% 25.85% 0.01% 14.05% 19.60% 0.10% 10.59% 5.00% 50.00% 0.07% 25.00% 0.01% 33.00% < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS proportion of ordinary shares directly held by parent (%) proportion of ordinary shares held by Subsidiaries (%) proportion of ordinary shares held by the Group (%) proportion of ordinary shares held by non-controlling interests (%) Infrastructure: Concesión Canchaque S.A. Concesionaria Vía Expresa Sur S.A. Real Estate: Viva GyM S.A. - Viva GyM S.A. subsidiarias Technical Services: GMD S.A. Cam Holding S.p.A. Concar S.A. Gestión de Servicios Digitales S.A. parent company operation: Generadora Arabesco S.A. Larcomar S.A. Promotora Larcomar S.A. Promotores Asociados de Inmobiliarias S.A. 99.97% 99.99% 59.25% - 89.15% 100.00% 99.74% - 99.00% 79.66% 42.80% 99.99% - - 38.97% - - - - 100.00% - - - - 0.03% 0.01% 1.78% 40.58% 10.85% - 0.26% - 1.00% 20.34% 57.20% 0.01% 99.97% 99.99% 98.22% - 89.15% 100.00% 99.74% 100.00% 99.00% 79.66% 42.80% 99.99% 137 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSThe following are the Group’s subsidiaries and related interests on December 31, 2012: proportion of ordinary shares directly held by parent (%) proportion of ordinary shares held by Subsidiaries (%) proportion of ordinary shares held by the Group (%) proportion of ordinary shares held by non-controlling interests (%) Engineering and Construction: GyM S.A. GyM S.A. subsidiarias Stracon GyM S.A. GyM Chile SpA Ingeniería y Construcción Vial y Vives S.A. GyM Minería S.A. GMI S.A. Infrastructure: GMP S.A. Oiltanking Andina Services S.A. Transportadora de Gas Natural Comprimido Andino S.A.C GyM Ferrovias S.A. Survial S.A. Norvial S.A. 93.67% - - - - - 89.41% 95.00% - - 75.00% 99.99% 50.10% - - 74.15% 99.99% 74.00% 99.90% - - 50.00% 99.93% - - - 93.67% - 74.15% 99.99% 74.00% 99.90% 89.41% 95.00% 50.00% 99.93% 75.00% 99.99% 50.10% 138 6.33% 12.80% 25.85% 0.01% 26.00% 0.10% 10.59% 5.00% 50.00% 0.07% 25.00% 0.01% 49.90% < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS proportion of ordinary shares directly held by parent (%) proportion of ordinary shares held by Subsidiaries (%) proportion of ordinary shares held by the Group (%) proportion of ordinary shares held by non-controlling interests (%) Infrastructure: Concesión Canchaque S.A. Concesionaria la Chira Real Estate: Viva GyM S.A. - Viva GyM S.A. subsidiarias Technical Services: GMD S.A. Cam Holding S.p.A. Concar S.A. Gestión de Servicios Digitales S.A. parent company operation: Generadora Arabesco S.A. Larcomar S.A. Promotora Larcomar S.A. Promotores Asociados de Inmobiliarias S.A. 99.97% 50.00% 59.25% - 89.15% 100.00% 99.57% - 99.00% 79.66% 42.80% 99.99% - - 38.97% - - - - 100.00% - - - - 0.03% 50.00% 1.78% 34.75% 10.85% 00.00% 0.43% - 1.00% 20.34% 57.20% 0.01% 99.97% 50.00% 98.22% - 89.15% 100.00% 99.57% 100.00% 99.00% 79.66% 42.80% 99.99% 139 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS All subsidiaries undertakings are included in the consolidation. The proportion of the voting rights in the subsidiaries’ undertakings are held directly by the parent company and do not differ from the proportion of ordinary shares held. There is no restriction to access or use of the assets or to the settlement of the liabilities of the Group. At December 31, the total non-controlling interest is attributable to the following subsidiaries: Viva GyM S.A. subsidiarias Viva GyM S.A. GyM S.A. subsidiarias GyM S.A. Norvial S.A. CAM Holding S.p.A. GMP S.A. GyM Ferrovias S.A. Promotora Larcomar S.A. Otros 2012 132,482 4,101 76,414 30,225 57,774 16,681 23,466 20,139 10,060 19,692 391,034 2013 176,009 5,411 101,601 40,616 39,811 19,585 18,853 14,042 9,960 5,173 431,061 140 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summarized financial information of subsidiaries with material non-controlling interests Set out below are the summarized financial information for each subsidiary that has non-controlling interests that are material to the Group. Summarized statement of financial position Current: Assets Liabilities Total current net assets (liabilities) Non-current: Assets Liabilities Total non-current net assets (liabilities) Net assets viva GYM S.A. December 31, 2012 2013 2012 GyM S.A. December 31, 2013 642,799 (263,600) 672,627 (217,609) 1,504,198 (1,547,653) 1,791,129 (1,578,685) Norvial S.A. December 31, 2013 19,977 (50,362) 2012 13,741 (13,804) 379,199 455,018 (43,455) 212,444 (63) (30,385) 64,605 (62,583) 2,022 381,221 76,506 (97,762) (21,256) 433,762 858,808 (261,680) 597,128 553,673 915,193 (382,067) 533,126 745,570 152,228 (1,207) 151,021 120,636 154,094 (38,251) 115,843 115,780 141 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summarized income statement viva GyM S.A. December 31, GyM S.A. December 31, Norvial S.A. December 31, 2011 2012 2013 2011 2012 2013 2011 2012 2013 Revenue Profit before income tax Income tax Post-tax profit Other comprehensive Total comprehensive income 152,266 34,363 (10,232) 24,131 - 24,131 240,110 65,282 (19,967) 45,315 - 45,315 313,731 80,467 (21,427) 59,040 - 2,659,246 222,941 (66,679) 156,262 - 59,040 156,262 3,341,539 250,132 (79,690) 170,442 (962) 169,480 3,903,916 350,687 (105,782) 244,905 (1,240) 243,665 78,672 34,2521 (7,814) 26,438 - 26,438 85,700 38,734 (11,578) 27,156 - 27,156 92,252 40,341 (10,245) 30,096 - 30,096 142 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summarized cash flows Net cash (used) generated from operating activities Efectivo neto (usado) generado de actividades de inversión Efectivo neto (usado) generado en actividades de financiamiento Incremento (disminución) neta en efectivo y equivalentes de efectivo Disminución de efectivo por desconsolidación Efectivo, equivalentes de efectivo y sobregiros bancarios al inicio del año Efectivo y equivalentes de efectivo al final del año viva GyM S.A. December 31, GyM S.A. December 31, Norvial S.A. December 31, 2011 2012 2013 2011 2012 2013 2011 2012 2013 (14,189) 5,104 (46,450) 164,373 467,606 69,768 44,585 48,052 37,746 (36,340) (4,158) (5,609) (51,441) (263,724) (139,563) (16,903) (16,729) (412) 54,804 22,804 22,081 (113,963) (179,416) (87,296) (23,667) (32,757) (24,791) 4,275 23,750 (29,978) (1,031) 24,466 (157,091) 4,015 (1,434) 12,543 - - - - - (1,458) - - - 44,979 49,254 73,004 399,466 398,435 422,901 10,368 14,383 12,949 49,254 73,004 43,026 398,435 422,901 264,352 14,383 12,949 25,492 143 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The information above is the amount before inter-company eliminations. b. Public services concessions - The Group acts as concessionaire in various public services concessions. When applicable, revenue attributable to the construction or restoration of infrastructure has been accounted for by applying the models set forth in Note 2.5 (financial, intangible and bifurcated model). The concessions of the Group are described as follows: Financial model: i. Survial S.A. concession Under the Survial concession, the Company operates and maintains a 750 km road from the San Juan de Marcona port to Urcos, Peru, which is connected to an interoceanic road that runs up to the Peruvian-Brazilian border. The road has five toll stations and three weigh stations. The concession was awarded to Survial in 2007 for a 25-year term. The Company owns 99.9% of Survial. The obligations under the concession include the construction of the road, which was completed in 2010. The estimated investment is US$98.9 million. The concession maintains payback mechanisms through the annual payment for maintenance and operation of the road, hereinafter PAMO, which is paid to Survial by the Ministry of Transport and Communications of Peru, according to the terms established in the contract. PAMO revenues are generated by two types of periodic and routine maintenance. The 46.88% of the total invoiced is periodic maintenance, and the difference is for routine maintenance. The revenue in this concession does not depend on traffic volume. This concession is recognized as a financial asset because Survial has the unconditional contractual right to receive cash or other financial asset and such operation is secured contractually by the Peruvian Government. Survial receives specific and determinable amounts of cash and measures the financial asset at amortized cost, taking into consideration the effective interest rate method as prescribed in IAS 39, ‘Financial Instruments: Recognition and Measurement’. 144 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ii. Canchaque S.A. concession Under the Canchaque concession, the Company operates and periodically maintains a 78 km road from the towns of Buenos Aires to Canchaque, in Peru. The road has one toll station. The concession was awarded to Canchaque in 2006 for a 15-year term with the option to extend the term. The Company owns 99.97% of Canchaque. The obligations under the concession include the construction of the road 1B from Buenos Aires to Canchaque in Piura, which was completed in 2009; the total investment amounted to US$26.1 million. Revenue from this concession consists of an annual fee paid by the Peruvian Ministry of Transport and Communications in consideration for the operation and maintenance of the road, which can vary depending on the amount of road maintenance required due to road wear and tear. The revenue received by the Company in this concession does not depend on traffic volume. These revenues are guaranteed by a minimum amount of US$310,648. The concession maintains payback mechanisms through the PAMO, which is paid to Canchaque by the Ministry of Transport and Communications of Peru, according to the terms established in the contract. PAMO revenues are generated by two types of periodic and routine maintenance. The 20.30% of the total invoiced is periodic maintenance, and the difference is for routine maintenance. The revenue in this concession does not depend on traffic volume. This concession granted to the Company comprises public services and investments qualifying as a financial asset as the Company has the unconditional right to receive cash or other financial assets from the collection of annual payments for maintenance and operation. Canchaque recognizes such financial asset at amortized cost, taking into consideration effective interest rate method, as prescribed in IAS 39 Financial instruments: recognition and measurement. iii. La Chira S.A. concession In 2011, the Company was awarded a 25-year concession for the construction, operation and maintenance of La Chira waste water treatment plant in the south of Lima. The project is aimed at addressing Lima’s environmental problems caused by sewage discharged directly into the sea. The Company holds a 50% share in this project and the Company´s partner Acciona Agua holds the remaining 50%. La Chira’s annual revenues under the concession are in the form of a fee paid by Sedapal S.A., the public utility company responsible for the supervision of the water service in Lima. The total investment amounted to S/.450.5 million. 145 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The concession maintains payback mechanisms through certificates of progress of the works, hereinafter CAOS, because the concession is under construction. At December 31, 2013, the concession has issued two CAOS by advancing work executed, corresponding to 38.54 % of the total of the project. It is estimated that a total of seven CAOS will be issued. This concession granted to the Company comprises public services and investments qualifying as a financial asset as the Company has the unconditional right to receive cash or other financial assets through collections of revenue charged for maintaining the plant. The concession is recognized as a financial asset at its amortized cost, taking into consideration the effective interest rate method calculation set forth in IAS 39, ‘Financial Instruments: Recognition and Measurement’. iv. GyM Ferrovías S.A. concession In 2011, the Company was awarded a 30-year concession for the operation of Line One of the Lima Metro, Peru’s only urban railway system. The concession was awarded to the subsidiary GyM Ferrovías, in which the Company holds a 75% ownership interest, with the other 25% being held by Ferrovías S.A.C. The obligations under the contract include (i) the operation and maintenance of the five existing trains provided by the government; (ii) the acquisition of 19 new trains on behalf of the Peruvian government, which will be the legal owner of such trains; (iii) the operation and maintenance of the 19 additional trains; and (iv) the design and construction of the railway maintenance and repair yard. The total investment amounted to US$549.8 million. Revenue from this concession consists of a quarterly fee that is received from the Ministry of Transport and Communications based on the kilometers travelled per train. The revenue does not depend on passenger traffic volume. The concession given to the Company comprises public services and investments qualifying as a financial asset as the Company has the unconditional right to receive cash or other financial asset for the collection of the secured kilometers. The concession is recognized as a financial asset at its amortized cost, taking into consideration the effective interest rate calculation set forth in IAS 39, ‘Financial Instruments: Recognition and Measurement’. 146 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS v. Transportadora de Gas Natural Andino S.A.C concession In July 2013 the Group, through its subsidiary GMP S.A., obtained from the Local Government the concession to design, finance, build, maintain and operate the system supply of compressed natural gas in Jauja, Huancayo, Huancavelica, Huamanga, Huanta, Andahuaulas, Abancay, Cusco, Juliaca and Puno. The concession term is 10 years with an option to extend for 20 more years. According to the contract the infrastructure will reverse to the grantor at the end of the concession term. The estimated initial investment during the first nine months will result in US$14.1 million. In the sixth year the amount will be about US$1.76 million. This concession granted to the Company comprises public services and investments qualifying as financial assets, the Company has the unconditional right to receive cash or other financial assets due as the granted income which is higher than the investment costs. The concession is recognized as a financial asset at its amortized cost, taking into consideration the effective interest rate method set forth in IAS 39, ‘Financial Instruments: Recognition and Measurement’. Intangible model: i. Norvial S.A. concession Under the Norvial concession, the Company operates and maintains part of the only highway that connects Lima to the northwest of Peru. This 183-km road known as Red Vial 5, runs from the cities of Ancón to Pativilca and has three toll stations. The concession was awarded to Norvial in 2003 for a 25-year term. The Company owns 67% of Norvial. Norvial’s revenue derives from the collection of tolls. The toll fee is determined by the Peruvian Ministry of Transport and Communications and adjusted on a yearly basis in accordance with a contractual formula that takes into account the nuevo sol/U.S. dollar exchange rate and Peruvian and U.S. inflation. The Company is required to transfer 5.5% of monthly toll revenue to the Peruvian Ministry of Transport and Communications and pay a 1% regulatory fee to the Peruvian Supervisory Agency for Investment in Public Transportation Infrastructure. The obligations under the concession include expanding the already existing road by, among other things, adding two additional lanes. The first stage of construction was completed in 2008 and the second stage is expected to begin between 2014 and 2015. The total investment of the concession amounted to US$50 million in the first stage while the second stage will amount to US$102 million. When the construction of the second stage begins, the Company will also be required to pay a one-time estimated fee of approximately US$1.8 million to the Peruvian Supervisory Agency for Investment in Public Transportation Infrastructure. 147 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The concession contract given to the Company comprises public services and investments and qualifies as an intangible asset because the concession agreement grants the right to charge a predefined and adjustable rate to the users. The cost of the intangible asset comprises the investment committed, executed or to be executed to the extent their amount and borrowing costs can be estimated reliably. Bifurcated model: iii. Vía Expresa Sur S.A. concession On August 8, 2013, the Company obtained the concession for a 40-year term for designing, financing, building, operating and maintaining the infrastructure associated with the Vía Expresa Sur Project. This project involves the second stage expansion of the Via Expresa - Paseo de la República, between the República de Panamá Avenue and Panamericana highway. The estimated investment in this concession is expected to be US$196.8 million. The contract gives the Company the right to charge users of the public service according to a pre-defined price list; however, the grantor (Government) has agreed to pay the difference if the revenues generated during the operation stage are lower than US$18 million in the first two years and US$19.7 million from the third year until the fifteenth year. Revenue for the construction activities and other initial activities are accounted for as a financial asset for the portion that the government guarantees to the Company, and as an intangible, for the unguaranteed investment. 148 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c. Principal Joint Operations - As of December 31, 2013, the Group participated in 64 Joint Operations in association with third parties (55 as of December 31, 2012). The following table contains the principal Joint Operations in which the Group participated: percentage of interest Joint Operations Graña y Montero S.A.A. - Concesionaria la Chira S.A. (*) GyM S.A. - Consorcio Pasco - Consorcio Constructor Alto Cayma - Consorcio Rio Pallca – Huanza - Consorcio Tren electrico - Consorcio Alto Cayma - Consorcio Vial Ayacucho - Consorcio Lima Actividades Comerciales - Consorcio GyM – COSAPI - Consorcio Atocongo - Consorcio Norte Pachacutec - Consorcio La Chira 2012 50.00% 99.00% 50.00% 40.00% 33.00% 49.00% 50.00% 50.00% 50.00% 40.00% 49.00% 50.00% 2013 50.00% 99.00% 50.00% 40.00% 33.00% 49.00% 50.00% 50.00% 50.00% 40.00% 49.00% 50.00% 149 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Joint Operations - Consorcio Río Urubamba - Consorcio Vial Quinua - Consorcio Rio Mantaro - Consorcio GyM – CONCIVILES - Consorcio Toromocho - Consorcio Construcciones y Montajes CCN - Consorcio CGB - Consorcio HV GyM - Consorcio Stracon Motta Engil JV GMp S.A. - Consorcio Terminales CONCAR S.A. - Consorcio Ancón-Pativilca - Consorcio Peruano de Conservación 2012 60.00% 46.00% 50.00% 66.70% 55.00% 40.00% 50.00% 50.00% 50.00% 50.00% 50.10% 50.00% percentage of interest 2013 60.00% 46.00% 50.00% 66.70% 55.00% 50.00% 50.00% - - 50.00% 50.10% 50.00% percentage of interest 150 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Joint Operations GMD S.A. - Consorcio Cosapi-Data – GMD S.A. - Consorcio TLBG - Consorcio Procesos digitales - Consorcio Indra - Consorcio Fábrica de Software - Consorcio Gestión de Procesos Electorales (ONPE) viva GyM S.A. - Consorcio Cuartel San Martín GMI S.A. - Consorcio Norte Pachacútec Cam holding S.p.A. - Consorcio Norte 2012 50.00% 66.45% 43.65% 50.00% 50.00% 50.00% 50.00% 1.00% 99.00% 2013 50.00% 66.45% 43.65% 50.00% 50.00% 50.00% 50.00% 1.00% 99.00% (*) In 2012 Concesionaria La Chira S.A. was consolidated as a subsidiary. In 2013, the Company reassessed the nature of the rights attributed to its partners based on the provisions of IFRS 10 and concluded that the parties have joint control. Considering the nature of the rights and obligations of the parties, Concesionaria La Chira S.A. has been classified as a joint operation. Since the impact on the 2012 financial statements is not material to the Group’s financial position, results of operations or cash flows, management of the Group decided not to restate prior years’ figures. 151 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS All of the joint arrangements listed above operate in Lima or in other Peruvian cities. The description of the main activities of the joint arrangements is as follows: Joint arrangements in Economic activity Graña y Montero S.A.A. Construction, operation and maintenance of La Chira waste water treatment plant in the south of Lima. The project is aimed to solve Lima’s environmental problems caused by sewage discharged directly into the sea. GyM S.A. GMp S.A. CONCAR S.A. GMD S.A. viva GyM S.A. The activities of the joint operations of this subsidiary are: Civil works division: construction in general in the energy, mining, infrastructure, industry. Electromechanical Division: assembly, installation and supply of materials and / or electromechanical equipment and laying of transmission lines. Building division: building houses, offices and commercial premises Services division: mining services. Consorcio Terminales provides services for reception, storing, shipping and transportation for liquid hydrocarbons, such as gasoline, jet fuel, diesel fuel and residual among others. Joint operations Concar provides rehabilitation service, routine and periodic maintenance of the road, further provides conservation services and supervision. GMD is specially engaged in supply services derived from contracts of business online BPO (Business Process Outsourcing). Construction of a five star hotel with a convention center, a business center and entertainment center. CAM holding S.A. Outsourcing for services to the electric power sector The Group’s consolidated financial statements do not include any other entities in addition to those mentioned above, such as trust funds or special purpose entities. 152 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS d. Acquisition of subsidiaries - In August 2013, the Group through some of its subsidiaries, GyM Minería S.A., Ingeniería y Construcción Vial y Vives S.A. and GyM Chile S.p A., acquired control of DSD Construcciones y Montajes S.A. for a consideration amounting to US$37.2 million (equivalent to S/.103.9 million). In 2012, the Group, through some of its subsidiaries acquired control of certain entities as follows: i. ii. A Chilean entity, Ingeniería y Construcción Vial y Vives S.A. (hereinafter Vial y Vives) for a consideration of US$55.6 million (equivalent to S/.142 million). ii) Stracon GyM, for a consideration of US$16.4 million (equivalent to S/.41.9 million). In 2011, the Group acquired control of CAM Holding S.p.A. for a consideration of US$10.9 million (equivalent to S/.29 million). The details of these transactions and their resulting accounting impact are disclosed in Note 31. 6 SEGMENT REpORTING Operating segments are reported consistently with the internal reports that are reviewed by the Executive Committee leads by the Corporate General Manager, who is the chief operating decision maker, responsible for allocating resources and evaluating the performance of each operating segment. The Group’s operating segments are assessed by the activity of the following business units: (i) engineering and construction, (ii) infrastructure, (iii) real estate and (iv) technical services. As set forth under IFRS 8, reportable segments by significance of income are: ‘engineering and construction’ and ‘technical services’. However, the Group has voluntarily decided to report on all its operating segments as detailed in this Note. 153 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The revenues derived from foreign operations (Chile, Brazil, Colombia) comprise 13.72% of the Group’s total revenue in 2013 (17.21% in 2012 and 14.93% in 2011). Inter-segmental sales transactions carried out at arm’s length. Revenues from external customers reported to the Corporate General Management are measured in a manner consistent with the preparation basis of the financial statements. Group sales and receivables are not concentrated in a few customers. The following segments set forth the principal activities of each of the Group: a. Engineering and construction: This segment includes: (i) engineering, from traditional engineering services such as structural, civil and design engineering, and architectural planning to advanced specialties including process design, simulation, and environmental services; (ii) civil works, such as the construction of hydroelectric power stations and other large infrastructure facilities; (iii) electromechanic construction, such as concentrator plants, oil and natural gas pipelines, and transmission lines; (iv) building construction, such as office buildings, residential buildings, hotels, affordable housing projects, shopping centers and industrial facilities; (v) contract mining, such as earthworks, blasting, loading and hauling ore. b. Infrastructure: The Group has long-term concessions or similar contractual arrangements in Peru for three toll roads, the Lima Metro, a waste water treatment plant in Lima, multiple fuel storage facilities, two producing oil fields, and a gas processing plant. c. Real Estate: The Group develops and sells homes targeted to low- and middle-income population sectors which are experiencing a significant increase in disposable income, as well as, to a lesser extent, office and commercial space. d. Technical Services: The Group provides: (i) operation and maintenance services for infrastructure assets; (ii) information technology (IT) services, including IT outsourcing, systems integration, application outsourcing and business process outsourcing services; and (iii) electricity networks services (maintenance). Parent Company Operation corresponds to the services which the Holding company provides, managing, logistics and accounting services, among others, to the different related entities of the Group. Below are shown the financial statements of the Group according to its operating segments: 154 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OpERATING SEGMENTS FINANCIAL pOSITION Segment Reporting Energy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated As of December 31, 2012 Assets - Cash and cash equivalents Trade accounts receivable Outstanding work in progress Accounts receivable from related parties Other accounts receivable Inventories Prepaid expenses Current assets 423,332 181,107 417,073 67,913 317,501 145,301 5,882 30,650 26,922 90,644 18,282 - - 16,783 8,287 1,309 300 17,970 - 583 28,312 20 15,029 159 6,326 6,419 7,220 68 43,692 - 134 - - - 73,004 19,336 - 4,867 13,479 523,722 1,589 85,287 166,895 81,427 52,243 40,444 64,048 5,149 48,491 61 - 304,812 34,705 1,392 1,107 326 - - (380,667) - (1,753) - 780,114 456,315 513,529 49,761 447,208 747,416 22,839 1,558,109 83,951 127,779 63,485 43,894 635,997 495,493 390,568 (382,094) 3,017,182 155 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Long-term trade account receivable Other long-term accounts receivable Available-for-sale financial asset Investments in associates and joint ventures Investment property - 305,887 14,696 13,833 11,206 - 3,720 - 113,601 - - - - - - - Property, machinery and equipment 554,456 205,853 2,034 Intangible assets 172,495 95,283 146,186 Derivative financial instruments Deferred income tax asset Non-current assets Total assets - 14,751 - - - 6,184 8,287 872,564 315,832 168,237 336,575 2,430,673 399,783 296,016 400,060 - - - 3,365 7,830 - - - - - 2,406 - - 6,126 50,020 - 6,803 - 17,151 35,972 4,470 772 128 6,110 24,274 - 2 - 109,259 24,461 - 34,190 - 1,696 5,005 - - - 801,824 (895,132) - 76,317 14,855 - - - (2,223) 16,110) - 1,556 305,887 93,489 5,005 37,446 35,972 953,531 480,398 128 71,078 71,406 707,403 192,186 899,697 (879,689) 687,679 1,290,265 (1,261,783) 1,982,934 5,000,116 156 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Liabilities - Borrowings Trade accounts payable Accounts payable to related parties Current taxes Other accounts payable Other provisions Current liabilities 119,960 663,454 42,973 110,515 16,216 21,996 1,610 4,506 650,079 10,640 - 401 14,226 744 - 15,111 13,970 290,601 1,977 68,658 - 873 223 - 8,271 27 15,763 167 - - 43,216 70,571 9,231 8,614 131,967 - 96,015 163,495 46,376 28,187 144,373 10,911 154,915 1,889 14,189 3,995 9,189 - - - (391,979) - - - 452,819 937,287 42,734 158,834 1,015,129 11,312 1,586,981 55,369 99,575 306,808 24,228 263,599 489,357 184,177 (391,979) 2,618,115 Borrowings 180,857 97,777 48,513 Other long-term accounts payable - 14,640 Other provisions Derivative financial instruments Deferred income tax liability Total non-current liabilities 11,009 - 70,121 7,558 5,999 2,563 Total liabilities 1,848,968 183,906 148,112 319,505 24,950 261,987 128,537 48,537 12,697 - - - 12,697 - - - - 24 - - - - 722 722 49,657 12,858 - - 68 62,583 326,182 12,427 24,681 27,624 - 9,634 74,366 563,723 3,424 597 - - 5,310 9,331 - - - - - - 392,655 52,776 46,191 18,696 88,442 598,760 193,508 (391,979) 3,216,875 157 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Equity Non-controlling interest Total liabilities and equity 472,097 109,608 192,411 23,466 90,124 57,780 60,416 20,139 12,535 12,535 147,054 234,167 103,015 20,941 1,086,774 9,983 (772,219) (97,585) 1,392,207 391,034 2,430,673 399,783 296,016 400,060 50,020 707,403 687,679 1,290,265 (1,261,783) 5,000,116 158 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOpERATING SEGMENTS FINANCIAL pOSITION Segment Reporting Infrastructure Energy Toll roads Mass transit water treatment Real estate Technical services Engineering and construction Eliminations Consolidated parent Company operations As of December 31, 2013 Assets - Cash and cash equivalents Trade Accounts receivables Outstanding work in progress Accounts receivable from related parties 265,788 265,544 734,976 107,732 17,764 29,527 6,966 4,083 80,785 12,347 2,433 18,660 23,318 4,090 31,187 163 Other accounts receivable 360,939 26,840 11,180 34,263 Inventories Prepaid expenses Non-current assets classified as held for sale 90,671 7,440 7,741 1,318 - - 5,442 - 11,927 4,394 - 445 - 37,489 - 4,557 - 3 - 43,026 17,938 - 561 17,939 590,567 2,596 - 46,469 192,382 158,692 53,845 65,794 63,912 4,130 - 481,820 44 - 733,645 33,469 487 363 - - - - (834,839) (1,763) (2,508) - - 959,415 521,872 971,743 83,850 553,218 762,797 25,686 21,473 Current assets 1,854,563 94,239 130,847 109,342 42,494 672,627 585,224 1,249,828 (839,110) 3,900,054 159 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Long-term trade account receivable Other long-term accounts receivable Long-term accounts receivable from related parties Available-for-sale financial asset Investments in associates and joint ventures Investment property Property, plant and equipment Intangible assets Deferred income tax asset Non-current assets Total assets - - - - 153,556 - - - - 1,058 7,287 - - 591,917 10,081 - - - - - - - - - 533,757 190,844 175,275 101,978 68,699 644 3,919 145,711 4,258 6,724 6,450 8,765 931,287 301,811 163,969 613,856 2,785,850 396,050 294,816 723,198 - - - - - 1,151 - 3,009 45,503 - 1,858 - - 11,811 12,301 - - 16,297 36,945 5,636 957 4,860 - 2 10,454 - 114,081 18,883 42,119 - 2,100 57,501 88,333 837,889 - 103,840 15,282 1,264 - - (57,501) (1,060) (937,516) - (6,205) 15,705 4,912 591,917 38,151 - 88,333 87,967 36,945 952,596 481,392 135,521 76,506 197,840 1,106,209 (981,665) 749,133 783,064 2,356,037 (1,820,775) 2,412,822 6,312,876 160 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Liabilities - Borrowings Trade accounts payable Accounts payable to related parties Current taxes Other accounts payable Other provisions Current liabilities 195,083 751,097 43,373 117,088 526,994 - 33,847 19,950 877 3,477 10,882 4,207 46,007 - 3,353 9,912 25,572 642,510 2,515 42,891 3,846 81 879 - 5,869 280 24,058 366 - - 77,854 42,484 21,493 3,161 72,617 - 126,872 160,104 77,613 30,498 79,050 84 587 4,217 - - 24,928 (834,839) 2,049 11,781 - - - - 486,119 991,397 25,585 159,235 745,094 8,895 1,633,635 73,240 124,184 653,382 30,573 217,609 474,979 43,562 2,416,325 161 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSBorrowings 127,067 86,334 9,780 Long-term trade accounts payable Accounts payable to related parties Other long-term accounts payable Other provisions Derivative financial instruments Deferred income tax liability Total non-current liabilities Total liabilities Equity Non-controlling interest Total liabilities and equity Energy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated - 124,344 11,801 - 118,970 - - - 4,668 3,563 453 - - 462 - - 166 - 2,157 - - - 201 - 382,182 95,018 10,408 2,358 2,015,817 168,258 134,592 655,740 623,246 146,787 211,431 16,361 120,407 39,817 50,594 16,864 - - - - - - 340 340 30,913 14,590 - 52,318 31,367 2,837 - 28,500 9,723 - 147 - 29,001 69,957 23,918 - - - 910 - - - - (57,501) - - - 7,074 5,864 97,762 160,107 3,599 7,346 1,691 (55,810) 315,371 635,086 50,908 (890,649) 152,713 281,049 125,736 22,242 2,295,245 9,884 (828,183) (101,943) 309,703 2,157 - 205,396 40,387 3,911 138,157 699,711 3,116,036 2,765,779 431,061 2,785,850 396,050 294,816 723,198 45,503 749,133 783,064 2,356,037 (1,820,775) 6,312,876 162 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OpERATING SEGMENTS pERFORMANCE Segment Reporting Year 2011 - Revenues Gross profit Administrative expenses Other income and expenses Profit from the sale of investments Other (losses) gains, net Gain from business combination Profit before interests and taxes Financial expenses Financial income Share of the profit or loss in associates and joint ventures under the equity method Energy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated 2,784,185 289,041 115,189 - 329,276 115,950 (104,358) (13,065) 4,762 - (318) - (2,165) (2,054) - - 227,515 100,513 (105,906) (14,608) 111,180 5,100 12,714 223 40,134 (7,086) 88 - - - 33,136 (21,043) 15,108 - (9,888) (5,226) - - - - (15,114) (5,819) 7,704 - - - (269) - - - - (269) (15) 5 - 152,266 976,956 39,840 (116,211) 4,241,266 45,334 (10,093) (357) - 22 - 34,906 (7,718) 7,175 - 109,671 (72,061) 6,240 - 406 45,152 89,408 (25,523) 17,014 - 1,995 (5,555) (11,056) 4,769 946 - (8,901) (16,266) 19,847 133,291 631,749 (199,582) 4,330 4,769 (2,845) 45,152 483,573 (188,456) 182,305 223 (723) 18,131 4,971 - - - 22,379 8,442 (8,442) (138,391) 163 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Profit before income tax Income tax profit for the year profit attributable to: Owners of the Company Non-controlling interest profit for the year 237,889 98,842 (71,514) (29,730) 166,375 69,112 27,201 (5,822) 21,379 (13,229) 4,703 (8,526) 153,125 13,250 166,375 64,726 4,386 69,112 9,944 11,435 (6,394) (2,132) 21,379 (8,526) (279) 83 (196) (98) (98) (196) 34,363 (10,232) 24,131 80,899 (19,812) 61,087 127,971 (3,990) 123,981 (116,012) (5,133 (121,145) 477,645 (141,447) 336,198 6,079 18,052 24,131 53,901 7,186 61,087 124,032 (51) (116,239) (4,906) 123,981 (121,145) 289,076 47,122 336,198 164 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOpERATING SEGMENTS pERFORMANCE Segment Reporting Year 2012 - Revenues Gross profit Administrative expenses Other income and expenses Other (losses) gains, net Profit before interests and taxes Financial expenses Financial income Share of the profit or loss in associates and joint ventures under the equity method Energy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated 3,524,585 287,040 123,345 73,067 41,007 240,110 1,083,323 44,654 (185,246) 5,231,885 408,021 110,847 (159,845) (14,739) (1,928) 1,326 247,574 (927) (1,603) 93,578 53,341 (6,361) 61 - (2,712) (7,926) 21 (48) 47,041 (10,665) (179,089) (25,041) (16,517) (27,975) 198,755 23,277 11,354 24,032 9,178 - - - 11,155 (1,485) - - 9,670 (6,560) 129 - 86,706 (17,409) (1,711) - 67,586 (14,469) 12,165 - 103,935 (105,363) 73,585 - 72,157 (29,093) 24,028 (26) (3,971) 8,426 - 4,429 (17,009) 15,909 (59,201) 59,919 (1,583) - (865) 5,081 (9,260) - 252,288 (260,862) 712,066 (257,180) 75,944 (325) 530,505 (310,672) 300,389 604 165 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Profit before income tax 276,418 91,814 41,878 (14,608) (87,918) (28,457) (12,526) 3,584 188,500 63,357 29,352 (11,024) 3,239 (972) 2,267 65,282 (19,967) 45,315 67,092 (5,638) 61,454 255,617 (4,235) (265,906) 1,554 251,382 (264,352) 520,826 (154,575) 366,251 Income tax profit for the year profit attributable to: Owners of the Company Non-controlling interest profit for the year 165,116 23,384 58,029 5,328 15,800 13,552 (8,268) (2,756) 188,500 63,357 29,352 (11,024) 1,134 1,133 2,267 12,375 32,940 45,315 50,623 10,831 61,454 250,923 (255,778) 459 (8,574) 251,382 (264,352) 289,954 76,297 366,251 166 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOpERATING SEGMENTS pERFORMANCE Segment Reporting Year 2013 - Revenues Gross profit Administrative expenses Other income and expenses Energy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated 4,075,070 321,097 195,861 118,541 45,489 313,731 1,169,115 51,525 (323,114) 5,967,315) 560,083 97,495 (217,927) (16,170) (10,762) (3,851) 66,455 (6,600) (35) - - 19,670 (8,025) 758 - - 3,179 (212) (2) - - Profit from the sale of investments - Other (losses) gains, net - 290 Profit before interests and taxes 352,918 77,764 59,820 12,403 2,965 Financial expenses Financial income Dividends received Share of the profit or loss in associates and joint ventures under the equity method (318,447) (28,534) (22,392) (60,292) 291,812 14,303 17,982 34,315 - - 41,971 1,587 - - - - 47 17 - - 113,732 179,175 (20,993) (132,486) (727) 3,197 (1,023) 94,186 (27,010) 13,227 - 64 24,669 - - 71,358 (35,235) 19,382 - 1,070 (4,031) (8,616) (2,689) 2,525) - (12,811) (95,722) 108,617) 119,791) - 1,004,661 (361,792) 26,034 5,722 (733) 673,892 (583,452) 471,003 - 33,562 (31,097) 49,237) (2,851) - - (15,289) 4,227) (28,652) (119,791) (11,130) 167 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Profit before income tax 368,254 65,120 55,410 (13,574) (111,348) (20,066) (14,971) 477 256,906 45,054 (40,439) (13,097) 2,935 (881) 2,054 80,467 (21,427) 59,040 56,575 (16,655) 119,875 (781) (140,057) 3,222 39,920 (119,094) (136,835) 595,005 (182,430) 412,575 Income tax profit for the year profit attributable to: Owners of the Company Non-controlling interest profit for the year 211,941 44,965 41,635 3,419 26,077 14,362 (9,823) (3,274) 2,054 - 19,153 39,887 34,296 5,624 119,192 (98) (124,162) (12,673) 256,906 45,054 40,439 (13,097) 2,054 59,040 39,920 119,094) (136,835) 320,363 92,212 412,575 168 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OpERATING SEGMENTS CASh FLOwS Segment Reporting Year 2011 - profit before income tax Adjustments to profit: Depreciation and amortization Accounts receivable Inventories Accounts payable Other variations Energy Toll roads Mass transit water treatment Real estate Technical services Infrastructure Engineering and construction Eliminations Consolidated parent Company operations 237,889 98,842 27,201 (13,229) (279) 34,363 80,899 127,971 (116,012) 477,645 82,351 (170,212) (52,330) 328,670 36,112 3,181 (630) 8,650 21,316 73 42,364 (92,846) - (761) - 5,245 7,564 87 (1,501) 2,607 (178) - (56,086) (598) 5,703 32,160 (674) (10,359) (20,374) 3,540 - - 302 (110,623) (124,648) (255,857) (28,247) (60,221) Cash flows from operating activities 170,511 117,908 29,899 (93,193) Sale of assets Dividends received Purchase of assets 5,251 20,891 77 - (80,544) (51,083) Cash flows from investing activities (54,402) (51,006) (152) - (363) (515) - - (6,432) (6,432) (14,189) (28,971) - 245 2,214 1,766 7,165 28,047 133,291 (2,598) (36,585) (22,916) (144,892) (2,598) (36,340) (18,936) 16,446 (1,615) (4,986) (8,294) - - 178,246 (177,076) (140,410) 265,626 (470,692) 133,339 33,001 34,709 (153,289) (85,579) - 42,790 (21,005) (53,893) 100,623 (47,497) (2,436) (121,484) 192,124 68,204 169 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Mass transit water treatment Real estate Technical services Infrastructure Engineering and construction Eliminations Consolidated parent Company operations Debt repayment Dividend distribution Other payments (41,245) 1,775 (70,983) (67,329) (4,456) (5,373) (15,379) (12,690) (8,906) 4,048 - 97,282 11,500 - - Cash flows from financing activities (116,684) (70,927) (36,975) 101,330 11,500 71,396 (3,102) (13,490) 54,804 59,527 (7,263) (6,797) 45,467 (583) (69,866) 30,179 (40,270) Cash increase (decrease) Cash at the beginning of the year Cash at the end of the year (575) (4,025) 401,054 400,479 43,110 39,085 (7,591) 31,069 23,478 1,705 - 1,705 608 - 608 4,275 (2,440) (16,659) 44,979 49,254 75,841 73,401 86,836 70,177 (86,645) 161,368 (95,430) (20,707) - - - 4,394 (69,865) (6,991) (72,462) (24,702) 682,889 658,187 170 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOpERATING SEGMENTS CASh FLOwS Segment Reporting Year 2012 - profit before income tax Adjustments to profit Depreciation and amortization Accounts receivable Inventories Accounts payable Other variations Energy Toll roads Mass transit water treatment Real estate Technical services Infrastructure Engineering and construction Eliminations Consolidated parent Company operations 276,418 91,814 41,878 (14,608) 3,239 65,282 67,092 255,618 (265,907) 520,826 131,133 (62,061) (61,468) 42,821 (6,356) (908) 159,597 (26,566) 126,885 5,047 - (667) 51,143 24,494 454 104 2,922 1,941 (5,464) (37,419) (18,902) (6,251) 9,866) 47,270) 31,267 (458) - (3,940) (4,398) - (154,804) (14) 31,836 (2,254) - - - - 58,190 52,416 5,104 (1,032) - (3,126) (4,158) Cash flows from operating activities 570,504 105,852 118,789 Sale of assets Dividends received Purchase of assets (60,205) 4,119 392 - (393,856) (63,113) Cash flows from investing activities (449,942) (62,721) (17) - 101 84 39,447 5,868 14,197 (5,976) (33,573) 2,075 (22) 851 782 1,053 72,506 11,740 29,723 (433,651) (48,356) 87,055 (174,347) (199,241) (961) - (30,582) (31,543) 9,637 252,288 (166,389) 95,536 76,115 (254,350) 235,390) 244,503 (49,909) (196,643) 224,935 (200,983) 542,729 23,471 2,057 (425,515) 57,155 (399,987) 171 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Mass transit water treatment Real estate Technical services Infrastructure Engineering and construction Eliminations Consolidated parent Company operations Debt repayment Dividend distribution 17,465 38,991 (100,820) (87,429) (23,108) (20,750) Contribution of non-controlling shareholders Acquisition of interest in non-controlling Sale of interest in non-controlling subsidiary - - - - - - - - - - - - - - Other payments (14,354) (3,128) Cash flows from financing activities (97,709) (51,566) Cash increase (decrease) Cash at the beginning of the year Cash at the end of the year 22,853 (8,435) 400,479 423,332 39,085 30,650 (7,849) (51,707) 67,166 23,478 90,644 (262) (262) 26,607 1,705 28,312 8,271 - - - - (6,557) 1,714 (540) 608 68 34,728 (10,571) (2,934) 153,845 (29,956) (124,235) - - - - - - (1,353) 22,804 23,750 49,254 73,004 (10,736) (43,626) 11,886 73,401 85,287 26,096 (4,393) 1,193 4,619 57,125 (21,686) 70,177 48,491 120,001 (124,235) 31,846 (4,393) 1,193 (45,227) (20,815) 121,927 658,187 780,114 (107,257) 249,526 5,750 - - (5,607) 142,412 326 - 326 172 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OpERATING SEGMENTS CASh FLOwS Segment Reporting Year 2013 - profit before income tax Adjustments to profit Energy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated 368,254 65,120 55,410 (13,574) 2,935 80,468 56,575 121,322 (141,505) 595,005 Depreciation and amortization 151,158 53,432 10,047 632 52 (388,587) (10,343) (4,316) (322,993) (20,131) Accounts receivable Inventories Accounts payable Other variations Cash flows from operating activities Sale of assets Dividends received Purchase of assets 64,957 34,401 546 753 (149,752) (24,371) 80,431 15,134 12,064 85,137 86 1,708 (171,126) (70,835) - (7,250) (26,279) 27,612 - - (555) (555) (5,508) 337,027 4,735 319 - - (5,313) (5,313) Cash flows from investing activities (143,928) (69,041) 3,610 1,949 (58,500) (50,784) (23,193) 37,219 1,986 (137,016) (487,403) (4,667) 32,424 - 24,290 (490,522) (29,370) (126,907) - 16,444 (623) (1,323) (46,450) (44,835) (466,712) 1,003 517,365 (17,899) 129,700 (1,858) 9 (128,876) 259,139 (851,475) (21,071) (103,217) (246,060) (367,679) 22,661 4,687 316 - 6,799 119,791 - - - - 317 - (5,926) (5,609) (30,880) (134,946) 52,238 (367,343) (30,564) (8,356) (76,629) (339,995) 173 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSEnergy Toll roads Engineering and construction Infrastructure Mass transit water treatment Real estate Technical services parent Company operations Eliminations Consolidated Debt repayment Dividend distribution Contribution of non-controlling shareholders Acquisiton of interest in non-controlling subsidiary Issue of common shares, net of related expenses (371,997) (29,430) (10,662) (34,400) (43,567) (135,472) (285,472) (537,484) (73,936) (29,163) (25,240) - (9,104) - - - - - - - - - - - - - - - (32,581) 34,774 - - (4,728) (86,986) - - - - (54,764) 1,147,418 Other payments 362,449 32,881 (1,014) 34,400 Cash flows from financing activities (92,588) (25,712) (36,916) - Cash increase (decrease) Cash decrease in deconsolidation Cash at the beginning of the year Cash at the end of the year (156,085) (1,458) 423,332 265,789 (9,616) (3,270) 30,650 17,764 (9,859) (4,994) - 90,644 80,785 - 28,312 23,318 45,300 1,733 410 (34) 68 444 - 73,004 43,026 155,360 22,081 327,182 36,982 437,331 905,516 (29,978) (38,417) 430,448 9,111 113,853 - - - (41,923) 81,041 2,554 - 326 (1,439,373) (138,781) 34,774 (63,868) 1,147,418 1,351,967 892,137 184,463 (5,162) 780,114 959,415 (400) 85,287 - 48,491 46,470 478,939 2,880 174 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Segments by Geographical areas Revenue: - Peru - Chile - Colombia - Brazil - Dominican Republic - Panamá - Others Non-current assets - Peru - Chile - Colombia - Brazil - Panamá 2011 3,546,403 374,184 119,464 66,587 133,304 - 1,324 4,241,266 2012 4,326,471 660,152 114,757 92,899 37,606 - - 5,231,885 1,623,934 331,736 11,887 10,372 - 1,977,929 2013 5,072,251 631,698 112,573 74,399 - 76,394 - 5,967,315 1,895,217 499,777 8,987 8,717 124 2,412,822 175 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 FINANCIAL INSTRUMENTS 7.1 Financial instruments by category - The classification of financial assets and liabilities per category is as follows: Assets according to the statement of financial position Loans and accounts receivable: - Cash and cash equivalents - Trade and other accounts receivable not including advances to suppliers - Outstanding work in progress - Financial assets related to concession agreements (1) - Accounts receivable from related parties Available-for-sale financial assets (Note 9) Hedging derivatives: - Derivative financial instruments 2012 780,114 590,845 513,529 359,572 49,761 2,293,821 5,005 128 December 31, 2013 959,415 672,707 971,743 623,376 83,850 3,311,091 88,333 - (1) Financial assets related to concession agreements are recorded in the statement of financial position within the line items of short term other accounts receivable and long term other accounts receivable. 176 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Liabilities according to the statement of financial position Other financial liabilities at amortized cost - Borrowings - Finance leases - Trade and other accounts payable (excluding non-financial liabilities) - Accounts payable to related parties - Derivative financial instruments (a) Hedging derivatives: - Derivative financial instruments (b) 2012 501,692 343,782 1,157,135 42,734 12,697 2,058,040 5,999 December 31, 2013 514,228 281,594 1,242,235 25,585 348 2,063,990 3,563 (a) In seeking to mitigate the exposure resulting from the expenditures incurred in Euros to a foreign supplier for the purchase of the infrastructure required under the concession agreement signed between a subsidiary, GyM Ferrovías S.A., and the Peruvian Government, this subsidiary entered into a cross currency swap contract by which the purchase of Euros at a future date is secured at a fixed exchange rate. This contract is accounted for as a fair value hedge by the Group and it recognizes the fair value of the financial instrument (cross currency swap) in profit or loss and, as a counterpart, it recognizes the fair value of the firm commitment associated with the contract with the foreign supplier. The change in fair value amounts to S/.14 million which is presented in “Financial income and expenses” (Note 26). (b) In seeking to mitigate the exposure resulting from the borrowings obtained from Citibank in variable rate (see Note 18), GMP S.A. entered into a cross interest rate swap contract by which it established a fixed rate. This contract is accounted for as a cash flow hedge by the Group and it recognizes the changes in fair value of the financial instrument in other comprehensive income. The change in fair value amounts to S/.2,400 plus the tax effect of S/.731. The fluctuation observed in the deferred income tax in 2013 includes the effect of the revision of the tax effect of 2012 that amounts to S/.569. 177 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7.2 Credit quality of financial assets - The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external risk ratings (if available) or to historical information about counterparty default rates. The credit quality of financial assets is presented as follows: Cash and cash equivalents (*) Banco de Crédito del Perú (A+) Banco Continental (A+) Banco Santander (Chile) (A) Banco Interbank (A) Banco Scotiabank (A+) Banco de la Nación (A) Banco de Chile (A+) Banco Santander (A) Citibank (A) Banco BCI (Chile) (A) Banco Interamericano de Finanzas (A) Other lesser amounts 2012 426,762 156,419 40,745 33,864 26,648 24,784 16,828 9,024 4,610 3,451 30 33,859 777,024 December 31, 2013 558,540 254,439 7,544 9,360 2,401 45,782 - 42,102 850 25,568 652 10,771 958,009 178 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The ratings in the above table “A and A+” represent high quality credit ratings. For banks located in Peru, the ratings were derived from risk rating agencies authorized by the Banking and Insurance Superintendency of Peru (Superintendencia de Banca, Seguros y AFP). For banks located in Chile, the ratings were derived from risk rating agencies authorized by the Stock and Insurance Superintendency of Chile (Superintendencia de Valores y Seguros). (*) The difference between the balances shown above with the balances shown in the statement of financial position corresponds to cash on hand (Note 8). The credit quality of customers is assessed in three categories (internal classification): A: new customers/related parties (less than 6 months), B: existing customers/related parties (with more than 6 months of trade relationship) with no previous default history; and C: existing customers/related parties (with more than 6 months of trade relationship) with previous default history. As of December 31, 2013 and 2012 the majority of the Group’s portfolio had been risk-rated as category B. Also, of the total number of accounts in compliance with contract terms and conditions, none of them have been re-negotiated. With respect to available-for-sale financial assets, the counterparty held an external credit rating of AAA at December 31, 2013 and 2012. 179 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8 CASh AND CASh EqUIvALENTS This account comprises: Cash on hand Checking accounts Time deposits (a) In-transit remittances Mutual funds 2012 3,090 501,912 273,404 1,641 67 780,114 December 31, 2013 1,406 817,692 138,701 1,616 - 959,415 (a) This amount mainly comprises two short-term bank deposits maintained in Banco de Credito del Peru with maturities of 30 and 60 days that bear an annual interest rate of 10%. 9 AvAILABLE FOR SALE FINANCIAL ASSETS This account comprises the investment maintained by the Company directly and indirectly in Transportadora de Gas del Perú S.A. (TGP), a local entity that operates gas transportation systems. At December 31, 2012 the investment corresponded to shares representing the 0.6% of interest in the TGP’s capital. In December 2013, the Group acquired from one of the TGP’s shareholders, Pluspetrol Resources Corporation (hereinafter Pluspetrol), an additional 1.04% interest in TGP paying a consideration of US$20 million (equivalent to S/.56.1 million). At December 31, 2013, the fair value of the Group´s interest in TGP equals S/.88.3 milon. The change in fair value from 2012 to 2013 of S/.19.1 million, net of the income tax of S/.8.2 million is recorded within other comprehensive income. 180 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Together with the acquisition of the 1.04% interest, the Company acquired from Pluspetrol on behalf of the Canada Pension Plan Investment Board (CPPIB) an additional indirect interest of 11.34% in TGP. The investment for US$217 million was funded entirely by CPPIB. The risk and rewards of the entire investment are assumed by CPPIB. Given the features of the transaction, it has been treated as an off-balance transaction because, in substance, the Company is acting as an agent for CPPIB. Therefore, the Company has not recognized neither the investment in TGP nor any obligation to CPPIB. This acquisition is part of an investment agreement entered into with CPPIB, whereby both parties commit themselves to initiate and develop projects in the oil and gas industry. On December 27, 2013 the Company announced its intention to transfer the previously acquired interest of 11.34% in TGP to CPPIB (10.43%) and to Corporación Financiera de Inversiones – CFI (0.91%), if none of the existing TGP shareholders exercise their first option of share acquisition rights. The transfer of interest to these entities took place in February 2014. 181 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10 TRADE ACCOUNTS RECEIvABLES This account comprises: Invoices receivable Collection rights Impairment of trade accounts Less: non-current portion Invoice receivable Collection rights Total non-current Total current 2012 447,300 317,609 764,909 (2,707) 762,202 - (305,887) (305,887) 456,315 December 31, 2013 1,058,078 58,528 1,116,606 (2,817) 1,113,789 (545,736) (46,181) (591,917) 521,872 182 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The fair value of current receivables is similar to their carrying amount since their average collection turnover is less than 60 days. These current receivables do not bear interest and have no specific guarantees. Invoices receivable are related to percentage of completion estimates approved by the clients. As of December 31, 2013 and 2012, trade receivable balances are shown net of the advances received from customers of S/.273 million and S/.849 million, respectively. These advances are substantially related to the subsidiary GyM S.A. and their terms vary based on each contract. At December 31, 2013, a significant portion of these advances of S/.248.53 million corresponded to the funds given by certain customers with which a monthly revolving advances system has been agreed which is settled with the billing of the month before. Other advances that are netted from accounts receivable correspond to funds netted gradually as services are provided; which in the event of an anticipated termination of the contractual relationship will be offset with the balances due for work progress. Accounts receivable as of December 31, 2013 comprise the collection rights of GyM Ferrovías S.A., Survial S.A. and Canchaque Concessions S.A. for S/.46,181, S/.7,617 and S/.4,730 respectively (S/.305,887, S/.7,502 and S/.4,220 in 2012). The main balance is generated by GyM Ferrovías S.A which is the concession signed with the Peruvian Government comprising Line 1 of the Lima Metro/ (train line), require this entity to acquire, on the Government’s behalf, certain infrastructure needed for the implementation of the transport system to be operated once completed (Note 5-b-iv). This account will be amortized with the cash flows resulting from the consideration to be received by the subsidiary at the inception of the concession under the “price per kilometer traveled” (PKT). For this purpose, the subsidiary has applied certain criteria to determine the amount of the interest to be accrued on these balances and the beginning of this amortization. These balances bear interest at a 7.7% rate and their amortization is expected to begin in 2014 at the time the infrastructure begins operation. 183 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The aging detail of trade accounts receivable is as follows: Current Past due up to 30 days Past due over 30 days 2012 447,937 153,440 163,532 764,909 December 31, 2013 937,932 117,985 60,689 1,116,606 As of December 31, 2013, trade accounts receivables totaling S/.178.7 million (S/.317 million as of December 31, 2012) are past due but not impaired, and the customers do not have a historical record of default. The maximum exposure to credit risk at the reporting date is the carrying amount of the accounts receivable and of outstanding work in progress (note 11). Management performed a specific review and assessment of the balances outstanding of certain customers of subsidiary CAM Holding S.P.A. that were undergoing financial difficulties and shown payment delinquency during 2012 and 2013 and recorded in profit or loss for the year 2012 and 2013 an impairment of trade accounts receivable resulting from the assessment. 184 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The movement of the account receivables reserve is as follows: Saldo inicial Additions Final balance 11 OUTSTANDING wORK IN pROGRESS This account comprises: Rights receivable Work in progress 2012 - 2,707 2,707 2012 454,019 59,510 513,529 2013 2,707 110 2,817 December 31, 2013 748,376 223,367 971,743 Rights receivable correspond to the unbilled rights for services rendered. Each month, under the percentage of completion method, the Company estimates the advancement of work to date. Based on its monthly estimates, the Company recognizes revenue. Until such revenue is billed, it is recorded in the account, rights receivable. The balance of work in progress includes costs that the Group incurred related to future activity on the construction contracts. The increase is mainly related to the Machu Picchu and Cerro Aguila Kallpa projects amounting to S/.27.9 million and S/.66.6 million respectively and to others minor projects as Pachacutec, Electrico Lima Tramo 2, Tunel Santa Rosa, Concentradora las Bambas, among others, totaling S/.74.2 million. 185 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12 TRANSACTIONS wITh RELATED pARTIES a. Transactions with related parties - Major transactions between the Company and its related parties are summarized as follows: Revenue from sale of goods and services: - Associates - Joint operations Inter-company services are agreed at arm’s length as if the services had been agreed with third parties. b. Key management compensation - 2011 52,158 177,254 229,412 2012 49,252 51,385 100,637 2013 4,915 67,601 72,516 Key management includes directors (executives and non-executives), members of the Executive Committee and Internal Audit Management. The compensation paid or payable to key management in 2013 amounted to S/.93.5 million (S/.60.04 million as of December 31, 2012). 186 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c. Balances at the end of the year resulting from the sale/purchase of goods/services - Related: Proyectos Inmobiliarios Consultores (PICSA) Sierra Morena Joint operations: Consorcio Peruano de Conservación Consorcio Rio Mantaro Consorcio Grupo 12 Consorcio Brocal Pasco Consorcio La Gloria Consorcio GyM Conciviles Consorcio Toromocho Consorcio Rio Urubamba Consorcio Tren Eléctrico Consorcio Atocongo Consorcio Marcona Consorcio Constructor Alto Cayma Receivable 2012 payable Receivable December 31, 2013 payable 223 - 223 - 8,974 8,699 4,711 3,430 2,197 1,819 1,790 1,622 1,650 1,600 1,533 - 243 243 - - - - 3,443 2,426 3,432 - - - 2,168 - - - - 15,080 3,822 - 1,913 3,696 33,405 62 2,798 2,499 712 - 566 187 - - - - - - 41 3,398 - 34 - - - - 4,881 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Consorcio Lima Consorcio - Sermesa Zhejian Consorcio Rios Pallca Consorcio Norte Pachacutec Consorcio Tiwu Consorcio Vial Ipacal Consorcio Terminales Consorcio Vial Quinua Consorcio CAM Lima Consorcio Sermesa Consorcio Pacífico Consorcio Vial Sullana Consorcio La Zanja Consorcio Ancon Pativilca Consorcio La Chira Consorcio Alto Cayma Consorcio GyM Cosapi Comerciales Sur Consorcio Proyecto Chiquintirca Receivable 2012 payable Receivable December 31, 2013 payable 1,232 1,013 975 971 963 694 628 561 458 405 280 348 309 303 - - - - 134 - - - 800 1,716 700 - 4,422 231 - - 341 349 1,054 7,868 942 321 - - 312 - 3,903 556 - 283 4,294 37 - - - 470 - - - 5,557 - 206 - 188 - - - 952 - - - 1,315 - - - - - - 51 666 - - - < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSConsorcio Ingenieria y Construcción Bechtel Consorcio Vial Sur Consorcio JV PAnamá Other Other related parties: Ferrovias Argentina Besco El Condor Combustibles Other minor Receivable - - - 2,065 49,230 - - - 308 308 49,761 2012 payable - - - 1,639 31,852 7,118 2,155 1,366 - 10,639 42,734 Receivable December 31, 2013 payable - 737 1,323 1,485 83,850 - - - - - 83,850 3,924 - - 965 16,227 8,771 587 - - 9,358 25,585 Accounts receivable from related parties mainly arise from sales transactions for goods and services with maturity periods of 60 days. Such accounts are non-interest-bearing, because they have short-term maturities and do not require a provision for impairment. Accounts payable to related parties mainly arise from transactions to provide services of engineering, construction, maintenance and others and have maturity periods of 60 days. Such accounts are not interest bearing because they are short-term. Transactions with non-controlling interest are disclosed in Note 34. 189 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13 OThER ACCOUNTS RECEIvABLE This account comprises: Advances to suppliers (a) Fiscal credit (b) Guarantees deposits (c) Income tax on-account payment Accounts receivable from sale of investments Petróleos del Perú S.A.- Petroperú S.A. (d) Claims to the tax administration (tax paid in advance) Account receivable from personnel Account receivable from Ferrocarriles del Estado - Chile Claims to third-parties Indemnification asset (note 31-b) Temporary taxes on net assets Restricted fund Overseas Bechtel Incorp. Suc.del Peru Right to recover taxes (Brazil and Colombia) 2012 181,790 76,991 68,473 68,502 26,739 23,236 17,388 12,946 9,209 7,221 6,006 4,643 3,822 - 3,168 December 31, 2013 183,464 109,050 56,851 95,488 33,601 18,087 7,913 14,633 - 15,799 6,006 10,901 - 5,107 2,259 190 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Legal credits CAM Brasil Accounts receivable from suppliers (Transportadora de Gas del Perú) Project reimbursements Loans receivable to employees Compensation fund (e) Others (f) Less non-current portion: Fiscal credit Petróleos del Perú S.A. Ferrocarriles del Estado SEC Indemnification asset (note 31-b) Legal credits CAM Brazil Accounts receivable from Transportadora de Gas del Perú Right to recover taxes Debtors for sale, according to legal agreement (Chile)) Loans receivable from employees 2012 2,955 2,290 1,926 1,760 1,637 19,995 540,697 (48,493) (14,696) (9,209) (6,006) (2,955) (2,290) (2,010) (662) (659) December 31, 2013 3,430 - 1,794 584 812 25,590 591,369 (34,071) - - - (3,430) - - - - 191 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSOthers Current portion 2012 (6,509) (93,489) 447,208 December 31, 2013 (650) (38,151) 553,218 Other non-current accounts receivable have maturities from 2 to 5 years. In the case of fiscal credit, Company’s Management estimates that this balance will be applied against the fiscal debit from future operations over the medium term. The following contains a description of major accounts receivable: (a) Advances to suppliers - Mainly corresponds to advances that the subsidiary GyM S.A. provided for approximately S/.163.1 million (S/.171.5 million in 2012) to import equipment to be used in different projects, which are detailed as follows, based on the related project: Consorcio Tren Eléctrico Consorcio Rio Mantaro Central Hidroeléctrica Machu Picchu EPC Planta Minera Inmaculada 2012 58,203 27,067 15,132 - December 31, 2013 64,567 54,311 20,998 7,207 192 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Edificio Real 8 Consorcios – Cam Consorcio GyM Conciviles Servicios para proyectos inmobiliarios GyM Chile SPA Stracon GyM Mantenimiento Periodico/Red Vial 1 Consorcio Peruano de Conservación Panorama Plaza Negocios 2 Consorcio Rio Urubamba Ciudad Nueva Fuerabambas Inversiones y Construcciones GyM Ltda Ampliación Red Principal - Cálida Other smaller projects (b) Fiscal credit - 2012 3,442 - 26,730 4,663 1,709 1,557 1,474 1,421 - 1,194 10,525 9,110 8,759 10,804 181,790 December 31, 2013 3,025 2,800 2,144 2,379 1,888 1,655 2,439 4,708 1,312 704 - - - 13,327 183,464 Mainly corresponds to the subsidiaries Survial S.A., GyM S.A., GyM Ferrovias S.A., Viva GyM S.A and Concar S.A. for S/.17 million, S/.25 million , S/.27 million, S/.12 million and S/.9 million respectively, (Survial S.A., GyM S.A. and GyM Ferrovías S.A. for S/.25 million, S/.14.9 million and S/.14 million, respectively in 2012). Based on its estimates, Management considers that this fiscal credit will be recovered during the ordinary course of the future operations of these subsidiaries. 193 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (c) Guarantee deposits - Guarantee deposits are the funds retained by customers for work contracts mainly for subsidiary GyM S.A. which ensures compliance with the contracts and the funds are recovered once the work has been completed. Such deposits mainly correspond to the following projects: project: Stracon GyM Collahuasi (Vial y Vives) Campamentos Congas Conga Reticulation Camp 3000/4500 K Consorcio GyM Cosapi Pueblo Viejo (República Dominicana) Proyecto Machupicchu Ampla Brasil OPR Conga- Campamento 400 personas K12 Edificio Real 8 Distrito S Local Euromotors Pozas almacenamiento de agua 2012 16,516 10,757 8,783 7,738 7,501 7,212 4,513 1,402 909 - 1,417 118 - 7,143 December 31, 2013 18,834 - 415 287 - - 8,624 - 971 387 351 319 289 - 194 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Proyecto Chancadora Caserones Minera Antucoya Pampa Verde La Zanja Planta Minera Inmaculada Garantías - arriendos CAM Perú Garantías - arriendos CAM Chile Centro Empresarial Leuro Others (d) Petróleos del Perú S.A. - Petroperú S.A. - 2012 - - - - - - - - 1,796 68,473 December 31, 2013 5,473 3,814 3,601 1,348 881 605 573 554 2,193 56,851 These balances are comprised of additional investments established in the operating agreement and completed by Consorcio Terminales (a joint venture of the subsidiary GMP S.A.) for the modernization and extension of 9 terminals subject to the agreement. These investments which are presently works in progress will be transferred to Petróleos del Perú S.A. - Petroperú S.A., once a technical audit has been completed and after obtaining the written approval and accreditation of said institution; the value thus determined will be considered for billing. During the fiscal years 2013 and 2012, the consortium incurred additional investments of US$ 6.1 million and US$11.5 million, respectively; which will be collected over the effective period of the agreement, once Petróleos del Perú - Petroperú S.A., confirms the investment made through the results of technical audits. This agreement consists in the operation of the oil terminals of Petroleos del Peru to store and distribute the oil to the different customers of this State entity. 195 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (e) Compensation fund - The balance receivable from the compensation fund corresponds to subsidiary GMP S.A. and relates to the Fund created by the Government to prevent the high volatility of the price of crude oil and its by-products from affecting the end users. In 2013 GMP S.A. received payments of S/.1.7 million (S/.9.3 million in 2012) and applications of contributions amounting to S/.1.6 million (S/.3.7 million in 2012). (f) Others - Other receivables do not present past due amounts or impairment and the non-current balances are supported by contractual agreements with third-parties and in the particular case of the fiscal credit, its maturity has been determined based on the period, estimated by Management for using said fiscal credit. The fair value of other short - term accounts receivable is similar to their carrying amount due to the fact of short term maturity. At December 31, 2013, the fair value of other accounts receivable from Petróleos del Perú S.A., originates from the subsidiary GMP S.A., does not bear interest and, therefore, was discounted at the prevailing market rate prevailing at the date of the disbursements, which on average is 7.40% per annum (6% in 2012). This rate corresponds to the weighted average borrowing rate of the subsidiary. The maximum exposure to credit risk as of the date of the report is the carrying amount of each class of other accounts receivable mentioned. The Group does not request collaterals as guarantee. 196 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14 INvENTORIES This account comprises: Land Work in progress - real estate Construction materials Materials and supplies Finished properties Impairment of inventories Land - 2012 326,451 181,956 148,565 89,736 11,689 758,397 (10,981) 747,416 December 31, 2013 411,822 104,908 92,299 92,909 71,304 773,242 (10,445) 762,797 As of December 31, 2013 and 2012 this item mainly includes land of 740 hectares located in the district of Lurin, a province of Lima, intended for industrial and public housing development purposes (S/.90 million); a plot of land located in the district of Comas , where it is intended to implement a large green area project called “Los Parques de Comas”, and build 8,000 houses (the land cost is approximately S/.57 million); and “Cuartel San Martín” (S/.78. million), located on Av. El Ejército, Urb. Santa Cruz Miraflores which will be a development complex consisting of a 5-star hotel, convention, business, cultural, commercial and residential building center. During the year 2013 the Group acquired a land located on Av. Pezet 583, San Isidro (S/.47.9 million), where it intends to build 31 apartments of 300m2 each; and land in Av. Argentina, Callao (S/.52.4 million), where it intends to implement a project of approximately 1000 multi-family buildings called “Los Parques del Callao”. 197 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Work in progress - real estate - As of December 31, 2013, this item mainly consists of project “Parque Central Club Residencial” (S/.17.6 million), comprising 22 multi-family buildings of 12 floors each, located in Cercado de Lima, and the housing project “Los Parques de Carabayllo” (S/.16.6 million) comprising 24 buildings of 4 floors each, located in Carabayllo. The housing project “Los Parques de San Martin” (S/.53.2 million) comprising 20 multi-family buildings of 5, 10 and 12 floors, located in San Martin de Porres, the housing project “Barranco” (S/.9.9 million) comprising 1 building of 16 floors with 40 apartments and the “Real 8-9” project (S/.21.4 million) where it will be built 1 building of 16 floors with 32 offices of 500m2 will be built. As of December 31, 2012, this item mainly includes the following project: “Parque Central Club Residencial” (S/.23.6 million), “Los Parques de Carabayllo” (S/.19.3 million), “Los Parques de Villa el Salvador” (S/.15.4 million), “Los Cipreses” (S/.44.2 million) and “Los Parques de San Martin” (S/.39.6 million). During the year, the Company has capitalized financing costs for these construction projects amounting to S/.6 million (S/.4.3 million in 2012). Construction materials - The balance on December 31, 2013 showed a decrease compared to 2012, which corresponds mainly to the materials of the projects that are in the final stage, the most significant of which is the Machu Picchu Project which has a variation with respect to 2012 of S/.59.25 million. Also, this balance includes material that did not have much movement such as Consorcio Conciviles which had a decrease of S/.10.24 million, the Estación de Gas y Acometida Fenix – Calidda with a decrease of S/.9.46 million and Consorcio Tren Electrico with a decrease of S/.7.49 million compared to 2012. In 2013, the Group recognized a provision for the impairment of inventories amounting to S/.2.2 million (S/.11 million in 2012). The movement is as follows: 198 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Initial balance Additions Write off Final balance 2012 - 10,981 - 10,981 2013 10,981 2,239 (2,775) 10,445 Borrowings are guaranteed with inventory (land and work in progress - real state) related to “Parque Central”, “Barranco”, “Parque de San Martín”, “Pezet” and “Parque del Agustino II” for the amount of the guarantee amounting to S/.509.57 million (S/.354.8 million as of December 31, 2012). 15 INvESTMENTS IN ASSOCIATES AND JOINT vENTURES This account comprises: Associates Joint ventures 2012 24,719 12,727 37,446 2013 28,209 59,758 87,967 199 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The amounts recognized in the income statement are as follows: Associates Joint ventures a. Investment in associates 2012 114 490 604 2013 11,104 22,458 33,562 Set out below are the associates of the Group as at December 31, 2012 and 2013. The associates listed below have share capital consisting solely of ordinary shares, which are held directly by the Group. None of the associates are listed companies; therefore there is no quoted market price available for their shares. Entity Class of share Promoción Inmobiliaria del Sur S.A. Ingenieria y Construccion Vial y Vives OGP-1 Ltda. JV Panama Ingenieria Vial y Vives - Consorcio Bechtel VyV Ltda Common Common Common Common 2012 23.86 40.00 - 40.00 Interest in capital 2013 23.86 40.00 15.00 40.00 Carrying amount At December 31, 2013 16,298 8,450 2,755 3 2012 14,807 288 - 2,660 200 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Entity Class of share Sierra Morena S.A. Inversiones Real Once S.A. Inmobiliaria San Silvestre S.A. Other Common Common Common 2012 33.33 29.07 21.73 Interest in capital 2013 33.33 - - Carrying amount At December 31, 2013 305 - - 398 28,209 2012 310 4,276 2,324 54 24,719 The most significant investments are described as follows: i. Promoción Inmobiliaria del Sur S.A - An entity whose major asset is land of 24,957,300 m2 located in Lurin, which will be used for real estate developments. Based on recent appraisals of the property, Management believes that the commercial value of this property is higher that its carrying amount. ii. Ingeniería y Construcción Vial y Vives OGP-1 Ltda - This entity is mainly engaged in the execution of civil construction work, industrial assembly and engineering works at Escondida Mine in Chile; the objective of the business is to expand the processing capacity of its client. iii. JV Panamá - A limited company constituted under the laws of Barbados which provides engineering services to mining companies in Panama. 201 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS iv. Ingeniería y Construcción Bechtel - Vial y Vives Limitada - The entity is mainly engaged in providing construction and acquisition services as well as other related services to Bechtel Chile Limitada, its partner to carry out construction work. The following table shows financial information of the principal associates: Summarized financial information for associates - promoción Inmobiliaria del Sur S.A At December 31, 2012 2013 vial y vives OGp-1 Ltda At December 31, Ingeniería y Construcción Jv panamá At December 31, 2012 2013 2012 2013 Current Cash and cash equivalents Other current assets (excluding cash) Total current assets Financial liabilities (excluding trade payables) Other current liabilities (including trade payables) Total current liabilities 3,500 152 3,652 65 608 673 937 146 1,083 187 102 289 Non-current Assets - 134,949 - 156,749 1,544 6,319 7,863 - 7,142 7,142 - - 572 156,328 156,900 - 135,761 135,761 - - 16,284 85,261 101,545 - 83,574 83,574 - 395 - - - - - - - - 202 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial liabilities Other liabilities Net assets promoción Inmobiliaria del Sur S.A At December 31, 2012 - 75,871 62,057 2013 - 89,237 68,306 vial y vives OGp-1 Ltda At December 31, 2012 - - 721 2013 - - 21,139 Revenue Depreciation and amortization Interest income Interest expenses Profit or loss from continuing operations Income tax expense Post-tax profit from continuing operations Other comprehensive income Total comprehensive income promoción Inmobiliaria del Sur S.A At December 31, vial y vives OGp-1 Ltda At December 31, 2011 15,740 (101) 30 (12) 14,403 (4,695) 9,708 - 9,708 2012 20,560 (79) 63 (2) 11,183 (2,601) 7,009 - 7,009 2013 44,552 (69) 52 (2) 43,234 (13,365) 29,971 - 29,971 2011 - - - - - - - - - 2012 6,437 (5,562) - - 875) (175) 700 - 700 2013 127,528 (101,320) - - 26,208 (5,398) 20,810 - 20,810 Ingeniería y Construcción Jv panamá At December 31, 2012 - - - 2013 - - 18,366 Ingeniería y Construcción Jv panamá At December 31, 2013 175,306 (176) - - 3,045 (807) 2,239 - 2,239 2011 2012 - - - - - - - - - - - - - - - - - - 203 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSThe movement of the investments in associates is as follows: Opening balance Acquisition through business combinations (Note 31) or contributions received Equity interest in results Dividends received Return of capital Sale of investments Others Final balance 2011 67,577 - 223 (34,709) - (21,948) 153 11,296 2012 25,953 2,891 114 - (2,057) - (2,182) 24,719 2013 24,719 346 11,104 (2,980) - (6,684) 1,704 28,209 In 2013, 2012 and 2011 the following significant movements were carried out: - - - In December 2013, the Group sold its interest in Inmobiliaria San Silvestre S.A. The principal underlying asset of this associate is a plot of land located in San Isidro. The price was determined in function of the fair value of the land which amounted to S/.5.6 million, giving rise a gain of S/.3.2 million which has been recognized in the income statement. In December 2013, the Group sold 4,123,783 shares of Inversiones Real Once S.A. The sale price was S/.6.8 million and profit generated from the transaction was S/.2.5 million which has been recognized in the income statement. In October 2012, as a result of the acquisition of 74% of shares capital in Ingeniería y Construcción Vial y Vives (Vial y Vives) (Note 31-b), the Group recognized its investments in the associate maintained by Vial y Vives. Such investments mainly consist of investments in Ingeniería y Construccion Bechtel, Vial y Vives Limitada for S/.2.6 million. Additionally, these investments also include Ingeniería y Construcción Bechtel Vial y Vives OGP-1 Ltda. 204 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Investment in Joint Ventures Set out below are the joint ventures of the Group as of December 31, 2012 and 2013. Entity Constructora SK-VyV Ltda. Sistemas SEC – Cam Chile Logistica Químicos del Sur S.A.C. Consorcio DSD Echeverria Izquierdo Consorcio Vial y Vives Mena y Ovalle Ltda. i. Constructora SK - VyV - Clase Common Common Common Common Common 2012 % 50.00 - - - 50.00 Interest in capital 2013 % 50.00 49.00 50.00 50.00 50.00 Carrying amount At December 31, 2012 2013 12,584 - - - 143 12,727 37,542 10,452 7,287 4,284 193 59,758 The entity is mainly engaged in the execution of civil construction work and industrial assembly, construction, buildings and carrying out engineering projects, in general, and any other business agreed upon by the partners for the project “Caserones” of the client Minera Lumina Cooper. ii. Consorcio SEC – Cam Chile - The company’s activities include the renovation and automation of the electrical system and signaling of railways and communications within Santiago - Chillán - Bulnes - Caravans and Conception areas. The contract was awarded to the SEC in 2005 for a period of 16 years. 205 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS iii. Logistica de Quimicos del Sur S.A.C. - The purpose of Logistica de Quimicos del Sur S.A.C. (LQS) is to provide services of receiving, storing, shipping, and transport of sodium hydrosulfide to Sociedad Minera Cerro Verde S.A.A. iv. Consorcio DSD Echeverria Izquierdo Limited - The purpose of this company, exclusively, is the execution of civil works and electromechanical assemblies for the mining project Ministro Hales, which is owned by Codelco. It was incorporated into the Group through the acquisition of DSD Construcciones y Montajes S.A. (see Note 31-a). The following table shows financial information of the principal joint ventures: Summarized financial information for joint ventures - Current Cash and cash equivalents Other current assets (excluding cash) Total current assets Financial liabilities (excluding trade payables) Other current liabilities (including trade payables) Total current liabilities Constructora SK-vyv Ltda. Consorcio SEC – Cam Chile Logística químicos del Sur S.A.C. At December 31, At December 31, At December 31, 2012 2013 2012 2013 352 113,731 114,083 - 88,993 88,993 871 153,019 153,890 - 78,782 78,782 2,221 19,862 22,083 6,197 13,432 19,629 181 22,248 22,429 1,935 17,487 19,422 2013 1,802 2,785 4,587 75 16,577 16,652 2012 3,103 1,559 4,662 22 15,433 15,455 206 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Non-current Assets Financial liabilities Other liabilities Total non-current liabilities Net assets Constructora SK-vyv Ltda. Consorcio SEC – Cam Chile Logística químicos del Sur S.A.C. At December 31, At December 31, At December 31, 2012 2013 - - - - - - - - - - 25,090 75,108 2012 - 25,233 - 8,274 8,274 19,413 2013 - 24,618 - 6,296 6,296 21,329 2012 - 27,429 56 640 695 15,941 2013 - 26,869 5 259 264 14,540 Constructora SK-vyv Ltda. Consorcio SEC – Cam Chile Logística químicos del Sur S.A.C. At December 31, At December 31, At December 31, Revenue Depreciation and amortization Interest income Interest expenses profit or loss from continuing operations Income tax expense post-tax profit from continuing operations Other comprehensive income Total comprehensive income 2011 - - - - - - - - - 2012 259,146 (98) - - 17,848 (3,756) 14,092 - 2013 593,258 (68) - - 63,266 (12,164) 51,102 - 14,092 51,102 2011 32,437 (437) 730 (823) 1,735 (816) 919 - 919 2012 29,635 (360) 312 752 1,407 (1,505) (98) - (98) 2013 37,912 (236) - (582) 2,835 (684) 2,151 - 2,151 2011 8,347 (1,510) 9 1,045 3490 1161 2,329 - 2,329 2013 6,180 (1,064) - (18) 1,993 (594) 1,399 - 1,399 2012 6,929 (1,044) 15 (46) 2,729 (81) 1,912 - 1,912 207 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The movement of the investments in joint ventures is as follows: Opening balance Acquisition through business combination (ii) (Note 31) Debt capitalization Equity interest in results Dividends received Adjustment SEC (i) Adjustment LQS (i) Conversion adjustment Final balance 2012 - 12,237 - 490 - - - - 12,727 2013 12,727 2,262 7,989 22,458 (1,708) 9,379 7,408 (757) 59,758 In 2013 and 2012 the following significant movements were carried out (there were no movements in 2011): i. ii. In 2013, the Company reassessed the nature of the rights attributed to its partners based on the provisions of IFRS 10 and concluded that the parties have joint control instead of being subsidiaries, therefore Logística de Químicos del Sur S.A.C. (LQS) and Sistemas SEC SA (hereinafter SEC) were de-consolidated from the Group and recorded under the equity method of accounting. The effect of this reassessment on total assets and total shareholders’ equity is not significant to the financial statements for any periods presented. In October 2012, as a result of the acquisition of 74% of shares capital in Ingeniería y Construcción Vial y Vives (Vial y Vives), the Group recognized its investments in the joint venture maintained by Vial y Vives. Such investments include Constructora SK-VyV Ltda. for S/.12.2 million. Additionally, these investments also include Consorcios Vial y Vives and Mena y Ovalle Ltda. 208 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16 pROpERTY, pLANT AND EqUIpMENT The movement in property, plant and equipment accounts and its corresponding accumulated depreciation for the year ended December 31, 2013, 2012 and 2011 is as follows: Land Own occupied buildings Machinery vehicles Furniture and fixtures Other equipment Replacement units In-transit units work in progress Total At January 1, 2011 Cost Accumulated depreciation Net cost Net initial cost Additions Acquisition of subsidiary - CAM Reclassifications Transfers to intangibles (Note 17) Deductions for sale of assets Adjustments and/or reclassifications for cost – asset disposal Depreciation charge Depreciation for sales deductions 20,260 - 20,260 83,939 (11,170) 72,769 497,710 144,596 (249,578) (67,966) 248,132 76,630 20,260 72,769 248,132 76,630 6,393 1,031 - 117,924 80,160 45,656 4,930 - - (2,160) (2,938) (31,625) (10,299) (502) 2,840 16,646 (9,771) 6,875 6,875 6,621 3,969 - (1,134) 2,399 (5,701) (71,960) (29,899) (4,283) 834 25,327 6,782 948 - - - - (2,586) - - 74,615 (46,644) 27,971 27,971 17,929 1,123 - (2,829) 704 (15,180) 1,843 5,384 - 5,384 5,384 630 - - - 9,515 30,488 883,153 - - (385,129) 9,515 30,488 498,024 9,515 11,158 - - 30,488 498,024 59,866 16,447 - 300,681 73,156 - (13,298) (13,298) (51) - (48,098) 3,057 (13,700) (30,270) (40,996) - - - - - - (127,023) 35,734 209 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Land Own occupied buildings Machinery vehicles Furniture and fixtures Other equipment Replacement units In-transit units work in progress Total Adjustments and/or reclassifications of asset depreciation Depreciation for disposals and transfers Foreign currency translation effect - - - 193 220 - 3,793 1,483 (3,222) 3,759 - - - (202) - 65 165 - - - - - - - Net final cost 17,674 70,641 340,504 132,627 11,971 31,791 9,071 6,922 - - 2,479 65,712 2,312 3,942 2,479 686,913 At December 31, 2011 Cost Accumulated depreciation Net cost 17,674 86,265 629,163 222,227 28,501 - (15,624) (288,659) (89,600) (16,530) 17,674 70,641 340,504 132,627 11,971 91,542 (59,751) 31,791 9,071 - 9,071 6,922 65,712 1,157,077 - - (470,164) 6,922 65,712 686,913 210 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSLand Own occupied buildings Machinery vehicles Furniture and fixtures Other equipment Replacement units In-transit units work in progress Total At January 1, 2012 Cost Accumulated depreciation Net cost Net initial cost Additions Acquisition of subsidiary - Vial y Vives Acquisition of subsidiary - Stracon GyM Reclassifications Transfers to intangibles (Note 17) Deduction for sale of assets Adjustments and/or reclassifications for cost – asset disposal Depreciation charge Depreciation for sales deductions Adjustments and/or reclassifications for asset depreciation 17,674 86,265 629,163 222,227 28,501 - (15,624) (288,659) (89,600) (16,530) 17,674 70,641 340,504 132,627 11,971 17,674 70,641 340,504 132,627 11,971 17,955 136,853 82,363 - - 32,055 24,504 75 47,233 (608) (21,555) 20,459 - - - (5,790) (45,868) (16,284) 1,791 (3,216) 1,994 7,161 1,547 31 (216) - (633) 1,675 91,542 (59,751) 31,791 31,791 29,962 379 - 22,045 - (6,281) (1,729) (6,664) (81,798) (53,306) (8,738) (21,642) 1,198 - 34,234 1,821 10,987 (1,185) 537 5,248 5,704 644 3,713 5,128 - - - - - - - - 9,071 - 9,071 9,071 784 - - - - 1,218 (15,609) - (63) (806) (47) - 5 - - (23) - - - 6,922 65,712 1,157,077 - - (470,164) 6,922 65,712 686,913 6,922 28,033 65,712 97,393 686,913 404,217 39,184 71,768 - (59,755) (74,919) 369 (172,195) 52,660 6,533 - - (5,734) (59,755) - 683 - - - 211 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSLand Own occupied buildings Machinery vehicles Furniture and fixtures Other equipment Replacement units In-transit units work in progress Total Depreciation for transfers Foreign currency translation effect - - 362 - 22,427 (2,565) - - 236 - (20,449) - (11) - - - Net final cost 26,515 78,885 439,961 222,398 18,819 40,424 10,151 19,323 - (1,244) 97,055 - (1,244) 953,531 At December 31, 2012 Cost Accumulated depreciation Net cost At January 1, 2013 Cost Accumulated depreciation Net cost 26,515 99,613 751,936 358,067 38,066 - (20,728) (311,975) (135,669) (19,247) 26,515 78,885 439,961 222,398 18,819 135,918 (95,494) 40,424 10,204 19,323 97,055 1,536,697 (53) 10,151 - - (583,166) 19,323 97,055 953,531 Land Own occupied buildings Machinery vehicles Furniture and fixtures Other equipment Replacement units In-transit units work in progress Total 26,515 99,613 751,936 358,067 38,066 - (20,728) (311,975) (135,669) (19,247) 26,515 78,885 439,961 222,398 18,819 135,918 (95,494) 40,424 10,204 19,323 97,055 1,536,697 (53) 10,151 - - (583,166) 19,323 97,055 953,531 212 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net initial cost Additions Acquisition of subsidiary - DSD Deconsolidation SEC and LQS Reclassifications Transfers to intangibles (Note 17) Deduction for sale of assets Transfer to held for sale assets Adjustments and/or reclassifications for cost – asset disposal Depreciation charge Depreciation for transfers Depreciation for sales deductions Adjustments and/or reclassifications for cost – asset depreciation Foreign currency translation effect Net final cost 915 - 147 - - - - - - - - Land Own occupied buildings Machinery vehicles Furniture and fixtures Other equipment Replacement units In-transit units work in progress Total 26,515 78,885 439,961 222,398 18,819 6,713 624 (1,555) 10,184 - 63,155 46,125 (5,187) 35,627 (948) 31,445 2,973 (119) 6,193 - 3,419 94 (382) 1,108 - (2,467) (20,432) (19,213) (2,579) (2,676) (5,706) (15,767) 40,424 22,061 1,773 (158) 10,151 3,537 - 19,323 19,585 - - (4,417) (2,494) (15,823) - - - - - 97,055 91,450 - (19,108) (30,525) (38,656) - - 953,531 241,365 52,504 (26,509) - (39,604) (47,367) (21,473) (2,641) 5,752 (1,592) (2,074) (3,004) (601) (1,256) (2,174) (19,094) (7,387) (84,345) (59,126) (9,247) (19,235) (144) 1,587 542 (2,623) 14,984 3,787 1,746 11,961 295 (12) 2,432 2,168 (285) 27,292 (15) (2,102) (111) 23 84,326 476,544 181,083 13,769 - 1,010 1,276 2,138 (59) 39,133 (38) 23 - - - - - - - - - - - - (179,378) - 32,240 8,930 (2,549) 10,578 21,829 98,042 955,406 213 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSLand Own occupied buildings Machinery vehicles Furniture and fixtures Other equipment Replacement units In-transit units work in progress Total At December 31, 2013 Cost Accumulated depreciation Net cost 27,292 - 27,292 110,457 (26,131) 84,326 856,716 361,876 37,674 149,437) (380,172) (180,793) (23,905) (110,304) 476,544 181,083 13,769 39,133 10,646 (68) 10,578 21,829 98,042 1,676,779 - - (721,373) 21,829 98,042) 952,596 In 2013 and 2012, additions to cost correspond to the acquisition of fixed assets under finance leases and by direct acquisition. In 2013 the sale of fixed assets amounted to S/.20.4 million (S/.22.2 million in 2012), resulting in a profit of S/.0.7 million (profit of S/.1.2 million in 2012), which is shown in the income statement under “other income and expenses”. The item transferred to held for sale assets amounting of S/.21.5 million corresponds to certain machinery and furniture owned by the subsidiary GyM S.A., for the execution of a project in Chile. The sale of these assets has been approved by management. The sale is expected to occur in 2014. Depreciation on fixed assets and investment properties for the year is broken down in the income statement as follows: 214 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cost of services and goods Administrative expenses Capitalization to inventories Total depreciation related to property, plant and equipment (+) Depreciation related to investment property (-) Capitalization to inventories Total depreciation charged to expenses 2011 113,063 13,960 - 127,023 - - 127,023 2013 167,981 11,397 - 173,978 1,991 - 181,369 The net carrying amount of machinery and equipment, vehicles and furniture and fixtures acquired under finance leases or leaseback agreements is broken down as follows: Cost Accumulated depreciation Net cost 2012 621,974 (268,372) 353,602 Property, plant and equipment amounting to S/.240.5 million (S/.444.6 million as of December 31, 2012) have been granted as guarantee of certain borrowings. 2012 159,526 11,980 689 172,195 1,512 (689) 173,018 December 31, 2013 480,099 (201,999) 278,100 215 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17 INTANGIBLE ASSETS The movement of intangible assets and that of their corresponding accumulated amortization, as of December 31, 2013, 2012 and 2011, is as follows: Goodwill Trade- marks Concession rights Contractual relations with clients Block I and Block v Costs of generated internall software and development costs Development expenses Land use right Other assets Totals At January 1, 2011 Cost Accumulated amortization and impairment Net cost Net initial cost Additions Acquisition of subsidiary – CAM (Note 31) Transfers from work in progress (Note 16) Impairment charge Disposals - cost Amortization charge Disposals - amortization Net final cost 46,904 (21,995) 24,909 24,909 - - - - - - 24,909 - - - - - - - - - - - 365,046 (180,845) 184,201 184,201 25,378 - - - (385) (26,902) 98 182,390 6,391 (2,467) 3,924 3,924 175 10,952 - - - (2,440) - 12,611 8,907 96,298 3,623 13,288 (4,404) (48,154) (3,623) 4,503 48,144 4,503 48,144 17,864 4,731 - - - 13,298 (3,436) - - - (4,400) (17,394) - - 14,531 48,779 - - - - - - - - - - - 13,288 13,288 - - - - - - - - - - - 21,376 - - - - 540,457 (261,488) 278,969 278,969 69,524 10,952 13,298 (3,436) (385) (87) (51,223) - 98 13,288 21,289 317,797 216 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Goodwill Trade- marks Concession rights Contractual relations with clients Block I and Block v Costs of generated internall software and development costs Development expenses Land use right Other assets Totals At December 31, 2011 Cost Accumulated amortization and impairment Net cost 46,904 (21,995) 24,909 - - - 390,039 (207,649) 182,390 17,518 (4,907) 12,611 26,771 114,327 3,623 13,288) 21,376 633,846 (12,240) (65,548) (3,623) - (87) (316,049) 14,531 48,779 - 13,288 21,289 317,797 Goodwill Trade- marks Concession rights Contractual relations with clients Block I and Block v Costs of generated internall software and development costs Development expenses Land use right Other assets Totals At January 1, 2012 Cost Accumulated amortization and impairment Net cost (21,995) 24,909 - - - 390,039 (207,649) 182,390 17,518 (4,907) 12,611 26,771 114,327 3,623 13,288 21,376 633,846 (12,240) (65,548) (3,623) - (87) (316,049) 14,531 48,779 - 13,288 21,289 317,797 217 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGoodwill Trade- marks Concession rights Contractual relations with clients Block I and Block v Costs of generated internall software and development costs Development expenses Land use right Other assets Totals - - (263) - (537) (31,413) 29 - - - (410) - - - - - 12,611 - 23,024 9,976 - - - 14,531 48,779 3,998 4,897 - - (20) - - - - 59,686 (7,654) - (7,147) (10,427) (21,828) - 6,307 6,735 - 91,534 - - - - - - - - - - 13,288 21,289 317,797 - - - - - - - - 1,956 - - 39,257 127,813 23,342 (13,962) (14,245) 69 (38) 59,755 (8,229) (260) (71,485) 57 6,393 13,288 9,111 480,398 67,219 75,435 178,612 38,464 Net initial cost Additions 24,909 - - - 182,390 28,406 Acquisition of subsidiary - Vial y Vives (Note 31) 28,944 75,845 Acquisition of subsidiary - Stracon GyM (Note 31) Deductions Transfers from work in progress (Note 16) Disposals - cost Amortization charge Disposals - amortization Net final cost At December 31, 2012 Cost Accumulated amortization and impairment (21,995) Net cost (410) 75,435 89,214 75,845 417,645 (239,033) 178,612 50,518 (12,054) 38,464 23,095 178,910 3,623 13,288) (16,360) (87,376) (3,623) - 9,401 (290) 861,539 (381,141) 6,735 91,534 - 13,288 9,111 480,398 218 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Goodwill Trade- marks Concession rights Contractual relations with clients Block I and Block v Costs of generated internall software and development costs Development expenses Land use right Other assets Totals 23,095 178,910 3,623 13,288 (16,360) (87,376) (3,623) - 9,401 (290) 861,539 (381,141) At January 1,2013 Cost 75,845 Accumulated amortization and impairment (21,995) (410) Net cost Net initial cost Additions Acquisition of subsidiary DSD (Note 31) Deconsolidation of subsidiaries Transfers from work in progress (Note 16) Disposals - cost Amortization charge Disposals - amortization Other adjustments Net final cost 67,219 75,435 67,219 75,435 - 7,868 - - - - - - - - - (33) (2,458) - - 417,645 (239,033) 178,612 178,612 14,622 557 (1,203) 2,122 (1,966) (18,929) (323) 6,728 50,518 (12,054) 38,464 38,464 - 5,184 - - (100) (15,472) - - 6,735 91,534 6,735 5,106 - (902) 290 (42) 91,534 - - - 38,622 (317) (7,084) (31,236) (6) - - - 75,087 72,944 180,220 28,076 4,097 98,603 - - - - - - - - - - - 13,288 9,111 480,398 13,288 9,111 480,398 - - - - - - - - 4,976 24,704 - (5) (1,429) (1,307) (2,591) 322 - 13,609 (2,110) 39,605 (3,765) (77,770) (7) 6,728 13,288 9,077 481,392 219 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGoodwill Trade- marks Concession rights Contractual relations with clients Block I and Block v Costs of generated internall software and development costs Development expenses Land use right Other assets Totals At December 31, 2013 Cost 97,082 75,812 Accumulated amortization and impairment (21,995) (2,868) Net cost 75,087 72,944 438,505 (258,285) 180,220 55,602 (27,526) 28,076 27,547 217,215 3,623 13,288 11,636 940,310 (23,450) (118,612) (3,623) - (2,559) (458,918) 4,097 98,603 - 13,288 9,077 481,392 220 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS a. Goodwill - Management reviews the results of its businesses based on the type of economic activity carried out. Economic activities which have given rise to goodwill in the Group are construction, electro-mechanical, engineering services and the sale of IT equipment and services. The cash-generating units belong to the following segments: Construction - Engineering (Note 31 a-b) Construction - Mining services (Note 31-c) Construction - Electromechanical Information technology services 2012 28,944 13,366 20,737 4,172 67,219 December 31, 2013 36,812 13,366 20,737 4,172 75,087 Goodwill from the electromechanical engineering business corresponds to the previous acquisition in prior years of the subsidiary GMA S.A., which was later merged with subsidiary GyM S.A. 221 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As a result of the impairment testing on goodwill performed by Management on an annual basis the recoverable amount of the related cash-generating unit (CGU) is determined based on its value in use. Value in use is determined based on the future cash flows expected to be generated by the assessed CGU. As a result of these assessments no provisions for impairment were required. The main criteria used by the Group to determine the value in use are as follows: 2012t - Gross margin Growth rate Discount rate 2013 - Gross margin Growth rate Discount rate Mining construction services Engineering construction Electro-mechanical IT equipment and services 10.20% 5.00% 14.00% 17.00% 3.00% 12.00% 29.50% 5.00% 12.00% 12.99% 3.00% 9.80% 11.15% 1.00% 14.00% 10.80% 3.00% 9.80% 34.92% 1.60% 11.00% 31.89% 3.00% 22.40% These assumptions have been used for the analysis of each cash-generating unit (CGU) included in the operating segments for a period of 5 years and considering a recoverable residual value with no growth. Management determines the budgeted gross margins based on past results and market development expectations. Average growth rates are consistent with those prevailing in the industry. Discount rates used are pre-tax and reflect the specific risk related to the assessed CGUs. 222 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Trademarks - The Group acquired trademarks in a business combination process which were recognized at fair value on the acquisition date of Vial y Vives S.A.C in October 2012. Management estimated a finite useful life of 30 years. The carrying amount at December 31, 2013 amounted to S/.72.9 million (S/.75.4 million at December 31, 2012). c. Concessions - The intangible asset mainly includes the value attributable to the concession for the Ancón-Huacho-Pativilca road section of the Panamericana Norte highway. The intangibles arising from this concession as of December 31, 2013 mainly comprise the EPC contract for S/.109.2 million, highway improvement for S/.20.2 million and initial capitalized expenses of S/.12.2 million (S/.117 million, S/.21.3 million and S/.13.1 million at December 31,2012 respectively). Under those contracts the Concessionaire has to construct, improve and rehabilitate the road infrastructure over the effective period of the concession. d. Block I and V Through one of its subsidiaries, the Group operates and extracts oil from two fields (Block I and Block V) located in the province of Talara in northern Peru. Both fields are operated under long-term service contracts under which the Group provides hydrocarbon extraction services to Perupetro, the state oil company. Hydrocarbons extracted from each field belong to Perupetro, which in turn pays the Group a variable fee per barrel of lifted hydrocarbons, which is based on a basket of international crude prices and the level of production. The fee is paid on a monthly basis. The Group’s activities are focused on proved reserves development and production and are conducted in mature oil fields, which have been producing oil for over 100 years (in the case of Block I) and over 50 years (in the case of Block V). Such service contracts do not qualify as public service concessions, as defined by IFRIC 12. The extraction services that the Group provides and the infrastructure that it maintains are not a service that is provided to the public. Such infrastructure is not designed for public use and the services provided are exclusively for Perupetro. As part of the Group’s obligations under the service contracts, it is required to invest in certain costs to prepare the wells located in Block I and Block V for providing oil and hydrocarbon exploration services, which are capitalized as part of the intangible asset with a carrying amount on December 31, 2013 of S/.91.8 million and S/.6.9 million, respectively (S/.82.5 million and S/.9 million at December 31, 2012, respectively). These blocks are amortized along the concession terms, which set maturity in 2021 for Block I and in 2023 for Block V. 223 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Amortization of intangible assets - The amortization of intangibles is distributed in the income statement as follows: Cost of sales (Note 25) Administrative expenses (Note 25) 18 BORROwINGS This item comprises: Bank loans Finance leases Total debt 2011 44,553 6,670 51,223 2012 60,517 10,968 71,485 2013 66,637 11,133 77,770 Total Current Non- current As of December 31, As of December 31, As of December 31, 2012 2013 2012 2013 2012 2013 501,692 343,782 845,474 514,228 281,594 795,822 337,196 115,623 452,819 381,005 105,114 486,119 164,496 228,159 392,655 133,223 176,480 309,703 224 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS a. Bank loans - As of December 31, 2013 and 2012 this item comprises bank loans in local and foreign currencies for working capital purposes. These obligations bear interest at fixed rates which fluctuated between 2% and 9% in 2013 and 2012. In April 2005, the subsidiary Norvial S.A. signed with IFC and IDB, respectively, two agreements called “Loan Agreements” by which these multilateral financial institutions agree to provide financing for the engineering, construction, completion and acceptance of the works of the first stage of the Concession Agreement amounting to US$36 million (S/. 123.5 million). As of December 31, 2013, the balance of these loans amounts to S/.42.6 million (S/.47.8 million as of December 31, 2012). Between November and December 2013, the subsidiary Concar S.A. acquired bank loans in local currency which total S/.51.2 million at December 31, 2013, to be used as working capital. These notes bear interest at fixed rates ranging from 5.6% to 6%. The maturity date of these loans is in June 2014 and has no guarantees. In December 2013, the subsidiary GMI S.A. signed bank loans with local financial institutions, totaling S/.3.2 million and US$4.7 million (equivalent to S/.13.2 million), bearing fixed interest rates ranging between 5.45% and 7.5%. Acquired loans were used for working capital and they do not have collateral, these loans are due in March 2014. In September 2013, the subsidiary GMP S.A. obtained a loan from Banco Continental of $8 million (equivalent to S/.21 million); the proceeds were used for working capital. This loan bears an annual interest of 4.34% and is secured by future cash flows of Lote I Project (Note 17-d). Additionally, the subsidiary GMP maintains a loan with Citibank N.A. as per the loan agreement signed on September 19, 2008 (amended on August 29, 2012), which was applied to the financing of the construction, equipment and operating the new Gas Pariñas Plant of the subsidiary. The major amendments to the original agreement include: an increase in the financed amount to US$28 million (S/.72 million), an extension of the repayment period and a reduction of accrued interest. The guarantees given to secure this obligation are: a mortgage on the land on which the Gas Pariñas Plant has been constructed; a pledge on the equipment and assignment of the cash flows to be obtained from sales to customers (Repsol, Llama Gas, Zeta Gas and Herco). Said loan reaches maturity in August 2020, as per the new conditions agreed upon.This debt bears interest at Libor (3m) + 1.75%, if the exchange rate, at the installment payment date, remains within the range from S/.2.60 to S/.2.75 per US$1 or (ii) 1.95%, if the stated range is not maintained. In order to reduce the exposure to Libor variation, the Company signed an interest rate swap with Citibank N.A., which establishes a fixed rate of 4.80% or 5.05%, based on each of the above cases. At December 31, 2013, the balance of this loan is S/.66.4 million (S/.69.2 million as of December 31, 2012). 225 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS GyM S.A. maintains three promissory notes with local banks of US$23 million in total (equivalent to S/.64.3 million) with current maturity to use as working capital. These instruments bear interest rates between 0.91% and 2.30%. During 2013, Viva GyM S.A. maintains bank loans and promissory notes equivalents to S/.109.3 million (S/.72.4 million at December 2012) million with local banks with interest rates between 3% and 8%, the funds were used to buy lands (Note 14) and work capital. As of December 31, 2013, the Company maintained unused credit limits for S/.2,626 million, which expire within one year (S/.1,728 million as of December 31, 2012). b. Finance lease obligations - The minimum payments to be made by maturity and present value of the finance lease obligations are as follows: Up to 1 year From 1 to 5 years Future financial charges on finance leases Present value of the obligations for finance lease contracts 2012 124,709 255,738 380,447 (36,665) 343,782 December 31, 2013 115,698 193,233 308,931 (27,337) 281,594 226 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The present value of finance lease obligations is as follows: Up to 1 year From 1 to 5 years c. Fair value of borrowings - The carrying amount and fair value of borrowings are broken down as follows: 2012 115,623 228,159 343,782 December 31, 2013 115,114 166,480 281,594 Loans from multilateral organizations Other loans Carrying amount current and non-current portion As of December 31, 2012 47,815 797,659 845,474 2013 42,599 753,223 795,822 Fair value As of December 31, 2013 44,384 642,842 687,226 2012 50,567 828,208 878,775 The fair value is based on cash flows discounted using a rate based on the borrowing rate of 4.1% and 8.05% (5.61% and 6.45% in 2012) and are within level 2 of the fair value hierarchy. 227 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19 TRADE ACCOUNTS pAYABLE This item comprises: Invoices payable Notes payable Total Non-Current Invoices payable Total current 2012 936,718 569 937,287 - 937,287 As of December 31, 2013 and 2012, invoices payable are originated primarily from the acquisition of material, supplies and services for the development of works. December 31, 2013 993,050 504 993,554 (2,157) 991,397 228 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 20 OThER ACCOUNTS pAYABLE This item comprises: Advances received from customers Salaries and profit sharing payable Loans from third-parties Deposits in guarantee Account payable for the purchase of fixed assets Post-retirement benefits Unbilled services Deferred Income Other accounts payables Carried forward: 2012 848,057 135,137 21,559 7,539 6,370 5,593 3,841 458 39,351 1,067,905 December 31, 2013 701,813 156,455 29,771 17,342 5,159 8,995 3,807 4,356 22,792 950,490 229 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Brought forward: Less: Non-current portion Current portion 2012 1,067,905 (52,776) 1,015,129 Advances received from customers are discounted from billing, in accordance with the terms of the agreements. These advances mainly comprise: projects: Consorcio Tren Eléctrico Lima Consorcio Rio Mantaro Ministerio de Transportes y Comunicaciones GyM Chile SPA Los Cipreses Cora Cora EPC Planta Minera Inmaculada Consorcio Vial La Quinua 2012 243,961 117,315 67,366 63,036 53,064 48,658 44,170 22,463 December 31, 2012 950,490 (205,396) 745,094 December 31, 2013 28,441 162,926 - 51,387 - 32,168 60,331 21,078 230 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS projects: Los Parques del Agustino 2 Consorcio Rio Urubamba Central Hidroeléctrica Machu Picchu Chilectra S.A. Southern Perú Cooper Corporation Inversiones y Construcción GyM Pezet 961 Parque Central Club Residencial Edificio Real 8 Consorcio GyM Conciviles Los Parques San Martín y Piura Neo 10 y Real 8-9 Consorcio Vial Ipacal Consorcio Vial Sullana Los Parques de Villa El Salvador Contrato Red Vial 1 Los Parques de Carabayllo Los Parques de Comas Los Parques del Agustino 2012 22,389 15,801 15,536 15,389 14,640 13,041 11,911 9,999 8,372 8,307 7,012 6,539 6,321 5,161 4,809 4,476 1,138 204 384 December 31, 2013 - 8,166 46,678 3,819 - - 16,323 8,468 - 6,882 9,671 6,535 4,012 - - 14,368 - - - 231 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS projects: Stracon GyM Proyecto Especial de Transporte Nacional Panorama Plaza Negocios 2 Centro Empresarial Leuro 2do Etapa Túnel Santa Rosa II Anticipos - Proyecto Barranco Planta Concentradora Cerro Verde 2 Fase 1 Consorcio Construcciones y Montajes – CCM Shougan Hierro Perú SAA Construcción Planta de Cal. Advances - Proyecto Navarrete Advances - Consorcio Peruano de Conservación Consorcio HV Edelnor Other projects 2012 45,670 39,125 - - - - - - - - - - - - 16,595 848,057 The amortized cost of the other short - term accounts payable is similar to their carrying amounts due the fact to the short maturity. December 31, 2013 45,670 39,125 19,552 13,531 12,016 10,108 9,800 8,005 7,545 7,228 4,678 4,494 4,452 3,389 30,967 701,813 232 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21 pROvISIONS This item comprises: Legal claims Contingent liabilities DSD (Note 31) Contingent liabilities Vial y Vives (Note 31) Contingent liabilities from CAM acquisition Provision for well closure Provision for maintenance obligations in concession contracts Less: Non-current portion Current portion Legal claims 2012 11,380 - 6,006 35,220 4,897 - 57,503 (46,191) 11,312 December 31, 2013 12,217 815 6,006 21,546 4,852 3,846 49,282 (40,387) 8,895 Legal claims as of December 31, 2013 and 2012 comprise provisions for labor-related obligations and tax claims recognized by subsidiaries GyM S.A., GMP S.A. and CAM Chile amounting to S/.5 million, S/.4 million and S/.3 million. 233 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Provisions related to GyM S.A. comprise claims from the tax authority which have been accounted for based on management estimates of the amounts the Company would most likely be required to pay for these cases. Regarding the tax claims, due to the fact those amounts depend on the tax authority, the Group does not have an estimated timing of when these outflows will take place. Contingent liabilities DSD Correspond to the fair value of contingent fiscal obligations of S/.782 and employees’ contingent obligation of S/.33 of the DSD (Note 31-a). Contingent liabilities Vial y Vives As a result of the due diligence process, certain labor contingent liabilities were recorded for the acquisition of 74% of the outstanding shares of Vial y Vives. Each of these contingencies was assigned a probability of occurrence based on management and attorney assessments. The outflows expected outflows expected to take place in 2014 are in the amount of S/.6 million. Contingent liabilities CAM In 2013 the Company completed a reversal of approximately S/.13.6 million (S/.68 million in 2012) in provisions that accrued in conjunction with labor and tax contingencies identified in conjunction with the purchase price allocation related to the 2011 acquisition of CAM Chile and affiliates. Such provisions have been reversed since they expired during the year. Provision for maintenance obligations in concession contracts These provisions correspond to Norvial S.A., a subsidiary which has agreed to perform the conservation and maintenance the infrastructure during the extent of the Contract. This contractual obligation to maintain the infrastructure up to a specified service capacity have been recognized and measured in accordance with IAS 37, ‘Provisions, contingent assets and liabilities. These periodic maintenance obligations depend on the use of the infrastructure, so the level of use of the road is the factor that determines the amount of the obligation and this provision is accounted for over the contract length (a 25 year term). The balance at December 31, 2013 amounts to S/.3.8 million. 234 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Provision for well closure In 1994 and 1995 GMP S.A. (“GMP”) contracted with Perupetro to provide hydrocarbon extraction services in Block I and Block V located in northwestern Peru. The contract states that GMP is responsible for the abandonment of the following wells: (i) wells drilled by GMP that have not been productive; and (ii) old wells that have been productive during the term of the contracts but that have mechanical problems or that no longer have oil reserves. A preliminary estimate of the wells that should be permanently closed showed that 70 wells from Block I and 15 wells from Block V should be closed. The closure processes for both blocks started in 2013 and are scheduled to be completed in 2021 and 2023, respectively. In 2013, one well in each block was permanently closed. As of December 31, 2013, the discounted value of the estimated provision for closure activities for the remaining 83 wells amounted to S/.4.85 million at a discount rate of 2.74% (1.78% in December, 2012). It should be noted that there will be greater information and certainty regarding the amount of Blocks I and V wells that should be permanently closed at the end of the effective periods of the agreements. 235 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The gross movement of other provision is broken down as follows: Other provisions Legal claims Contingent liabilities from acquisitions provisions for the for the acquisition of CAM provision for well closure provision for periodic maintenance Total At January 1, 2012 Additions Additions from business combinations Reclassifications Reversals At December 31, 2012 Additions Transfer from intangibles Additions from business combinations Reversals Payments At December 31, 2013 6,700 4,680 - - - 11,380 2,039 (882) (320) 12,217 24,466 - 6,006 (24,466) - 6,006 - 815 - - 6,821 102,776 - - - (67,556) 35,220 - - (13,674) - 21,546 - 4,897 - - - 4,897 154 - - (199) 4,852 133,942 9,577 6,006 (24,466) (67,556) 57,503 15,061 6,728 815 (14,556) (16,269) 49,282 - - - - - - 12,868 6,728 - - 15,750 3,846 236 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22 EqUITY a. Capital - As of December 30, 2013 and December 31, 2012, the authorized, subscribed and paid-in capital, according to the Company’s bylaws as amended, is represented by 660,053,790 common shares (558,284,190 common shares at December 31,2012) at S/.1.00 par value each. At the General Shareholders’ Meeting held on March 30, 2012, the decision was made to capitalize retained earnings, which increased capital from S/.390,799 to S/.558,284. As a consequence of this transaction the nominal value of shares increased from S/.0.7 to S/.1.00 per share. Subsequently, a resolution of the General Meeting on March 26, 2013, as well as agreements adopted at meetings of the Board on May 30, July 23 and August 22 of 2013, mandated the issuance of common stock through a public offering of “American Depositary Shares” (ADS´s) registered in the Securities and Exchange Commission (SEC) and NYSE, increasing the capital sum from S/.558,284 to S/.660,054. This capital increase was carried out in two tranches as follows: (i) The first tranche in the amount of S/.97,674 (representing the issuance of 97,674,420 common shares issued and 19,534,884 ADS’s, therefore, at 5 shares per ADS), and, (ii) A second tranche in the amount of S/.4,095 representing the issuance of 4,095,180 common shares and ADS’s 819,036 (issued at 5 shares per ADS rate). 237 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2013 the Company’s capital structure is as follows: percentage of individual interest in capital Number of shareholders Total percentage of interest Up to 1.00 From 1.01 to 5.00 From 5.01 to 10.00 Over 10 1,361 4 3 2 1,370 15.37 9.76 16.68 58.19 100.00 As of December 31, 2013 the year-end quoted price of the Company’s shares was S/.11.90 per share, with a trading frequency of 95.24% (quoted price of S/.9.70 per share and a trading frequency of 95% at December 31, 2012). b. Legal reserve - In accordance with Peruvian Company Law, the Company’s legal reserve is formed by the transfer of 10% of the annual net profit, up to a maximum of 20% of the paid-in capital. In the absence of profits or freely available reserves, this legal reserve must be applied to offset losses but it must be replenished with the profits of subsequent years’ profit. This reserve can also be capitalized but its subsequent replenishment is equally mandatory. c. Issuance of shares - At the General Shareholders´ Meeting held on March 26, 2013, and the subsequent Board of Directors’ meetings held on May 30, July 23 and August 22, 2013, the Board agreed to the issuance of common shares through a public offering of American Depositary Shares (ADS) registered with the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE). 238 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In July and August 2013, the Company issued 101,769,600 new common shares, equivalent to 20,353,920 ADS in two tranches (note 21-a). The excess of the total proceeds obtained by this transaction in comparison with the nominal value of these shares amounted to S/.1,055,488 (net of commissions and other related costs for S/.48,375 and net of tax effects for S/.9,840). This amount was recorded in the premium for issuance of shares in the consolidated statement of changes in equity. On December 31, 2013 a total of 265,877,310 shares were represented in ADS (equivalent to 53,175,462 ADS). 23 DEFERRED INCOME TAX Deferred income tax is broken down by its estimated reversal period as follows: Deferred income tax asset: Reversal expected in the following 12 months Reversal expected after 12 months Total deferred tax asset Deferred income tax liability: Reversal expected in the following 12 months Reversal expected after 12 months Total deferred tax liability Deferred income tax asset (liability), net 2012 35,574 35,504 71,078 (38,464) (49,978) (88,442) (17,364) December 31, 2013 87,635 47,886 135,521 (98,401) (39,756) (138,157) (2,636) 239 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The gross movement of the deferred income tax item is as follows: Deferred income tax asset (liability), net as of January 1 Credit (charge) to income statement (Note 27) Tax charged to other comprehensive income Tax charged to equity Acquisition of subsidiary (CAM) Acquisition of subsidiary (DSD) Acquisition of subsidiary (Stracon GyM) Acquisition of subsidiary (Vial y Vives) Deconsolidation of SEC and LQS Other increases Total as of December 31 2011 (32,828) 41,795 (298) 3,869 - - - - 7,370 19,908 2013 (17,364) 5,597 (8,159) 9,840 (1,995) - - - 835 8,610 (2,636) 2012 19,908 (8,666) (1,158) - - - (6,653) (20,458) - (337) (17,364) 240 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The movement of deferred tax assets and liabilities in the year, without taking into account the offsetting of balances, is as follows: Deferred income tax liability Non-taxable Income Difference in depreciation rates Fair value gains Outstanding work in progress Difference in depreciation rates of assets leased Others Total At January 1, 2011 Charge (credit) to results Charge (credit) to OCI Acquisition of CAM (Note 30-d) Other increases At December 31, 2011 Charge (credit) to results Charge (credit) to OC Acquisition of Stracon GyM (Note 30-c) Acquisition of Vial y Vives (Note 30-b) Other increases At December 31, 2012 - - - - - - 4,236 - - 4,236 16,910 (10,452) 53 6,545 - 13,056 (2,054) - 2,181 236 - 13,419 (413) 56 - - - (357) - - - 17,152 - 16,795 16,768 (20,686) - 6,692 - 2,774 22,346 - 4,472 - - 10,266 - - - - 10,266 (1,221) - - - - 5,634 (6,040) (873) 4,569 107 3,397 7,120 (612) - 3,605 1,568 29,592 9,045 15,078 49,165 (37,122) (820) 17,806 107 29,136 30,427 (612) 6,653 20,993 1,568 88,165 241 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax liability Non-taxable Income Difference in depreciation rates Fair value gains Outstanding work in progress Difference in depreciation rates of assets leased Others Total Charge (credit) to results Charge (credit) to OCI Acquisition of DSD (Note 30-a) Other increases At December 31, 2013 9,954 - - - 14,190 (270) - 1,148 (1,176) 13,121 34 8,169 3,873 (1,410) 27,461 38,448 - - 18,734 86,774 (50) - - 1,505 10,500 4,461 ,520 (834) (16,596) 3,629 52,577 9,689 4,187 1,057 155,675 Deferred income tax asset provisions Accelerated tax depreciation Tax losses Outstanding work in progress provision for vacations unpaid Others Total At January 1, 2011 Credit (charge) to results Credit (charge) to OCI Acquisition of CAM (Note 30-d Other increases At December 31, 2011 1,732 4,695 1,742 14,545 - 22,714 4,919 1,918 (659) - - 6,178 6,809 (4,883) - 2,074 - 4,000 - 737 - - - 737 1,322 53 - - - 1,555 2,153 28 5,056 5,248 16,337 4,673 1,111 21,675 5,248 1,375 14,040 49,044 242 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax asset provisions Accelerated tax depreciation Tax losses Outstanding work in progress provision for vacations unpaid Others Total Credit (charge) to results Credit (charge) to OCI Acquisition of Vial y Vives (Note 30-b) Other increases At December 31, 2012 Credit (charge) to results Charge (credit) to OCI Credit (charge) to equity (Note 21-c) Acquisition of DSD (Note 30-a) Other increases At December 31, 2013 (6,656) 6,529 13,936 13,456 - 535 134 16,727 3,788 1,530 - - 1,842 23,887 - - 299 13,006 (6,499) - - - 1,836 8,343 - - - 17,936 23,544 - 9,840 - 1,560 52,880 - - - 14,193 33,242 - - 966 3,244 51,645 1,506 - - 55 2,936 1,984 - - 684 1,690 7,294 (7,010) (1,768) - 741 6,003 2,115 - 542 330 8,990 21,761 (1,768) 535 1,229 70,801 58,174 1,530 9,840 2,192 10,502 153,039 As of December 31, 2013, total tax losses amounted to S/.213 million (which S/.57.4 million are expected to be applied in 2014, S/.65.4 million in 2015 and the remaining balance in the following periods (S/.93 million in 2012, of which S/.12.5 million are expected to be applied in 2013, S/.18.7 million in 2014 and the remaining balance in the following periods. 243 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24 wORKERS’ pROFIT ShARING As established under current legislation, profit sharing plans of Graña y Montero S.A.A., consortiums and local subsidiaries is 5% of the net income. This share is deductible for the purposes of income tax calculation. In the case of the Dominican Republic, the profit sharing plan rate is 10%. In the specific case of Chile, profit sharing plans are a component of remuneration and not a determined percentage of profit. In Brazil and Colombia profit sharing plans are not required by law. In 2013, profit sharing plans amounted to S/.16 million (S/.22.7 million and S/.23.6 million in 2012 and 2011 respectively). The distribution of profit sharing plans in the income statement as of December 31 is as follows: Cost of sales Administrative expenses Total at December 31 2011 19,134 4,431 23,565 2012 18,633 4,088 22,721 2013 12,990 3,060 16,050 244 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25 EXpENSES BY NATURE For the years ending December 31, this item is made up of the following: 2011: Purchase of goods Personnel charges Services provided by third-parties Taxes Other management charges Depreciation Amortization Variation of inventories Cost of services and goods Administrative expenses 28,468 1,056,356 1,379,555 4,190 233,549 113,063 44,553 749,783 3,609,517 - 114,267 40,730 191 23,764 13,960 6,670 - 199,582 Total 28,468 1,170,623 1,420,285 4,381 257,313 127,023 51,223 749,783 3,809,099 245 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2012: Purchase of goods Personnel charges Services provided by third-parties Taxes Other management charges Depreciation Amortization Impairment (inventories and accounts receivable) Variation of inventories Cost of services and goods Administrative expenses 252,186 1,458,715 1,389,371 7,238 292,740 159,526 60,517 11,192 888,334 4,519,819 - 125,558 51,378 863 52,425 13,492 10,968 2,496 - 257,180 Total 252,186 1,584,273 1,440,749 8,101 345,165 173,018 71,485 13,688 888,334 4,776,999 246 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS2013: Purchase of goods Personnel charges Services provided by third-parties Taxes Other management charges Depreciation Amortization Impairment of inventories and accounts receivables Variation of inventories Cost of services and goods Administrative expenses Total 212,819 1,527,148 1,520,254 8,930 533,544 167,981 66,637 2,349 922,992 4,962,654 - 169,469 93,667 614 72,413 13,388 11,133 764 344 361,792 212,819 1,696,617 1,613,921 9,544 605,957 181,369 77,770 3,113 923,336 5,324,446 247 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26 FINANCIAL INCOME AND EXpENSES For the years ending December 31 these items included the following: Financial income: Interest on loans granted to related parties Interest on short-term bank deposits Interest on loans Income from reimbursement of performance bond Commissions and guarantees Interest on third-party loans Exchange difference gains Derivative financial instruments Other 2011 875 8,749 1,470 1,108 626 - 165,534 - 3,943 182,305 2012 3,005 2,007 14,644 968 290 350 263,669 12,745 2,711 300,389 2013 113 5,230 15,497 783 2,053 874 430,650 13,972 1,831 471,003 248 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Financial expenses: Interest expense: - Interests to related parties - Bank loans - Finance lease - Multilateral loans - Commissions and guarantees - Third party loans Derivative financial instruments) Expense from exchange losses Other financial expenses Less capitalized interest 2011 2012 2013 - 8,636 8,476 7,086 - - 2,131 163,657 6,912 (8,442) 188,456 - 25,897 19,119 6,422 - 1,333 14,763 242,543 5,375 (4,780) 310,672 500 40,000 14,164 4,975 5,155 895 15,903 501,068 6,840 (6,048) 583,452 27 OThER INCOME AND EXpENSES Most of the other income is related to the reversal of provisions that were recognized in 2011 for the business combination with CAM. At the acquisition date of CAM (Note 31-d), as part of the purchase price allocation process and based on external lawyers reports, we accounted for S/.102.7 million for contingent liabilities mainly related to labor and tax issues considered as possible and probable as stated by IAS 37, which have expiration dates according to legal requirements between 2012 and 2016. 249 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The amount recognized as other income and expenses mainly corresponds to the reversal amounted to S/.13.6 million (S/.68 million and S/.3,616 in 2012 and 2011, respectively); this primarily reflects the liabilities that expired according to the each countries laws during the year, 2012 and 2013. In 2013 it amounted to S/.13.6 million related to labor-related and tax contingencies of Brazil, Chile and Peru for S/.9 million, S/.4 million and S/.0.6 million respectively. In 2012 it amounted to S/.68 million, related to labor-related and tax contingencies for S/.40 million (from Brazil and Colombia for S/.32 million and S/.8 million, respectively) and trade liabilities amounting to S/.28 million. The probability of payment became remote throughout the course of the years 2012 and 2013, as the statute of limitations for such issues expired. 28 INCOME TAX EXpENSES a. In accordance with current legislation, each Company in the Group is individually subject to the taxes applicable to it. Management considers that it has determined the taxable income under general income tax laws in accordance with the current tax legislation of each country. b. The income tax expense shown in the consolidated income statement comprises: Current tax: - Current tax on profit of the year Deferred tax: - Generation and reversal of temporary differences (Note 23) Income tax expense 2011 183,242 (41,795) 141,447 2012 145,909 8,666 154,575 2013 188,027 (5,597) 182,430 250 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS c. The Group’s income tax on profit before taxes differs from the theoretical amount that would have resulted from applying the weighted-average income tax rate applicable to the profit of the consolidated companies, as follows: Profit before income tax Income tax by applying local applicable tax rates on profit generated in the respective countries Tax effect on: - Non-taxable income - Associates net profit - Non-deductible expenses - Prior year adjustment - Others Income tax charge 2011 477,645 143,294 (67,353) - 65,506 - - 141,447 2012 520,826 156,248 (11,550) - 19,756 (7,432) (2,447) 154,575 2013 595,005 211,341 (39,494) (9,348) 24,160 104 (4,333) 182,430 d. Peruvian tax authorities have the right to examine, and, if necessary, amend the income tax determined by the Company in the last four years - from January 1 of the year after the date when the tax returns are filed (years subject to examination). Therefore, years 2009 through 2013 are subject to examination by the tax authorities. Since differences may arise over the interpretation by the tax authorities of the regulations applicable to the Company, it is not possible at present to estimate if any additional tax liabilities will arise as a result of any eventual examinations. Any additional tax, fines and interest, if they occur, will be recognized in the results of the period when such differences with the tax authorities are resolved. Management considers that no significant liabilities will arise as a result of these possible tax examinations. Additionally, income tax returns for fiscal years 2010 to 2012 and those to be filed for fiscal year 2013 remain open for examination by the Chilean tax authorities who have the right to carry out said examination within the three years following the date the income tax returns have been filed. 251 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS e. As established under regulations in force in Peru, for purposes of determining income tax and the general sales tax, transfer pricing must be taken into account for operations with related parties and/or tax havens, which must have documentation and information supporting the methods and valuation criteria applied in their determination. Peruvian tax authorities are entitled to request such information from the taxpayer. f. Temporary tax on net assets - The temporary tax on net assets is applied by the companies which operate in Peru, to third category income generators subject to the Peruvian Income Tax General Regime. Effective in the year 2012, the tax rate is 0.4%, applicable to the amount of the net assets exceeding S/.1 million. The amount effectively paid may be used as a credit against payments on account of income tax under the General Regime or against the provisional tax payment of the income tax of the related period. g. The weighted-average tax rate was 30.70% (29.68% in 2012). The increase in the effective rate as compared to the previous year is due to the effect of the permanent differences in the income tax calculation. 252 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29 ACCUMULATED OThER COMpRENhENSIvE INCOME Accumulated other comprehensive income is composed of the fair value of the variable-fixed interest rate hedge signed by GMP S.A., foreign currency translation adjustment related to foreign subsidiaries and the fair value of available for sale assets. These movements are shown net of income tax, except for the translation adjustment. The analysis of the movement is as follows: At January 1, 2011 Additions * Tax effects * At December 31, 2011 Additions * Tax effects * At December 31, 2012 Additions * Tax effects * At December 31, 2013 Cash flow hedge Translation adjustment Increase in fair value of available- for sale assets (4,108) 943 (283) (3,448) (3,216) 965 (5,699) 5,066 (1,520) (2,153) (382) (3,940) - (4,322) (1,155) - (5,477) (467) - (5,944) 7,460 - - 7,460 - - 7,460 27,229 (8,169) 26,520 Total 2,970 (2,997) (283) (310) (4,371) 965 (3,716) 31,828 (9,689) 18,423 253 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (*) Amounts in the table above represent only amounts attributable to the Company’s controlling interest net of taxes. Below is the movement in Other Comprehensive Income for each year: Controlling interest Non-controlling interest Adjustment for actuarial gains and losses, net of tax Total value in OCI 30 CONTINGENCIES, COMMITTMENTS AND GUARANTEES As of December 31, 2013 the Group presents the following contingencies: a. Tax contingencies - 2011 (3,280) 35 - (3,245) 2012 (3,406) (982) (3,678) (8,066) 2013 22,139 (2,232) (4,591) 15,316 During the course of 2013, Graña y Montero S.A.A. was subject to a tax audit for fiscal 2010, 2011 and 2012. At the time of the issuance of the financial statements the Peruvian tax authorities (SUNAT) have not issued a resolutions of determination or penalties against the Company. During the course of 2012, Graña y Montero S.A.A. was subject to tax audit for fiscal 2007, 2008 and 2009. As a result of this tax records examination, the Peruvian tax authorities (SUNAT) have issued resolutions of determination and penalties against which the Company has filed the respective appeals, which are pending resolution and the outcome of which Management and legal counsel consider will be favorable. As a result of this tax examination for the years 1999 and 2001 of the subsidiary GyM S.A., the SUNAT has issued resolutions of determination and penalties totaling S/.29 million. 254 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company has made a provision for S/.5 million which is the best estimate of the expected future expenses to be incurred any potential tax contingency which is recognized in the account “Other provisions”. Management believes that the outcome of the remaining court actions will be favorable, based on the analysis of their characteristics, which was performed by its legal counsel. b. Other contingencies - As of December 31, 2013, civil court actions have been brought against the Company mainly relating to claims of Municipalities in respect of work execution with no municipal authorization and failure to pay municipal rights for S/.2.7 million (S/.4.7 million in 2012). Also, similar actions have been brought against jointly-controlled businesses in which the Company has an interest, mainly relating to work executed without the respective municipal authorization; these actions total approximately S/.0.7 million (S/.0.8 million in 2012). Management believes that the court actions mentioned above will be declared will be declared without merit, and therefore, no liabilities will arise in addition to those already paid as of December 31, 2013. In February 2003 the Company was served notice of General Management Resolution No.004-2003-GG-OSITRAN issued by the Peruvian regulator of infrastructure and public transport investment - (OSITRAN) by which payment of S/.250 plus interest was ordered on the grounds of alleged withholdings of the Transport Fund (Fondo Vial) by the Company. To date, the Company has challenged the decision and the hearing date remains to be set by the Administrative Court. Management considers that the outcome of this claim will be favorable to the Company and will not affect future financial results. c. Commitments and Guarantees As of December 31, 2013, the Group had guarantee commitments with different financial institutions securing transactions in the amount of US$83 million and S/.3.8 million. 255 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 BUSINESS COMBINATIONS a. Acquisition of DSD Construcciones y Montajes S.A. (DSD) In August 2013, through the subsidiaries GyM Minería S.A., Ingeniería y Construcción Vial y Vives S.A. and GyM Chile S.p.A., the Group acquired control of DSD with the purchase of 85.95% of its equity shares. DSD is an entity domiciled in Chile whose main economic activity is the execution of electromechanical works and assemblies in construction projects of oil refineries, pulp and paper, power plants and mining plants. This acquisition is part of the Group’s plan to increase its presence in markets that present high growth potential as in Chile, and in attractive industries, such as mining and energy. The following tables summarize the consideration paid for DSD and the preliminary determination of fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date: Cash and cash equivalents Trade accounts receivable Accounts receivable from related entities Prepaid expenses Investments Property, plant and equipment Intangibles S/.000 15,530 74,502 6,605 1,032 2,608 52,504 5,741 US$000 5,562 26,684 2,366 369 935 18,805 2,056 256 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax Trade accounts payable Other accounts payable Contingent liability Deferred income tax Fair value of net assets Non-controlling interest (14.05%) Goodwill Total paid for acquisition Cash payment for the acquisition Cash and cash equivalent of the acquired subsidiary Direct cash outflow from acquisition S/.000 2,192 (5,328) (38,679) (815) (4,187) 111,705 (15,701) 7,868 103,872 103,872 (15,530) 88,342 US$000 785 (1,908) (13,854) (292) (1,500) 40,008 (5,624) 2,802 37,186 37,186 (5,562) 31,624 Acquisition related costs of S/.0.65 million have been charged to administrative expenses in the consolidated income statement for the year ended 31 December 2013. Revenue and profit generated for the period between the date of acquisition to December 31, 2013 were S/.82.97 million and S/.8.3 million, respectively. If DSD Construcciones y Montajes S.A. would have been consolidated since January 1, 2013, the revenue and profit generated would have been S/.182.68 million and S/.10.15 million, respectively. 257 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS b. Acquisition of Vial y Vives In October 2012, the Group’s subsidiary GyM S.A. acquired 74% of equity shares in Vial y Vives S.A.C., an entity based in Chile, which is mainly engaged in carrying out activities related to construction, engineering works, civil work projects and electromechanical assemblies, architecture, installations. This acquisition is part of the Group’s plan to increase its presence in markets that present high growth potential as in Chile, and in attractive industries, such as mining and energy. During the period of twelve months after the acquisition date the Group reassessed the purchase price allocation from the acquisition of Vial y Vives S.A.C. which was made in October, 2012 and reallocated the amount of S/.24.7 million from goodwill (net of tax impact of S/.6.3 million and non-controlling interest of S/.6.4 million) to fixed assets, other accounts receivable and contingent liabilities in the amounts of S/.15.4 million, S/.16.8 million and S/.5.1 million respectively. This effect corresponds to the measurement period adjustment of the preliminary fair value assigned to the assets and liabilities acquired. The price paid by GyM for the acquisition of Vial y Vives amounted to US$55.6 million (equivalent to S/.142 million) and resulted in the recognition of goodwill for S/.28.9 million, at the acquisition date, which is detailed as follows: Cash and cash equivalents Marketable securities Trade accounts receivable, net Other accounts receivable Inventories Prepaid expenses Property, plant and equipment previous reported S/.000 US$000 S/.000 10,445 61,664 10,862 4,002 2,182 1,020 23,746 4,094 24,172 4,258 1,569 855 400 9,309 10,445 61,664 10,862 20,765 2,182 1,020 39,184 258 Revised US$000 4,094 24,173 4,258 8,140 855 400 15,360 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Intangibles (“Order Backlog” and Brand) Investments Deferred income tax Accounts payable from related parties Trade accounts payable Other accounts payable Provisions Advances from clients Contingent liabilities Deferred income tax liability Fair value of net assets Non-controlling interest (26.42%) Goodwill Total paid for acquisition Cash payment for the acquisition Cash and cash equivalent of the acquired subsidiary Direct cash outflow from acquisition presentado anteriormente US$000 38,757 5,930 210 (3,744) (1,492) (6,709) (1,946) (18,457) (4,363) (5,774) (47,069) (12,449) 21,033 55,653 55,653 (4,094) 51,559 S/.000 98,869 15,128 535 (9,550) (3,806) (17,115) (4,965) (47,085) (11,130) (14,730) (120,072) (31,757) 53,654 141,969 141,969 131,524 Revisado US$000 38,757 5,930 210 (3,744) (1,492) (6,709) (1,946) (18,457) (2,355) (8,229) 59,245 (14,792) 11,200) 55,653) 55,653 (4,094) 51,559 S/.000 98,869 15,128 535 (9,550) (3,806) (17,115) (4,965) (47,086) (6,006) (20,993) 151,133 (38,108) 28,944 141,969 141,969 (10,445) 131,524 259 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The cash payment for the acquisition comprises an indemnification asset of S/.6,006 which was deposited in an escrow account to compensate any future disbursements related to contingent liabilities acquired with the business combination. The income and the profit generated for the period from the acquisition date to December 31, 2012 amounted to S/.23.9 million and S/.1.7 million, respectively. If Vial y Vives had been consolidated from January 1, 2012, the income generated would have been S/.59.6 million and S/.7.9 million, respectively. c. Acquisition of Stracon GyM - On March 1, 2012 GyM obtained control over certain business which it carry jointly with an entity called Stracon S.A.C. (hereinafter Stracon), as well as the control over certain interests owned by Stracon both individually and with other partners. This acquisition was made effective through an entity that GyM and Stracon formed for this purpose. In fact, both entities established Stracon GyM S.A. (hereinafter Stracon-GyM), over which GyM exercises control and to which both the above-mentioned companies contributed with equity packages comprising various assets and liabilities associated with the mining industry. This acquisition is part of the Group’s strategy to group in one single entity all businesses related to the mining industry, including existing businesses that were conducted jointly with Stracon, own business, and businesses owned by Stracon conducted with third parties. This strategy is intended to generate synergies, economies of scale and tax efficiencies from the integration of the mining-related businesses and taking advantage of the individual experience of both entities now conducting this restructured business. The structure of this transaction consisted of transactions made by both entities to obtain a certain percentage of interest in Stracon-GyM, and an additional contribution of GyM. As a result of the several contributions that each party engages to make, the share capital structure of Stracon-GyM was attributed to shareholders as follows: 74.15% to GyM and 25.85% to Stracon. GyM has control over the overall operation and it applies IFRS 3 to account for this transaction. The consideration paid by GyM for the purchase of Stracon - GyM is comprised of the book value of net assets transferred in an amount equal to S/.24.9 million plus a cash amount for a total of US$16.4 million (in aggregate equivalent to S/.42 million; see Note 5-d) and resulting in the recognition of goodwill of S/.13.4 million at the acquisition date, is a follows: 260 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Cash and cash equivalents Trade accounts receivable, net Other accounts receivable Inventories Prepaid expenses Property, plant and equipment Intangibles (“Order Backlog” and customer relationships) Deferred income tax assets Other assets Financial obligations Trade accounts payable Accounts payable to related parties Other accounts payable long-term liabilities Deferred income tax liability Fair value of net assets Non-controlling interest (25.85%) Goodwill Consideration given for the acquisition Net assets transferred S/.000 885 120,184 3,862 16,674 24 206,153 9,976 674 36 (64,058) (39,267) (81,820) (1,316) (126,202) (7,327) 38,478 (9,947) 13,366 41,897 (24,994) 16,903 US$000 347 47,131 1,515 6,539 9 80,844 3,912 264 14 (25,121) (15,399) (32,086) (516) (49,491) (2,873) 15,089 (3,901) 5,242 16,430 (9,802) 6,628 261 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCash paid in 2011 Cash paid in 2012 Cash and cash equivalent of the acquired subsidiary Direct cash outflow from acquisition S/.000 13,894 3,009 (885) 2,124 The following table provides a breakdown of the book value of assets and liabilities transferred in connection with the acquisition of Stracon-GyM: Details of Assets and Liabilities Transferred Trade accounts receivable Accounts receivable from related parties Inventories Machinery and equipment Other accounts receivable Total assets US$000 5,448 1,180 (347) 833 S/.000 55,545 27,880 2,318 139,248 19,155 254,146 262 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Trade accounts payable Accounts payable to related parties Borrowings Other accounts payable Total liabilities Book value of net assets transferred S/.000 28,564 56,063 141,430 3,095 229,152 24,994 d. Acquisition of Compañía América de Multiservicios Limitada - CAM - On January 19, 2011, CAM Holding SPA and Inversiones y Construcción GyM Limitada, two subsidiaries created by the Group to carry out this transaction, signed an agreement of “Assignment of Capital Stock” with Enersis S.A. and Chilectra S.A. (the “selling parties”) to transfer their respective holdings of 99.958802% and 0.041197%, respectively, in the capital stock of Compañía América de Multiservicios Limitada - CAM (hereinafter CAM). As consideration, Group subsidiaries paid the sellers an initial price of US$20.2 million, subject to adjustments based on several variables, such as changes in equity of CAM between the date the price was set and the date the transaction was executed. CAM is en entity based in Chile and formed in 1998 with three business units: energy consumption measurement, implementation of electric power work and logistical services, that are provided directly or through subsidiaries operating in 5 countries in South America (Chile, Argentina, Brazil, Peru and Colombia). On February 24, 2011, the CAM purchase transaction was closed. Immediately following the closing, the Company sold to a partner 25% of the capital stock of CAM under the same terms and conditions under which it was acquired. The partner paid US$5.0 million for the 25% interest. The final purchase price paid by the Group was reduced by both the effect of the incoming partner, as well as certain seller adjustments to the final purchase price. Taking into account these adjustments, the price paid by the Group for the 75% interest in CAM’s capital was US$10.8 million. 263 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS This purchase was a part of the Group’s strategy to position its investments in Chile, and enter into profitable business segments to generate growth for the Group. The Group distributed the price paid based on the fair values of the assets acquired and liabilities assumed on February 24, 2011, the date of acquisition. A breakdown of this calculation is shown as follows: Fair value of assets and liabilities of CAM: Cash and cash equivalents Trade and other accounts receivable Inventories Other accounts receivable Long-term trade accounts receivable Property, plant and equipment Intangibles (“Order Backlog”) Deferred income tax Other assets Short- and long-term loans Trade and other accounts payable Contingent liabilities Provisions Deferred income Other accounts payable Long-term trade accounts payable S/.000 60,675 220,783 57,150 20,311 27,696 73,156 10,952 21,675 13,010 (35,781) (155,464) (24,466) (102,776) (12,946) (15,076) (29,675) US$000 22,497 81,862 21,190 7,531 10,269 27,125 4,061 8,037 4,824 (13,267) (57,643) (9,072) (38,107) (4,800) (5,410) (11,003) 264 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax liability Other long-term liabilities Fair value of net assets Non-controlling interest (25%) (*) Gain on acquisition Total paid for purchase Cash payment for the acquisition Cash and cash equivalent of the acquired subsidiary Direct cash inflow from acquisition S/.000 (17,806) (12,529) 98,889 (24,722) (45,152) 29,015 29,015 (60,675) (31,660) US$000 (6,602) (4,645) 36,847 (9,167) (16,742) 10,938 10,938 (22,497) (11,559) (*) Non-controlling interest was determined as the proportion of assets acquired and liabilities assumed from CAM. This acquisition has generated a gain of S/.45.2 million which resulted in, as established by IFRS 3, a review of the values initially attributed to assets and liabilities of the acquired entity. As of the date of the financial statements, the Group completed its review and in accordance with Note 4.2, concluded its distribution process of the amount paid for the purchase and accordingly, it recognized this gain in the income statement under “Business combination gain”. The contribution of CAM to the income and profit of the Group from February 24 to December 31, 2011 amounts to S/.466.7 million and S/.29.4 million, respectively. If CAM had been consolidated as from January 1, 2011, income and profit would have been S/.558.2 million and S/.21 million, respectively. 265 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32 DIvIDENDS At the General Shareholders’ meeting held on March 26, 2013, it was agreed to distribute dividends amounting to S/.86,986.2 (S/.0.156 per share), which correspond to the profits of 2012. At the General Shareholders’ meeting held on March 30, 2012, it was agreed to distribute dividends amounting to S/.86,722.4 (S/.0.156 per share), which correspond to the profits for the year 2011. At the General Shareholders’ meeting held on March 30, 2011, it was agreed to distribute dividends amounting to S/.55,015.9 (S/.0.098 per share), which correspond to the profits for the year 2010. A dividend of S/.0.169 per share, amounting to S/.111,888,104, will be submitted to the Annual General Shareholders’ meeting which will be held on March 28, 2014. The financial statements do not reflect these dividends payable. 266 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 33 EARNINGS pER ShARE Basic earnings per share are calculated by dividing the net profit of the period attributable to common shareholders of the Group by the weighted average number of common shares outstanding during the year. No diluted earnings per common share were calculated because there are no common or investment shares with potential dilutive effects (i.e., financial instruments or agreements that give the right to obtain common or investment shares); therefore, it is equal to basic earnings per share. The basic earnings per share are broken down as follows: Profit attributable to the controlling interest in the Company 2011 289,076 2012 289,954 2013 320,363 Weighted average number of shares in issue at S/.1.00 each, at December 31, 2013 and 2012 and S/.0.7 each at December 31, 2011) 558,284,190 558,284,190 600,346,925 Basic and diluted earnings per share (in S/.) 0.518 0.519 0.534 34 TRANSACTIONS wITh NON-CONTROLLING INTERESTS a. Adquisición de participación adicional en ciertas subsidiarias i. In 2013, the Company acquired additional shares of Ingeniería y Contrucción Vial y Vives S.A., GMD S.A., Viva GyM S.A., and Concar S.A. representing the 6.4%;0.47%;0.13% and 0.18% of their corresponding issued shares. The carrying amount of the non-controlling interests in such subsidiaries was S/.9,528 and the purchase consideration was S/.12,433. The Group derecognized non-controlling interest and accounted a decrease in equity attributable to owners of the Parent of S/.2,905. 267 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ii. iii. In 2013, the Company acquired an additional 16.9% of the outstanding shares of Norvial S.A from the former shareholder Besco S.A. at sales price of S/.51,435. The carrying amount of the no-controlling interests at the acquisition date was S/.19,729. The Group derecognized its non-controlling interest and recorded a decrease in equity attributable to owners of the Parent of S/.31,706. In May 2012, the Company acquired the remaining 26.99% of the shares issued of Survial S.A. at a sales price of S/.4,393. The Group now holds 99.99% of the total share capital of Survial S.A. The carrying amount of the Group’s non-controlling interests at the acquisition date was S/.4,757. The Group derecognized these non-controlling interests for S/.4,757 and recorded a decrease in capital attributable to parent owners of S/.364. The effect of these changes is broken down as follows: Carrying amount of acquired non-controlling interest Consideration paid to non-controlling interest Lower (higher) consideration paid attributable to the Company’s controllers b. Disposal of interests in subsidiary without loss of control 2012 4,757 (4,393) 364 December 31, 2013 29,257 (63,868) (34,611) In January 2012, the Company sold 0.17% (S/.708) of its total interest of 93.84% held in GyM S.A. for S/.555. The carrying amount of the non-controlling interest in GyM S.A. at the disposal date was S/.25,682 (that is, 6.16% interest). In January 2012, the Company sold 0.40% (S/.194) of its total interest of 99.97% held in Concar S.A. for S/.638. The carrying amount of the non-controlling interest in Concar S.A. at the disposal date was S/.14.5 (that is, 0.03% interest). 268 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The effect of the changes in the interests held by GyM S.A. and Concar S.A. in the share capital attributable to the Company’s controllers is broken down as follows: Carrying amount of non-controlling interest sold Consideration received from non-controlling interests Increase in equity of the Company’s controllers There were no transactions with non-controlling interest in 2011. c. Effects of transactions with non-controlling interests on equity attributable to Parent owners for the year ended December 31, 2012 and 2013 Changes in equity attributable to Company controllers arising from: Acquisition of additional interest in subsidiary Disposal of interest in a subsidiary without loss of control Decrease in equity of the Company controllers 2012 364 291 655 At December 31, 2012 (902) 1,193 291 December 31, 2013 (34,611) - (34,611) 269 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS d. Contributions of non-controlling shareholders Comprising the contributions made by the partners of subsidiary Viva GyM S.A. for their real estate projects. At December 31 the amounts contributed were the following: Contributions Returns of contributions Increase in equity of non-controlling interest 2011 - (13,328) (13,328) 2012 30,224 (4,128) 26,096 2013 59,387 (24,613) 34,774 Contribution returns mainly correspond to profit attributable to the party for the housing project El Agustino I, which has been completed and most of the apartments have been delivered to the customers. e. Deconsolidation of subsidiaries In 2013 the Group assessed its interests in Concesión La Chira S.A. and Logistica Quimica del Sur S.A.C (LQS) concessions, which were considered as subsidiaries during the prior fiscal year, and determined that such concessions comprise a joint operation and joint venture, respectively according to IFRS 11. At December 31, 2013, consolidated assets and liabilities were returned as well as the corresponding non-controlling interest which amounted to S/.12,535 for La Chira and S/.6,842 for LQS. f. Debt capitalization - Comprising the capitalization of debt arising from obligations made by Stracon GyM with its investors, GyM and Stracon S.A.C., and amounted to S/.12.2 million in 2012. g. Dividends At December 31, 2013, 2012 and 2011 dividends were distributed for S/.51.8 million, S/.37.5 million and S/.14.9 million, respectively. 270 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 35 EvENTS AFTER ThE DATE OF ThE STATEMENT OF FINANCIAL pOSITION Norvial S.A. obtained on January 23, 2014 a short term loan with Banco de Crédito for an amount of up to S/.150 million, which is guaranteed by its shareholders. The first disbursement for S/.50 million was used to prepay the loan (including the associated prepayment costs) that this subsidiary maintained with the Interamerican Development Bank (IDB) and the International Finance Corporation (IFC) on January 27, 2014. In addition, the short term loan will be used to finance the start of construction of the second stage of the concession pursuant to the obligatory investments that Norvial must execute. It is expected that the short term loan will be repaid with the project financing that will be structured during 2014. 271 < menú 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIESDECEMBER 31, 2011, 2012 AND 2013NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Reports INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES (For Fiscal Year 2013) 272 80 YEARS AnnuAl REPORT2013< menu GROWING WITH VISIONCorporate Name: GRAÑA y MONTERO S.A.A. (Hereinafter, COMPANY) Taxpayer Registration (RUC) Number: 20332600592 Address: Telephones: Fax: Web Page: Electronic Mail: Stock Exchange Representative: Corporate Name: Reviewer: Av. Paseo de la República 4675, 4th floor, Surquillo (51-1) 213-6567 213-6578 (51-1) 213-0562 www.granaymontero.com.pe dgray@gym.com.pe Dennis Gray Febres Graña y Montero S.A.A. NOT APPLICABLE 273 < menu 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOnINFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)I SECTION ONE: EVALUATION OF 26 PRINCIPLES RIGHTS OF SHAREHOLDERS Principles 1. Principle (1.C.1. second paragraph).- Generic issues must not be included in the agenda. The items to be addressed must be separately specified, facilitating analysis and preventing joint resolution of issues on which different opinions may exist. 2. Principle (1.C.1. third paragraph).- The place where Regular Shareholder Meetings are to be held shall be set forth so as to facilitate attendance of the shareholders. a. Indicate the number of shareholder meetings called by THE COMPANY during the fiscal year reported herein. I. TYPE GENERAL SHAREHOLDERS MEETING SPECIAL SHAREHOLDERS MEETING Compliance 0 1 2 3 4 X X NUMBER 1 0 274 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) b. If shareholders meetings have been called, complete the following information for each meeting. DATE OF NOTICE OF THE MEETING DATE OF THE MEETING PLACE OF THE MEETING TYPE OF QUORUM % SPECIAL REGULAR N° DE ATTENDING SHAREHOLDERS DURATION TIME BEGUN TIME ENDED 01/03/12 26/03/13 Graña y Montero Office X 84.1639189% 78 15:00 16:00 c. What means, other than those set forth in Article 43 of the General Corporations Law, does THE COMPANY use to give notice of the Meetings? (…) Electronic Mail (…) Directly at the COMPANY (…) By telephone Internet Page (x) (…) Postal Mail (…) Others. Specify ---- (... ) None. d. Indicate whether the aforementioned means are regulated in any document(s) of the COMPANY BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE SHAREHOLDER MEETING Note: Article 12 of the Shareholders Meeting Regulations includes the obligation of the COMPANY to post the notices of the Shareholders Meeting in the Web page of the COMPANY. 275 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) e. If the COMPANY has a corporate Web page, are the minutes of the shareholders meetings available from such page? Only to shareholders To the general public Principle YES X 3. Principle (1.C.2.).- Shareholders must be given the opportunity to introduce the business to be transacted, within a reasonable limit, in the agenda of the Regular Meetings. The business to be transacted must be relevant to the company and consistent with the legal or statutory competence of the Shareholders Meeting. The Board of Directors shall not unreasonably withhold acceptance of such requests without communicating the shareholder a reasonable cause. NO Compliance 0 1 2 3 4 X a. Indicate whether shareholders may include business to transact in the agenda by any mechanism additional to that set forth in the General Corporations Law (Article 117 for regular corporations and Article 255 for open stock corporations). (X) YES ( ) NO b. If the answer to the foregoing question was yes, detail the alternative mechanisms. Article 13 of the Shareholders Meeting Regulations provides that shareholders may make suggestions on the business to be transacted at the meeting through the Shareholder Service Office. 276 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) c. Indicate whether the mechanisms described in the foregoing question are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X SHAREHOLDERS MEETING REGULATIONS d. Indicate the number of requests submitted by the shareholders during this reporting period for inclusion of business to be transacted in the agenda of meetings. NUMBER OF REQUESTS RECEIVED None Principle ACCEPTED Not Applicable DENIED Not Applicable 4. Principle (1.C.4.i.).- The By-laws shall not limit the authority of any shareholder entitled to participate in the General Meetings to appoint proxies to represent such shareholder. Compliance 0 1 2 3 4 X 277 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) a. As provided in Article 122 of the General Corporations Law, indicate whether the By-laws of the COMPANY limit the right to be represented, reserving such right: In favor of another shareholder In favor of a Director In favor of a Manager (…) (…) (…) (x) Does not limit the right to be represented b. For each Meeting held during the fiscal year reported herein indicate the following: TYPE OF MEETING DATE OF MEETING PARTICIPATION (%) IN THE TOTAL OF SHARES OF VOTING STOCK REGULAR X SPECIAL 26.03.13 BY PROXY 8.7314029% BY DIRECT EXERCISE 75.4325161% c. Indicate the requirements and formal steps to be met for a shareholder to be represented at a meeting. FORMAL STEPS (Indicate if the COMPANY requires a Simple Proxy Letter, a Notarized Document, a Public Instrument, or other) SIMPLE PROXY LETTER Prior notice (number of days prior to the meeting in which the proxy letter must be submitted) Cost (indicate if the COMPANY requires any payment for this purpose and the amount thereof) 24 HOURS NO CHARGE 278 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) d. Indicate whether the requirements and formal steps described in the foregoing question are regulated in any document(s) of the COMPANY BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X X SHAREHOLDERS MEETING REGULATIONS FAIR TREATMENT TO SHAREHOLDERS Principle 5. Principle (ii.A.1, third paragraph).- It is recommendable that the company issuing investment shares or other securities without the right to vote offers the holders thereof the opportunity to exchange such investment shares or other securities for common shares of voting stock or to provide for this possibility when issuing the shares or securities. a. Has the COMPANY conducted any investment share swap processes in the last five years? (…) YES (…) NO ( X ) NOT APPLICABLE Compliance 0 1 2 3 4 X 279 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 6. Principle (ii.B).- A sufficient number of directors capable of applying an independent judgment on affairs that may potentially pose a conflict of interest must be elected, for which purpose the participation of non-controlling shareholders may be considered. Independent directors are those elected by their professional qualifications and not associated with the management of the company or with the majority shareholders thereof. a. Indicate the number of dependent and independent directors of the COMPANY Compliance 0 1 2 3 4 X DIRECTORS Dependent: Internal: External Non-Independent Independent TOTAL NUMBER 2 3 4 9 Note: The Regulations of the Board of Directors and the By-laws of the COMPANY acknowledge Internal and External Directors, who in turn are Independent and Non-independent, as categories of the Board of Directors. In this connection, External Directors are seven, four of which are independent. 280 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) b. Indicate the special requirements (other than those to be a director) to be an independent director of the COMPANY. Art. 21 of the Regulations of the Board of Director sets forth requirements in addition to those in the General Corporations Law to be a director and includes additional requirements to be an independent director. The requirements to be appointed a director of the COMPANY are: (i) qualification, professional prestige, experience and proven honorability; (ii) the age must be consistent with the average age of the Board of Directors, between 55 and 65 years-old; (iii) not to hold positions or perform duties of representation, management or advisory in competitor companies or in companies who hold a dominant or controlling in competitor companies; (iv) not to be concurrently a member of five boards of directors (other than boards of the Graña y Montero Group); (v) not to serve in entities that are usual clients or suppliers of goods and services of the company, if this could cause a conflict of interest; and (vi) not to be a party to legal proceedings that, in the opinion of the Board of Directors, may jeopardize the reputation of the company. In addition, the aforementioned Article 21 sets forth additional requirements to be considered an independent director, namely: (i) Not to have, or have recently had, an employment, business or contractual relationship of a significant nature with the company or its staff; (ii) not having served as company managers or as part of the Senior Management of the Group in the last five years; (iii) not be a member of the board of directors of another entity who has external non-independent members in the Board of directors of the company; (iv) not having close kin relationships with the internal or executive directors, external non-independent director or the Senior Management of the company; and (v) have a professional and personal profile leading the shareholders to trust their independence. c. Indicate whether the special requirements described in the foregoing question are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS 281 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) d. Indicate whether the directors of the COMPANY are relatives to the first or second degree by blood, or affines to the first degree, or a spouse, of: (X) There is no first- or second-degree kinship, whether by blood or by affinity, between the Directors of the COMPANY, other Directors, Shareholders and Managers. e. If a member of the Board of Directors holds or has held a management position in the COMPANY during the fiscal year reported herein, indicate the following: FULL NAME OF DIRECTOR MANAGEMENT POSITION IT HOLDS OR HAS HELD TERM OF THE POSITION MARIO ALVARADO PFLUCKER CHIEF EXECUTIVE OFFICER HERNANDO GRAÑA ACUÑA EXECUTIVE DIRECTOR FROM March 1997 September 2005 TO N/A N/A f. If a member of the Board of Directors of the COMPANY is or has been a board member of other company or companies listed in the Public Register of the Securities Market, indicate the following: FULL NAME OF DIRECTOR CORPORATE NAME DATE JOSE GRAÑA MIRO QUESADA EDITORA EL COMERCIO JOSE ANTONIO COLOMER GUIU BBVA - BANCO CONTINENTAL LUIS MIRO QUESADA VALEGA EDITORA EL COMERCIO JOSE CHLIMPER ACKERMAN Agrokasa Holdings S.A. JOSE CHLIMPER ACKERMAN Maestro Home Center Perú HUGO SANTA MARIA GUZMÁN MIBANCO BANCO DE LA MICROEMPRESA FROM 24.03.1993 31.3.2009 1990 07.11.2011 07.11.2011 21.03.2013 TO N/A N/A N/A N/A N/A N/A 282 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) COMMUNICATION AND INFORMATION TRANSPARENCY Principle 7. Principle (IV.C. second, third and fourth paragraphs).- Even though external audits are usually intended to review financial information, they may also refer to specialized reports or opinions on the following: accounting inspections, operations audits, systems audits, project assessments, cost systems evaluation and implementation, tax audits, asset adjustment valuations, portfolio evaluations, inventories, or other special services. It is recommended that audits be performed by different auditors or, if performed by the same auditors, their independence of opinion should not be affected. The company shall disclose all the audits and specialized reports prepared by the auditors. All services provided by the auditing firm or independent auditor will be disclosed, specifying the percentage of each in the total services provided, and the share thereof in the auditing firm’s or auditor’s revenues. Compliance 0 1 2 3 4 X 283 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)a. Provide the following information on the auditing firms that have rendered services to the COMPANY in the last five years. CORPORATE NAME OF THE AUDITING FIRM SERVICE KPMG KPMG BAKER TILLY PERU GRANT THORNTON PwC PwC PwC PwC PwC PwC PwC PwC PwC PwC PwC Notes: Auditor Covenants Graña y Montero Securitized Bonds First Issue Pre-Term Audit Corporate Governance Principles Audit Corporate Governance Principles Audit Tax Audit Pre-Term Audit Transfer Pricing Studies Audit Control Declaration of Compliance Audit Tax Consulting Accounting Consultancy Advising in Business Acquisitions Technical Assistance Training Workshops Labor Consultancy • Ernst & Young or Baker Tilly Perú audit fees not included because these firms have not and do not conduct our Financial Audit. • Fee rates for PwC are in relation to the total cost paid for the Financial Audit. • Fee rates for KPMG are in relation to the total cost paid for the Financial Audit. • The expenses for the IPO in the NYSE audit reached, for this one time, the amount of US 1,064,950.00. PERIOD 2007 - 2009 2007 - 2010 2009 -2010 2011 -2012 2013 2010 - 2013 2010 - 2013 2010 - 2013 2012 - 2013 2013 2013 2013 2013 2013 2013 FEE 6.25% 6.25% N/A N/A 269% 12% 0.8% 17.5% 21.6% 43.66% 30.1% 7.7% 3.0% 2.9% 0.3% 284 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)b. Describe the pre-established procedures to retain the auditing firm in charge of reviewing the annual financial statements (including identification of the COMPANY corporate body in charge of selecting the auditing firm). The Audit and Processes Committee proposes to the Board of Directors, for submission to the Regular Shareholders Meeting, the appointment of the external auditors. The Regular Shareholders Meeting elects the external auditors. Additionally, Article 18.5 of the Regulations of the Board of Directors set forth the obligation that the professional auditor in charge and the members of the external audit team rotate periodically in accordance with the criteria determined in this connection by the Board of Directors on the proposal of the Audit and Processes Committee. c. Indicate whether the aforementioned procedures are contained in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS d. Indicate whether the auditing firm retained to review the financial statements of the COMPANY for the fiscal year reported herein also reviewed the financial statements of other companies of the financial group for the same fiscal year. (X) YES (….) NO CORPORATE NAME OF THE COMPANY (COMPANIES) OF THE FINANCIAL GROUP GyM S.A. GMI S.A. GMP S.A. GMD S.A. CONCAR S.A. 285 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) CORPORATE NAME OF THE COMPANY (COMPANIES) OF THE FINANCIAL GROUP NORVIAL S.A. SURVIAL S.A. Concesión Canchaque S.A.C GyM Ferrovías S.A. CAM Chile S.A. Compañía Americana de Multiservicios del Perú S.A. (Cam Perú S.A.) CAM Colombia Multiservicios S.A.S. Viva GyM S.A Concesionaria La Chira S.A. Stracon GyM S.A. CAM Holding SpA GyM Chile SPA GyM Construcciones y Montajes Limitada GyM Minería S.A. Ingeniería y Construcción Vial y Vives Inmobiliaria Almonte S.A.C. e. Indicate the number of meetings that the area in charge of the internal audit has held with the retained auditing firm during the fiscal year reported herein. NUMBER OF MEETINGS 0 1 2 3 4 5 MORE THAN 5 NOT APPLICABLE X 286 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 8. Principle (IV D 2).- Attention to specific information requests made by the shareholders, the investors in general or the interest groups associated with the company shall be made through an instance and/or personnel appointed for such purpose. Compliance 0 1 2 3 4 X a. Indicate the means or procedure(s) by which the shareholders or interest groups of the COMPANY may request information for their request to be responded. SHAREHOLDERS STAKEHOLDERS ELECTRONIC MAIL DIRECTLY IN THE COMPANY BY TELEPHONE INTERNET PAGE POSTAL MAIL OTHERS. Specify X X X - - - X X X - - - b. Without prejudice to the information duties of the General Manager pursuant to Article 190 of the General Corporations Law, indicate the area and/or person in charge of receiving and handling the information requests submitted by the shareholders. If a person is in charge, include also the position and area where such person works. AREA IN CHARGE SHAREHOLDER SERVICE OFFICE 287 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)PERSON IN CHARGE FULL NAME Dennis Gray Febres POSITION AREA Corporate Finance and Investor Relations Manager Finance and Investor Relations c. Indicate whether the procedure that the COMPANY follows to handle information requests of the shareholders and/or interest groups of the COMPANY is regulated in any document(s) of the COMPANY BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X SHAREHOLDERS MEETING REGULATIONS d. Indicate the number of information requests of the shareholders and/or interest groups of the COMPANY during the fiscal year reported herein. NUMBER OF REQUESTS RECEIVED 90 ACCEPTED 90 DENIED - e. If the COMPANY has a corporate Web page, does it include a special section on corporate governance or relationships with shareholders or investors? (X) YES (…) NO (…) IT HAS NO WEB PAGE f. Indicate whether any claim has been filed during the fiscal year reported herein due to limiting access to information to a shareholder. (…) YES (X) NO 288 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 9. Principle (IV D 3).- Cases of doubt on the confidential nature of the information requested by the shareholders or the interest groups associated with the company shall be settled. The criteria must be adopted by the Board of Directors and endorsed by the shareholders at a Regular Meeting, as well as included in the by-laws or internal regulations of the company. In any case, disclosure of the information must not jeopardize the competitive position of the company or be likely to affect the ordinary course of business thereof. a. Who decides on the confidential nature of specific information? Compliance 0 1 2 3 4 X (X) The Board of Directors (…) The General Manager (X) Others. Article 9A of the Regulations of the Board of Director, the incorporation of which was approved at the Board of Directors meeting of March 23, 2006, and ratified at the Regular Shareholders Meeting of such date, provides that the Shareholder Service Office shall decide on the confidential nature of information based on the guidelines set in such Article, which specifies that the following information shall be deemed confidential: • • • • • • Details of the business strategy of companies of the financial group. • Information on clients and/or suppliers of companies of the financial group, which affects the confidentiality thereof. Terms of proposals and offers to potential clients. Information provided to the Board of Directors, other than information disclosed as a relevant fact and/or submitted to SMV. Personal information on employees of the companies of the financial group, including their compensation. Budgets and financial forecasts. List of shareholders of the financial group companies with less than 0.5% of the capital stock for listed companies and less than 5% of the capital stock for non-listed companies. 289 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) In case of doubt on the confidential nature of the information, the two (2) Directors elected specifically for such purpose by the Board of Directors decide. b. Detail the objective pre-established criteria that allow qualifying information as confidential. Additionally, indicate the number of requests for information submitted by the shareholders during the fiscal year reported herein that were denied due to the confidential nature of the information. These are detailed in item a) above. Granting of the status of confidential was not rejected in connection with any request submitted by the shareholders. c. Indicate whether the criteria described in the foregoing question are contained in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS Principle 10. Principle (IV F, first paragraph).- The company will have an internal audit. In performance of its duties, the internal auditor must have a relationship of professional independence with the company that retains its services. The internal auditor must act under the same principles of diligence, loyalty and reserve required from the Board of Directors and the Management. a. Indicate if the COMPANY has an independent area in charge of internal audit. (X) YES (…) NO Compliance 0 1 2 3 4 X 290 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) b. If the answer to the foregoing question was yes, indicate, hierarchically in the organizational structure on what body is the internal auditor dependent and to whom it must report. DEPENDS ON: REPORTS TO: Corporate General Management Audit and Process Committee and Chairman of the Board c. Indicate the main responsibilities of the internal audit area and whether this area performs any duties other than the internal audit. The main responsibilities of the Internal Auditor are the following: • Assist the board of directors and the management in performance of their duties associated with corporate governance; • Assess and regulate objectively the risks of the business, the internal control system and the operational and financial performance, evaluating and improving internal processes and procedures; Provide assurance and consulting on potential capabilities to improve risk management, add value to the Group and improve the operational level. • Does not perform duties other than the Internal audit. d. Indicate whether the responsibilities described in the foregoing question are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS 291 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) RESPONSIBILITIES OF THE BOARD OF DIRECTORS Principle Compliance 0 1 2 3 11. Principle (V.D.1).- The Board of Directors will perform certain key duties, namely: evaluate, approve and guide the corporate strategy; determine the company’s main action plans, risk follow-up, monitoring and management policies; develop its annual budgets and business plans and monitor their implementation; and oversee the company’s main expenses, investments, purchases and dispositions. a. If he Board of Directors of the COMPANY is in charge of the duties described in this principle, indicate whether such duties are contained in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT PUBLIC INSTRUMENT OF INCORPORATION AND REGULATIONS OF THE BOARD OF DIRECTORS, RESPECTIVELY X X Principle The Board of Directors will perform certain key duties, namely: 12. Principle (V.D.2).- The Board of Directors will perform certain key duties, namely: elect, control and, if necessary, substitute senior executives, and set their compensation. 13. Principle (V.D.3).- Evaluate the compensation of the senior executives and Board members, ensuring that the procedure to elect the directors is according to law and transparent. 4 X 4 X X Compliance 0 1 2 3 292 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)a. If the Board of Directors of the COMPANY is in charge of the duties described in this principle, indicate whether such duties are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X X b. Indicate the corporate body in charge of: PUBLIC INSTRUMENT OF INCORPORATION AND REGULATIONS OF THE BOARD OF DIRECTORS, RESPECTIVELY. DUTY: BOARD OF DIRECTORS GENERAL MANAGER OTHERS (SPECIFY) Hire and substitute the Chief executive Officer X Human Resources Management and Social Responsibility Committee Hire and substitute the management staff Set the compensation of senior officers Evaluate the compensation of senior officers Evaluate the compensation of directors X X X X X X Human Resources Management and Social Responsibility Committee in coordination with the General Manager Human Resources Management and Social Responsibility Committee Human Resources Management and Social Responsibility Committee in coordination with the General Management Board of Directors proposes but Regular Shareholders Meeting decides c. Indicate whether the COMPANY has internal policies or procedures in place for: POLICIES FOR: Hiring and substituting senior officers Setting the compensation of senior officers Evaluating the compensation of senior officers Evaluating the compensation of directors Electing directors YES X X X X NO X 293 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)d. If the answer to the foregoing question was yes for one or more of the above procedures, indicate whether such procedures are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X X REGULATIONS OF THE BOARD OF DIRECTORS AND MANUAL OF EXECUTIVE COMPENSATION AND BENEFIT POLICIES OF THE GRAÑA Y MONTERO GROUP. Principle 14. The Board of Directors shall perform certain key duties, namely: Principle (V.D.4).- Monitor and follow-up likely conflicts of interest between the management, Board members and shareholders, including fraud in using corporate assets and abuse in the transactions among stakeholders Compliance 0 1 2 3 4 X a. If the Board of Directors of the COMPANY is in charge of the duties described in this principle, indicate whether such duties are contained in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X X PUBLIC INSTRUMENT OF INCORPORATION AND REGULATIONS OF THE BOARD OF DIRECTORS, RESPECTIVELY. b. Indicate the number of cases of conflict of interest that have been discussed by the Board of Directors during the fiscal year reported herein. Number of Cases None 294 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)c. Indicate whether the COMPANY or its Board of Directors has a Code of Ethics or similar document(s) that regulate the conflicts of interest that may arise. (X) YES (…) NO If the answer was yes, indicate the exact name of the document: ETHICS CHARTER D. Indicate the pre-established procedures to approve transactions between related parties. The Board of Directors reserves the knowledge and authority over any material transaction of the company with a material shareholder (owner of more than 1% of the capital stock) or with persons related to the Board, directors and senior officers or persons related to them (i.e., transactions over US$50,000.00) and with other companies of the Group (transactions over US$1,000,000). To be performed, the transaction requires prior evaluation thereof by the Human Resources Management and Social Responsibility Committee in the first case, and by the Audit and Process Committee in the second, basically to make sure that such transaction is made at fair value. 295 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 15. The Board of Directors will perform certain key duties, namely: Principle (V.D.5).- Ensure the soundness of the company’s accounting systems and financial statements, including an independent audit, and the existence appropriate control systems, in particular, the financial and non- financial risk control systems, and compliance with the law. Compliance 0 1 2 3 4 X a. If the Board of Directors of the COMPANY is in charge of the duties described in this principle, indicate whether such duties are contained in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X X PUBLIC INSTRUMENT OF INCORPORATION AND REGULATIONS OF THE BOARD OF DIRECTORS, RESPECTIVELY. b. Indicate whether the company has financial and non-financial risk control systems in place. (X) YES (…) NO c. Indicate whether the control systems referred to in the foregoing question are regulated in any document(s) of the COMPANY BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS 296 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 16. The Board of Directors shall perform certain key duties, namely: Principle (V.D.6).- Oversee the soundness of the governance practices under which the company operates, introducing any changes as required. a. Is the Board of Directors of the COMPANY in charge of the duty described in the above principle? (X) YES (…) NO Compliance 0 1 2 3 4 X b. Indicate the pre-established procedures to supervise the effectiveness of governance practices, specifying the number of evaluations conducted during the period. The Regulations of the Board of Directors set forth the obligation of the Audit and Process Committee to examine compliance with the regulations and, in general, with the rules of corporate governance, and o make the proposals required for improvement thereof. c. Indicate whether the procedures described in the foregoing question are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS 297 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 17. The Board of Directors shall perform certain key duties, namely: Principle (V.D.7).- Oversee the company’s information policy. Compliance 0 1 2 3 4 X a. If the Board of Directors is in charge of the duty described in this principle, indicate whether such duties are regulated in any document(s) of the COMPANY BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS b. Indicate the policy of the COMPANY on information disclosure and communication to investors. The COMPANY and its personnel are committed to transmit accurately and truthfully the information of the company that is to be made public, both internally and externally, and keep under strict reserve the confidential information of the COMPANY and of our clients, especially those employees who have access to privileged information. As provided in Article 9A of the Regulations of the Board of Directors, the Shareholder Service Office is in charge of receiving, qualifying and delivering the information required by shareholders other than the information considered confidential, in accordance with the guidelines set forth in the aforementioned Article 9A. Cases of doubt on the confidential nature of the information shall be resolved by the directors specifically appointed for such purpose, who shall be consulted by the Shareholder Service Office by telephone, electronic mail, in writing, or by any other means allowing obtaining a rapid response. 298 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) c. Indicate whether the policy described in the foregoing question are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X X ETHICS CHARTER AND REGULATIONS OF THE BOARD OF DIRECTORS Principle 18. Principle (V.E.).- The Board of Directors may create special bodies according to the needs and size of the company, in particular as concerns the auditing function. Additionally, these special bodies may undertake duties pertaining to appointments, compensation, control and planning. Such special bodies will be organized within the Board as support mechanisms, and will preferably include independent directors who, as such, may make impartial decisions on matters were conflicts of interest may arise. a. If the answer to the foregoing question was yes, indicate the following in connection with the Board of Directors committees in the COMPANY. Compliance 0 1 2 3 4 X 299 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)AUDIT AND PROCESS COMMITTEE I. DATE OF CREATION: October 28, 2004 II. DUTIES: Ensure good corporate governance, appropriate internal procedures and the transparency of all acts of the company in the economic-financial, external auditing and compliance and internal auditing areas. Specifically: • Report at the Shareholders Meeting on matters within the competence of shareholders to be submitted at such meeting; • Propose at the Regular Shareholders Meeting the appointment of external auditors for submission thereof to the Regular Shareholders Meeting. • Oversee the internal auditing services. • Have knowledge of the financial reporting process and the information and internal control systems of the company. • Review the accounts of the company, monitor compliance with legal requirements and the proper application of generally accepted accounting principles, and report on the proposals for amendment of accounting principles and criteria proposed by the management. • Oversee compliance with the auditing contract, ensuring that the opinion of the annual accounts and the main contents of the audit report are clearly and accurately written. • Relate with the external auditors to receive information on such matters that may jeopardize the independence thereof and any others associated with the account audit process. • Monitor compliance with the Regulations of the Board of Directors and, in general, of the corporate governance rules, and make such proposals as may be required for improvement and to prepare the information that the Board of Directors is to approve and include within its annual public documents. • Oversee functioning of the Web page of the Group. • Ensure proper compliance with the internal operating processes of the Group associated with the cycles of origination, structuring, proposal preparation, acceptance of awarded contracts and performance of contracts and propose any corrective measures deemed appropriate. • Be directly responsible for the appointment, compensation, retention and oversight of the external auditors retained by the Company. • Settle any disputes as may arise between the management and the external auditors. • Have the sufficient authority and financial resources to hire its own external advisors, whether legal, accounting or other advisors, as may be necessary for the proper performance of its duties. 300 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)• Set its own budget to ensure Independence in performance of its duties. • Set the prior approval policies and procedures for audit and other permitted services. • Set the procedures for: (i) receipt, retention, and the procedure for complaints received by the Company in connection with accounting, accounting internal control or auditing matters; and,(iii allow the anonymous and confidential submission of concerns by Company employees in connection with debatable accounting or auditing issues. III. MAIN RULES OF ORGANIZATION AND FUNCTIONING: The Audit and Process Committee shall consist of no less than three and no more than five members, appointed by the affirmative vote of the majority of the Board of Directors. The Committee shall elect the Committee Chairman from among its members. The Committee shall meet at least twice a year. Meetings shall be at the head office or at such other office as the Chairman indicates in the notice of the meeting. The required quorum to be duly convened is a majority of its members and the decision-making quorum is the majority of the attendees. The Chairman shall have a casting vote in the event of a tie. IV. MEMBERS OF THE COMMITTEE: FULL NAME Roberto Abusada Salah José Chlimper Ackerman José Antonio Colomer DATE POSITION WITHIN THE COMMITTEE FROM 22.04.05 31.03.08 31.03.11 TO N/A N/A N/A Chairman Member Member V. NUMBER OF MEETINGS HELD DURING THE FISCAL YEAR: 5 meetings VI. HAS BEEN GRANTED POWERS IN ACCORDANCE WITH ART. 174 OF THE GENERAL CORPORATIONS LAW (X) YES (…) NO 301 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)HUMAN RESOURCES MANAGEMENT AND SOCIAL RESPONSIBILITY COMMITTEE I. DATE OF CREATION: October 28, 2004, amended January 31, 2013 II. DUTIES: • Report to the Board of Directors the appointments and terminations of the Senior Management of the company, and of the general managers of the subsidiaries. • Resolve on the adoption of compensation plans for the Senior Management, especially for the Corporate General Manager, taking into account the performance of the company. • Propose measures for transparency of the compensation of directors and the Senior Management, and ensure performance thereof. • Know and assess the human resources policy. • • Ensure compliance with the Social Responsibility Policy, and issue Social Responsibility policies, guidelines and/or instructions. • Oversee the social responsibility management and report in connection therewith to the Board of Directors. • Review and approve corporate goals and objectives associated with the compensation of the General Manager; evaluate the performance of the General Manager in accordance with such Inform the Board of Directors of transactions with related parties of directors, senior executives or persons related therewith, which involve or may involve conflicts of interest. goals and objectives, and set and approve the compensation of the General Manager. • Retain and keep an independent external advisory in compensation matters. • Responsible for the appointment, compensation and oversight of independent external advisors in compensation matters. • Retain independent external advisors for compensation or other matters as necessary for performance of its duties. III. MAIN RULES OF ORGANIZATION AND FUNCTIONING: The Committee shall consist of no less than three and no more than five members, appointed by the affirmative vote of the majority of the Board of Directors. It shall consist solely of independent directors. Shall elect the Committee Chairman from among its members. The Committee shall meet whenever the Board of Directors or the Chairman of the Board request issuing a report. Shall meet at least bi-annually at the head office or at such other office indicated in the notice of the meeting. The required quorum to be duly convened is a majority of its members and the decision-making quorum is the majority of the attendees. The Chairman shall have a casting vote in the event of a tie. 302 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)IV. MEMBERS OF THE COMMITTEE: FULL NAME José Chlimper Ackerman Roberto Abusada Salah Hugo Santa María Guzmán DATE POSITION WITHIN THE COMMITTEE FROM 23.03.06 31.03.08 31.01.13 TO N/A N/A N/A Chairman Member Member V. NUMBER OF MEETINGS HELD DURING THE FISCAL YEAR: 3 meetings VI. HAS BEEN GRANTED POWERS IN ACCORDANCE WITH ART. 174 OF THE GENERAL CORPORATIONS LAW (X) YES (…) NO 303 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)INVESTMENT AND RISK COMMITTEE I. DATE OF CREATION: October 28, 2004 II. DUTIES: • Set the investment policy • Approve the Annual Investment Plan • Analyze projects requiring an investment of over US$5,000,000.00 assessing the available funding sources and the impact on the balance structure of the company and its subsidiaries. • Assess and control the main risks of the projects in which the companies of the Financial Group participate. III. MAIN RULES OF ORGANIZATION AND FUNCTIONING: The Investment and Risk Committee shall consist of no less than three and no more than five members, appointed by the affirmative vote of the majority of the Board of Directors. The majority of members thereof shall be external or independent directors. The Committee shall elect its own Chairman. The Committee shall meet at least twice a year at the head office or at such other office indicated in the notice of the meeting. The required quorum to be duly convened is a majority of its members and the decision-making quorum is the majority of the attendees. The Chairman shall have a casting vote in the event of a tie. IV. MEMBERS OF THE COMMITTEE: FULL NAME José Graña Miro Quesada José Antonio Colomer Guiu Luis Miró Quesada DATE POSITION WITHIN THE COMMITTEE FROM 22.04.05 28.04.09 31.01.13 TO N/A N/A N/A Chairman Member Member V. NUMBER OF MEETINGS HELD DURING THE FISCAL YEAR: 3 meetings VI. HAS BEEN GRANTED POWERS IN ACCORDANCE WITH ART. 174 OF THE GENERAL CORPORATIONS LAW (X) YES (…) NO 304 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)ENGINEERING AND CONSTRUCTION COMMITTEE I. DATE OF CREATION: January 26, 2011 II. DUTIES: Operating Committee in charge of overseeing the Engineering and Construction Area operations, made up by the companies Stracon GyM, Vial y Vives and DSD. III. MAIN RULES OF ORGANIZATION AND FUNCTIONING: The Engineering and Construction Committee shall consist of no less than three and no more than five members, of which at least one will be an independent director. Members shall be appointed by the affirmative vote of the majority of the Board of Directors. The Committee shall elect its own Chairman and is required to have a secretary, who need not be a director. The Committee shall meet when required by the Board of Directors or its Chairman. The Committee shall meet on a quarterly basis at the head office or at such other place indicated in the notice of the meeting. The required quorum to be duly convened is a majority of its members and the decision-making quorum is the majority of the attendees. The Chairman shall have a casting vote in the event of a tie. IV. MEMBERS OF THE COMMITTEE: FULL NAME José Graña Miro Quesada Mario Alvarado Pflucker Jose Chlimper Ackerman Hernando Graña Acuña Carlos Montero Graña DATE POSITION WITHIN THE COMMITTEE FROM 30.03.11 30.03.11 30.03.11 30.03.11 31.01.13 TO N/A N/A N/A N/A N/A Chairman Member Member Member N/A V. NUMBER OF MEETINGS HELD DURING THE FISCAL YEAR: 12 meetings VI. HAS BEEN GRANTED POWERS IN ACCORDANCE WITH ART. 174 OF THE GENERAL CORPORATIONS LAW (X) YES (…) NO 305 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)TECHNICAL SERVICES COMMITTEE I. DATE OF CREATION: January 26, 2011 II. DUTIES: Operating Committee in charge of overseeing the Services Area operations, made up by the companies GMD, Concar and CAM. III. MAIN RULES OF ORGANIZATION AND FUNCTIONING: The Services Committee shall consist of no less than three and no more than five members, of which at least one will be an independent director. Members shall be appointed by the affirmative vote of the majority of the Board of Directors. The Committee shall elect its own Chairman and is required to have a secretary, who need not be a director. The Committee shall meet when required by the Board of Directors or its Chairman. The Committee shall meet at least quarterly at the head office or at such other place indicated in the notice of the meeting. The required quorum to be duly convened is a majority of its members and the decision-making quorum is the majority of the attendees. The Chairman shall have a casting vote in the event of a tie. IV. MEMBERS OF THE COMMITTEE: FULL NAME José Graña Miro Quesada Mario Alvarado Pflucker Roberto Abusada Salah Carlos Montero Graña DATE POSITION WITHIN THE COMMITTEE FROM 30.03.11 30.03.11 30.03.11 30.03.11 TO N/A N/A N/A N/A Chairman Member Member Member V. NUMBER OF MEETINGS HELD DURING THE FISCAL YEAR: 10 meetings VI. HAS BEEN DELEGATED POWERS IN ACCORDANCE WITH ART. 174 OF THE GENERAL CORPORATIONS LAW (X) YES (…) NO 306 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)INFRASTRUCTURE COMMITTEE I. DATE OF CREATION: January 26, 2011 II. DUTIES: Operating Committee in charge of overseeing the Infrastructure Area operations, made up by the companies GMP, Norvial, Survial, Concesion Canchaque, La Chira, Concesionaria Via Expresa Sur and GyM Ferrovías. III. MAIN RULES OF ORGANIZATION AND FUNCTIONING: The Infrastructure Committee shall consist of no less than three and no more than five members, of which at least one will be an independent director. Members shall be appointed by the affirmative vote of the majority of the Board of Directors. The Committee shall elect its own Chairman and is required to have a secretary, who need not be a director. The Committee shall meet when required by the Board of Directors or its Chairman. The Committee shall meet at least quarterly at the head office or at such other place indicated in the notice of the meeting. The required quorum to be duly convened is a majority of its members and the decision-making quorum is the majority of the attendees. The Chairman shall have a casting vote in the event of a tie. IV. MEMBERS OF THE COMMITTEE: FULL NAME José Graña Miro Quesada Mario Alvarado Pflucker Hugo Santa María Guzmán Luis Miró Quesada Valega Hernando Graña Acuña DATE POSITION WITHIN THE COMMITTEE FROM 30.03.11 30.03.11 30.03.11 30.03.11 30.03.11 TO N/A N/A N/A N/A N/A Chairman Member Member Member Member V. NUMBER OF MEETINGS HELD DURING THE FISCAL YEAR: 11 meetings VI. HAS BEEN DELEGATED POWERS IN ACCORDANCE WITH ART. 174 OF THE GENERAL CORPORATIONS LAW (X) YES (…) NO 307 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)REAL ESTATE COMMITTEE I. DATE OF CREATION: January 26, 2011 II. DUTIES: Operating Committee in charge of overseeing the Real Estate Area operations. III. MAIN RULES OF ORGANIZATION AND FUNCTIONING: The Real Estate Committee shall consist of no less than three and no more than five members, of which at least one will be an independent director. Members shall be appointed by the affirmative vote of the majority of the Board of Directors. The Committee shall elect its own Chairman and is required to have a secretary, who need not be a director. The Committee shall meet when required by the Board of Directors or its Chairman. The Committee shall meet at least quarterly at the head office or at such other place indicated in the notice of the meeting. The required quorum to be duly convened is a majority of its members and the decision-making quorum is the majority of the attendees. The Chairman shall have a casting vote in the event of a tie. IV. MEMBERS OF THE COMMITTEE: FULL NAME José Graña Miro Quesada Mario Alvarado Pflucker José Antonio Colomer Guiu DATE POSITION WITHIN THE COMMITTEE FROM 30.03.11 30.03.11 30.03.11 TO N/A N/A N/A Chairman Member Member V. NUMBER OF MEETINGS HELD DURING THE FISCAL YEAR: 10 meetings VI. HAS BEEN GRANTED POWERS IN ACCORDANCE WITH ART. 174 OF THE GENERAL CORPORATIONS LAW (X) YES (…) NO 308 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)Principle 19. Principle (V.E.3).- The number of members of the Board of Directors shall ensure a diversity of opinions, so that decisions made by the Board are the result of appropriate discussion and due consideration in the best interest of both the company and its shareholders. Compliance 0 1 2 3 4 X a. Indicate the following information on the directors of the COMPANY during the fiscal year reported herein. FULL NAME TRAINING DATE SHARE INTEREST FROM TO N° OF SHARES INTEREST (%) Dependent Directors Internal Hernando Graña Acuña Industrial Engineer Mario Alvarado Pflucker Civil Engineer External José Graña Miró Quesada Architect Carlos Montero Graña Civil Engineer Luis Miró Quesada Valega Businessman 12.08.96 14.04.03 12.08.96 12.08.96 30.03.11 30.03.14 30.03.14 30.03.14 30.03.14 30.03.14 15,150,261 0.00 0.00 0.00 0.00 2.2953% 0.00 0.00 0.00 0.00 309 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)Independent Directors Roberto Abusada Salah PhD in Economics José Chlimper Ackerman Economist José Antonio Colomer Guiu Business Administrator Hugo Santa María Guzmán Economist Principle 27.03.98 27.03.06 30.03.09 30.03.11 30.03.14 30.03.14 30.03.14 30.03.14 170,787 0.00 0.00 0.00 0.02587% 0.00 0.00 0.00 20. Principle (V.F. second paragraph).- Information referred to business to be transacted at each meeting shall be made available to the directors sufficiently in advance so as to allow for review thereof, unless such information concerns strategic issues requiring confidential reserve, in which case putting in place the mechanisms to enable the directors to properly evaluate such issues shall be required. a. How is the information on the business to be transacted at a Board of Directors meeting submitted to the directors? (…) Electronic Mail (X) Postal Mail: Sent to the directors offices (...) Others: (…) Collected directly in the COMPANY Compliance 0 1 2 3 4 X 310 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) b. How many days in advance is the information on the business to be transacted at a Board of Directors meeting made available to the directors the COMPANY? CONFIDENTIAL INFORMATION NON-CONFIDENTIAL INFORMATION X X LESS THAN 3 DAYS 3 - 5 DAYS MORE THAN 5 DAYS c. Indicate whether the procedure set forth for the directors to analyze the information considered confidential is regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X Approved at the Board of Directors meeting of April 25, 2007 Note: The Regulations of the Board of Directors provide the right of directors to information and advisory in its Article 34, but not the timing for submission to the directors of the business to be transacted at each meeting of the Board of Directors. In the Minutes of the Meeting of the Board of Directors of April 25, 2007, as a result of the self-evaluation process, it was resolved that the information was to be provided prior to the meeting and in practice it has been defined to be provided 3-5 days in advance. 311 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)Principle 21. Principle (V.F. third paragraph).- The Board of Directors follows clearly established and defined policies to hire specialized advisory services required by the company for decision-making. a. Indicate the pre-established policies for hiring specialized advisory services by the Board of Directors or the directors. Compliance 0 1 2 3 4 X By one-third majority, the directors are entitled to propose the Board of Directors hiring legal, accounting, technical financial, business or any other advisors as they may deem necessary to be assisted in performance of their duties, when dealing with specific problems of a certain degree of difficulty and complexity associate with their position. The cost of hiring of such advisors is borne by the company. The proposal is to be communicated to the Chairman of the Board through the Secretary, and shall be implemented by the General Manager. The Board of Directors may deny approval thereof for being unnecessary or due to the disproportionate cost thereof vis-à-vis the relevance of the problem, or when it believes that technical assistance may be properly provided by the company itself. b. Indicate whether the policies described in the foregoing question are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS c. Indicate the list of specialized advisors of the Board of Directors who have rendered services for decisions making by the COMPANY during the fiscal year reported herein. The directors have not requested the support of specialized advisors during fiscal year 2013. 312 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 22. Principle (V.H.1).- New directors shall be informed of their powers and duties, as well as of the company’s characteristics and organizational structure. a. If THE COMPANY has induction programs for new directors, indicate whether such programs are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X REGULATIONS OF THE BOARD OF DIRECTORS Compliance 0 1 2 3 4 X Note: Article 20.3 of the Regulations of the Board of Directors provide that whenever a new director joins the Company or its subsidiaries, the Chairman of the Board and the General Manager shall hold an induction meeting with the new director, to explain the structure of the Graña y Montero Group, the activities and sectors in which the Company operates, and to provide historical and updated relevant information on the Company, incorporating the Board of Directors, policies of the Graña y Montero Group, and other material information. A copy of the Regulations of the Board of Directors, of the Regular Shareholders Meeting and of the Internal Rules of Conduct will be delivered to the new director at such meeting, which the company shall try to hold on the month following appointment. 313 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)Principle 23. Principle (V.H.3).- Procedures must be in place for the Board of Directors to elect one or more substitute members, should there be no alternate Board members and one or more positions as director are declared vacant, so the remaining term is completed, unless otherwise provided in the corporate by-laws. Compliance 0 1 2 3 4 X a. Did the vacancy of one or more directors occur during the fiscal year reported herein? (...) YES ( X ) NO b. If the answer to the foregoing question was yes, pursuant to Section 157 of the General Corporations Law, indicate the following: Did the Board of Directors elect the substitute member? YES N/A If so, average time that it took to appoint the new director (in calendar days). NOT APPLICABLE c. Indicate the pre-established procedures to elect the substitute of vacating directors. NO N/A The procedure set in the General Corporations Law in connection with co-opting and, if applicable, the election at a Shareholders Meeting, is followed. Additionally the Regulations sets as duties of the Board of Directors in connection with the organization and functioning, the appointment of directors, in the occurrence of vacancies, until the first Regular Shareholders Meeting is held and the resignation of such vacating directors accepted. 314 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) d. Indicate whether the procedures described in the foregoing question are contained in any document(s) of the COMPANY BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X Principle X REGULATIONS OF THE BOARD OF DIRECTORS 24. Principle (V.I first paragraph).- The duties of the Chairman of the Board, and of the Chief Executive Officer shall be clearly defined in the by- laws or internal regulations of the company, in order to prevent duplicating duties and possible conflicts. 25. Principle (V.I second paragraph).- The company’s organizational structure shall avoid concentrating duties, powers and duties on the Chairman of the Board, the Chief Executive Officer and other management officials. Compliance 0 1 2 3 4 X X a. If any of the answers to the foregoing question was yes, indicate whether the duties of the Chairman of the Board; the Chief Executive Officer, if applicable; of the General Manager, and of other officers with management positions are contained in any document(s) of the COMPANY. RESPONSIBILITIES OF: BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT NOT REGULATED NOT APPLICABLE Chairman of the Board CEO General Manager Management Staff X X X X X Regulations of the Board of Directors Regulations of the Board of Directors Regulations of the Board of Directors X Human Resources profile positions 315 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) Principle 26. Principle (V.I.5.).- It is recommendable that the management receives at least a part of its compensation based on the performance of the company, so as to ensure that the management meets the goal of maximizing the value if the company for its shareholders. a. In connection with the management bonus policy of, indicate the form(s) in which such bonus is given. Compliance 0 1 2 3 4 X (...) Delivery of shares (…) Delivery of options (X) Delivery of cash (…) Others. Specify… (…) Not applicable. The COMPANY has no management bonus programs. b. Indicate whether the compensation (net of bonuses) earned by the CEO and the Officers Staff is: FIXED COMPENSATION VARIABLE COMPENSATION COMPENSATION (%) CEO OFFICERS STAFF x x x x c. Indicate whether the COMPANY has any guarantees or similar measures in place in the event of dismissal of the CEO and/or any manager. (…) YES ( x ) NO 0.0227% 0.159% 316 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) II SECTION TWO: ADDITIONAL INFORMATION RIGHTS OF THE SHAREHOLDERS a. Indicate the means used to communicate the new shareholders their rights and how these can be exercised. (X) Electronic Mail (X) Directly in the COMPANY (X) By Telephone (X) Internet Page (…) Postal Mail (…) Others. Specify… (…) Not applicable. New shareholders are not communicated of their rights or how these can be exercised. Note: The Web page of the Company contains the main information on the company and the complete text of the By-laws, the Regulations of the Board of Directors and the Shareholders Meeting Regulations, where the rights of the shareholders in the Company are set forth; however, there is no open means of communication to the new shareholders because, as the company is an open stock corporation, it is not possible to communicate with each new shareholder who acquires stock at the stock exchange. Of course, shareholders who so required are advised and instructed of their rights through the Shareholder Service Office, via electronic mail, by telephone, or at the offices of the Company. b. Indicate whether the business to be transacted and the supporting documents are available , in physical form, to shareholders during the meeting (X) YES (…) NO 317 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) c. Indicate the person or corporate body of the COMPANY in charge of following up on the resolutions passed at the Shareholders Meetings. If a person is in charge, include also the position and area where such person works. AREA IN CHARGE PERSON IN CHARGE FULL NAME Claudia Drago Morante LEGAL MANAGEMENT POSITION Chief Legal Officer AREA Legal d. Indicate whether the information on the share interest of the shareholders of the COMPANY is at: (…) The COMPANY ( x ) A clearing and settlement house e. Indicate the periodicity with which the COMPANY updates data on the shareholders contained its share ledger ADDRESS ELECTRONIC MAIL TELEPHONE INFORMATION SUBJECT TO UPDATING PERIODICITY LESS THAN MONTHLY MONTHLY QUARTERLY ANNUAL MORE THAN ANNUAL 318 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) (X) Others. Specify. Due to the number of shareholders of the Company, the only datum that we access through CAVALI is the address of each shareholder. We are trying to acquire at such shareholders meeting the information on attending shareholders. f. Indicate the dividend policy of the COMPANY applicable to the fiscal year reported herein. DATE OF APPROVAL APPROVING BODY March 26, 2013 General Shareholders Meeting DIVIDEND POLICY (CRITERION FOR PROFIT-SHARING) Profit-sharing will be made on an annual basis, at a rate of 30%-40% of the profit earned in each fiscal year. g. Indicate, if applicable, the dividends in cash and in shares distributed by the COMPANY, if applicable, in the fiscal year reported herein and in the previous fiscal year. DATE OF DELIVERY COMMON SHARES FISCAL YEAR 2012 FISCAL YEAR 2011 DIVIDEND PER SHARE IN CASH 0.1558099716 0.155337434 IN SHARES --------- --------- 319 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) BOARD OF DIRECTORS h. In connection with the meetings of the Board of Directors of the COMPANY held during the fiscal year reported herein, indicate the following: NUMBER OF MEETINGS HELD NUMBER OF MEETINGS AT WHICH ONE OR MORE DIRECTORS WHERE REPRESENTED BY SUBSTITUTE OR ALTERNATE DIRECTORS NUMBER OF REGULAR DIRECTORS WHO WERE REPRESENTED AT LEAST ONCE 9 0 0 i. Indicate the bonus types that the Board of Directors receives for the accomplishment of the goals of the COMPANY. The Board of Directors is compensated for participating in the Board of Directors and in the Board of Directors Committee, and annually, based on the performance of the COMPANY, the Board receives an additional compensation approved at the Regular Shareholders Meeting, by applying the formula approved at the Regular Shareholders Meeting of March 31, 2008. j. Indicate whether the bonus types referred to in the foregoing question are regulated in any document(s) of the COMPANY. BY-LAWS INTERNAL REGULATIONS MANUAL OTHERS NAME OF DOCUMENT X GENERAL INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS 320 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) k. Indicate the percentage of the gross profits that the aggregate amount of the annual compensations of the directors represents, according to the financial statements of the COMPANY. INDEPENDENT DIRECTORS DEPENDENT DIRECTORS TOTAL COMPENSATIONS (%) 0.0188% 0.0181% l. Indicate whether performance of the Management was discussed by the Board of Directors without the presence of the CEO. (X) YES (…) NO SHAREHOLDERS AND SHARE INTEREST m. Indicate the number of shareholders with voting rights, of shareholders without voting rights (if applicable) and of holders of investment shares (if applicable) of the COMPANY as of the closing of the fiscal year reported herein. SHARE CLASS (including investment shares) SHARES OF VOTING STOCK SHARES OF NON-VOTING STOCK INVESTMENT SHARES TOTAL NUMBER OF HOLDERS (on closing of the fiscal year) 1338 N/A N/A 1338 321 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) n. Indicate the following information on holders of common shares and holders of investment shares with over 5% interest as of the closing of the fiscal year reported herein. Share Class: COMMON FULL NAME JP Morgan Chase Bank NA as the ADS’ depositary GH Holding Group, Panama IN-Fondo 1, IN-Fondo 2 and IN-Fondo 3 (AFP Integra Group) PR-Fondo 1, PR-Fondo 2 and PR-Fondo 3 (Profuturo AFP Group) Bethel Enterprises, Panama *NOTE: For pension funds, the aggregate of the three funds has been included. OTHERS NUMBER OF SHARES AND SHARE INTEREST NATIONALITY 266,525,640 shares (40.38%) 117,538,203 shares (17.81%) 41,154,651 shares (6.24%) 35,107,053 shares (5.319%) 33,785,285 shares (5.12%) o. Indicate whether the company has an internal code of conduct or similar rules referred to ethical and professional responsibility criteria. (X) YES (…) NO If the answer was yes, indicate the exact name of the document: Internal Rules of Conduct and Ethics Charter p. Does the COMPANY keep a record of failures to comply with the regulations referred to in the foregoing question? (X) YES (…) NO EEUU Panama Peru Peru Panama 322 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013) q. If the answer to the foregoing question was yes, indicate who is the person or body of the company in charge of keeping such record. AREA IN CHARGE PERSON IN CHARGE FULL NAME Ethics Comitee (Represented by Claudia Drago Morante) INTERNAL AUDIT POSITION AREA Internal Audit r. For all documents referred to in this report (By-laws, Internal Regulations, Manual or others), provide the following information: NAME OF DOCUMENT By-laws APPROVAL BODY Regular Shareholders Meeting Regulations of the Shareholders Meeting Regular Shareholders Meeting Regulations of the Board of Directors Internal Rules of Conduct Ethics Charter Board of Directors Board of Directors Board of Directors Manual of Executive Compensation and Benefit Policies General Management Code of Conduct Ethic Channel Executive Commission Audit Committee/Board of Directors APPROVAL DATE LAST AMENDMENT DATE 27.03.98 31.03.05 31.03.05 24.03.03 March 1995 June 2006 July 2012 31.01.2013 30.03.12 26.03.13 26.01.11 323 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu INFORMATION ON COMPLIANCE WITH THE PRINCIPLES OF GOOD GOVERNANCE FOR PERUVIAN COMPANIES(For Fiscal Year 2013)80 years INNOVATION During 2013, we continue generating technological solutions through the technological innovation center, where businesses of more tan US$ 60 MM were closed through technologies wich were mainly developed with chinese allies, with whom we have worked for more than ten years. 324 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUCTION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013 I II III Scope Agreed-upon procedures Report on findings Exhibit A - Exhibit B - Exhibit C - Exhibit D - Exhibit E - GyM S.A.: Schedule of construction works performed, completed and delivered during the year ended December 31, 2013. GMD S.A.: Schedule of services performed, completed and delivered during the year ended December 31, 2013. GMI S.A. Ingenieros Consultores: Schedule of projects performed, completed and delivered during the year ended December 31, 2013. Viva GyM S.A.: Schedule of projects performed, completed and delivered during the year ended December 31, 2013. Summary of construction works, projects and services performed, completed and delivered during the year ended December 31, 2013. 325 < menu 80 YEARSGROWING WITH VISIONANNuAl REpORT2013Reports 326 80 YEARSGROWING WITH VISIONANNuAl REpORT2013< menu Reports327 80 YEARSGROWING WITH VISIONANNuAl REpORT2013< menu ReportsExhibit A GyM S.A. SCHEDULE OF WORK PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2013 NO. CUSTOMER 1 2 3 4 5 6 7 8 Banco de Crédito del Perú Compañía Minera Antamina Anglo American Quell GyM Ferrovias S.A. Euromotors S.A. Tormene Andina S.A.C. Cementos Lima S.A. Empresa de Generacion Huanza SA CH Huanza PROJECT DESCRIPTION Centro Bienestar - BCP (well-fare center) Reemplazo Tapa y 3er cuerpo Molino bolas No1 (part replacement ball mill) Almacenamiento Agua- Quellaveco (water storage) Patio Taller Metro Lima (worshop yard) Local Euromotors (premises) Construcción Estación de Gas Termochilca (gas station construction) 2da. Etapa de Ampliación de la Planta de Atocongo (plant extension) To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 25, 2014. 328 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013 Exhibit b GMD S.A. CEDULA DE SERVICIOS EJECUTADOS, CULMINADOS Y ENTREGADOS DURANTE EL AÑO TERMINADO EL 31 DE DICIEMBRE DE 2013 NO. CLIENT Oficina de Normalización PROJECT DESCRIPTION ISO-ONP-PRE POST EMISION Banco Central de Reserva del Perú TST - BCRP - SERVICIO TESTING Superintendencia Nacional de los Registros públicos STE-ZRIX-SERVIDORES LN310010 Oficina Nacional de Procesos Electorales - ONPE STE-ONPE-REVOCATORIA LIMA 2013 Banco Central de Reserva del Perú STE-BCRP-VIRTUALIZACION LN310040 Banco Central de Reserva del Perú STE-BCRP-SWITCH CORE LN310030 Everis Perú S.A.C Pronabec Osinergmin Pronabec SWF - EVERIS - TDP STE-PRONABEC-SIBEC LN310010 STE-OSINERGMIN-SWITCHES LN 310030 STE-PRONABEC-COMUNICACIONES LN310030 BPZ Exploración & Producción S.R.L ISO-BPZ-HOUSING ADM.Y SOP. ORACLE 1 2 3 4 5 6 7 8 9 10 11 To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 25, 2014. 329 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013 Exhibit c GMi inGEniEroS y conSultorES S.A. CEDULA DE SERVICIOS EJECUTADOS, CULMINADOS Y ENTREGADOS DURANTE EL AÑO TERMINADO EL 31 DE DICIEMBRE DE 2013 NO. 1 2 3 4 5 6 7 8 9 10 11 CLIENT Protisa Asociación Cerro Verde Asociación Cerro Verde Pacific Rubiales Energy Concar S.A. Bechtel Covisol GyM S.A. Impala Consorcio Vial Quinua Petrobras PROJECT DESCRIPTION Technical advice, timely identification of all the required environmental licenses and elaboration of a timetable to obtain them. Quality Assurance Service related to safety of highway interchanges DAC and DAV Quality Assurance Service related to safety of highway interchangesAv. Los Incas / Av. Los Incas / Av. DAC Basic and detailed engineering of the existing Gas Package System Georeferencing of segments of road network in charge of Concar Engineering study of Las Bambas Route 5 access road Relocation study of the optical fiber line segment: Trujillo Chiclayo, Sub-segment: Trujillo San Pedro de Lloc Review and optimization of field and cabinet topographic procedures, creation and implementation of an integrated information management system created in coordination with La Quinua 8A Project control areas Callao warehouses amendments Evaluation of unstable sectors in La Quinua San Francisco Road Supervision of the Overhead Tank Construction Contract of 2500 m3 in Villa Los Angeles, Talara Alta, Talara 330 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013 NO. CLIENT PROJECT DESCRIPTION 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Minera Chinalco Perú S.A. Compañía Minera Antamina S.A. Compañía Minera Antamina S.A. ABB Engineering professional services of resettlement of the Morococha city Topography, geodesy and bathymetry services for the relief, volume and onsite layout of various projects Engineering work of change in cover of Ball mill Update of manoeuvre operations ehouse replacement Minera Yanacocha S.R.L. Detailed engineering for the relocation of pumps and tanks of Logos in AWTP Plant Este-Pampa Larga Teva Teva GyM S.A. GyM S.A. Compañía Minera Antamina S.A. Compañía Minera Antamina S.A. Compañía Minera Antamina S.A. Compañía Minera Antamina S.A. Consorcio Metro de Lima Stevia One XSTRATA GLENCORE Professional services referring to the Analysis and Strengthening of the Production Building to be carried out in the Plant located in the district of Ate Vitarte - Lima (GMI No.111219 Project) Professional services referring to the Analysis and Strengthening of the Office Building to be carried out in the Plant located in the district of Ate Vitarte - Lima (GMI No.111255 Project) Estimated elaboration of equipment and materials of auxiliary services of the Hydroelectric Plant Elaboration of the EPC Proposal for the Bayovar Port Terminal Basic engineering to relocate the Water Treatment Plant at A22 location Adaptation Study of the Handling System of industrial water Conceptual study of Water Treatment Plant new location Supervision of projects engineering management and projects Engineering Project Technical Assistance and Supervision of the work design, optimization, constructive improvement, supervision, validation, necessary approval and incorporation and accompaniment engineering service Conceptual engineering Los Naranjos San Martin Plan Preparing technical dossiers related to water use and dumping of effluented treated by the Waste water treatment system of Nueva Fuerabamba CORPORACION ACEROS AREQUIPA S.A. Detailed engineering construction of the control room in the Plant No.2 Pisco de Aceros Arequipa 331 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013NO. CLIENT PROJECT DESCRIPTION 29 30 31 32 CORPORACION ACEROS AREQUIPA S.A. Detailed engineering foundation of dust collectors and supports to make in Plant No.2 Pisco of Aceros Arequipa CERVECERIAS PERUANA BACKUS Y JOHNSTON S.A.A. CERVECERIAS PERUANA BACKUS Y JOHNSTON S.A.A. Detailed engineering for Civil Works Pariachi Planta in Ate Vitarte Detailed engineering enlargement of the Centro de Distribución Cono Sur infrastructure GyM S.A. Pre Engineering for the Salmueras Project To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 25, 2014. 332 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013 Exhibit D ViVA GyM S.A. CEDULA DE SERVICIOS EJECUTADOS, CULMINADOS Y ENTREGADOS DURANTE EL AÑO TERMINADO EL 31 DE DICIEMBRE DE 2013 NO. PROJECT CLIENT PROJECT DESCRIPTION 1 2 3 4 5 6 7 Cipreses Project Jenny Cristina Ponce Gilardi Cipreses Project Elizabeth Norma Avila Avila Cipreses Project Dante Cordero Torres Cipreses Project Claudia Mercedes Ore Morales Cipreses Project Jose Francisco Tirado Delgado Cipreses Project Fernando Gustavo Braschi Rocangiolo Housing construction project of 3 buildings for a total of 133 apartments, 194 parking spaces and 88 deposit spaces. Housing construction project of 3 buildings for a total of 133 apartments, 194 parking spaces and 88 deposit spaces. Housing construction project of 3 buildings for a total of 133 apartments, 194 parking spaces and 88 deposit spaces. Housing construction project of 3 buildings for a total of 133 apartments, 194 parking spaces and 88 deposit spaces. Housing construction project of 3 buildings for a total of 133 apartments, 194 parking spaces and 88 deposit spaces. Housing construction project of 3 buildings for a total of 133 apartments, 194 parking spaces and 88 deposit spaces. Los parques del agustino II Project Edinson Ninamango Talavera Housing construction project of 11 buildings for a total of 640 apartments. 333 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013 NO. PROJECT CLIENT PROJECT DESCRIPTION 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Los parques del agustino II Project America Luz Demarini Guerrero Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Aldo Ivan Dominguez Galvan Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Alfredo Picoy Carhuamaca Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Ana de los Angeles Solano Ramos Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Yuliana Cruz Tapia Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Andrea Teofila Huarsaya Quispe Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Alder Alberto Arroyo Andamayo Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Rolando Apumayta Villegas Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Nilton Cesar Cardenas Torres Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Arturo Jesus Zamudio Castillo Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Veronica Lucy Huarsaya Quispe Housing construction project of 11 buildings for a total of 640 apartments. Los parques del agustino II Project Jose Junior Suarez Guerra Housing construction project of 11 buildings for a total of 640 apartments. Los parques de Carabayllo I Project William Segundo Chaquila Chaquila Housing construction project of 288 apartments and 181 parking spaces. Los parques de Carabayllo I Project Jairo Bernabe Antonio Luciani Housing construction project of 288 apartments and 181 parking spaces. Los parques de Carabayllo I Project Maria Reyna Soto Cruzado Housing construction project of 288 apartments and 181 parking spaces. Los parques de Carabayllo I Project Aurora Fanni Casahuaman bringas Housing construction project of 288 apartments and 181 parking spaces. Los parques de Carabayllo I Project Renan Vallejo Loayza Housing construction project of 288 apartments and 181 parking spaces. Los parques de Carabayllo II Project Carlos Lorena Calixto Housing construction project of 352 apartments and 181 parking spaces. Los parques de Carabayllo II Project Carlos Augusto Tuesta Vega Housing construction project of 352 apartments and 181 parking spaces. 334 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013NO. PROJECT CLIENT PROJECT DESCRIPTION 27 28 29 30 31 32 33 34 35 36 37 Los parques de Carabayllo II Project Jorge Alejandro Motta Laguna Housing construction project of 352 apartments and 181 parking spaces. Los parques de Carabayllo II Project Angela Maria Espinoza Lopez Housing construction project of 352 apartments and 181 parking spaces. Los parques de Carabayllo II Project Artimer Alfredo Anaya Rosales Housing construction project of 352 apartments and 181 parking spaces. Proyecto Neo 10 Gabriel Andres Chang Chang Housing construction project of 3 buildings for a total of 116 apartments, 140 parking spaces and 116 deposit spaces. Parque Central Club Residencial Project Parque Central Club Residencial Project Parque Central Club Residencial Project Parque Central Club Residencial Project Parque Central Club Residencial Project Parque Central Club Residencial Project Parque Central Club Residencial Project Erickson Flores Gutierrez Fidelia Tellez Paco Jhajaira Lizbeth Huaman Alvarado Carlos Radovich Collado Ingrid Janet Ibañez Perez Edison Hurtado Leon Asuncion Lorenzo Mejia Carrion Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. 335 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013NO. PROJECT CLIENT PROJECT DESCRIPTION 38 39 40 41 42 43 44 45 46 47 Parque Central Club Residencial Project Parque Central Club Residencial Project Parque Central Club Residencial Project Aurora Valencia Quispe Cindy Evelyn Leguia Huaroto Cesar Ivan Diaz Ramirez Edificio Pezet Project Jorge Enrique Oyague Jackson Edificio Pezet Project Marco Aurelio Peschiera Alfaro Edificio Pezet Project Jaime Alfonso Peschiera Alfaro Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Housing construction project of 21 buildings for a total of 2112 apartments and 918 parking spaces. Building construction project of a 15 storey building for a total of 21 apartments, 72 parking spaces and 27 deposit spaces Building construction project of a 15 storey building for a total of 21 apartments, 72 parking spaces and 27 deposit spaces Building construction project of a 15 storey building for a total of 21 apartments, 72 parking spaces and 27 deposit spaces Los parques de San Martin de Porres Project Los parques de San Martin de Porres Project Los parques de San Martin de Porres Project Los parques de San Martin de Porres Project Carlos Felix Salvatierra Gustavson Construction project of 18 buildings for a total of 1016 apartments and 352 parking spaces. Alejandrina Malpica Valle Construction project of 18 buildings for a total of 1016 apartments and 352 parking spaces. Carmen Rosa Mendoza Tello Construction project of 18 buildings for a total of 1016 apartments and 352 parking spaces. Carlos Alberto Flores Canario Construction project of 18 buildings for a total of 1016 apartments and 352 parking spaces. 336 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013NO. PROJECT CLIENT PROJECT DESCRIPTION 48 49 50 Los parques de San Martin de Porres Project Los parques de Villa el salvador Project Los parques de Villa el salvador Project Blanca Flor Contreras Risco Construction project of 18 buildings for a total of 1016 apartments and 352 parking spaces. Anthony Johan Alfaro Acuña Construction project of 660 apartments and 222 parking spaces. Anthony Johan Alfaro Acuña Construction project of 660 apartments and 222 parking spaces. To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 25, 2014. 337 80 YEARSAnnuAl REPORT2013ReportsGROWInG WITH VISIOn< menu SPECIAL REPORT ON AGREED UPON PROCEDURES APPLIED TO THE SCHEDULES OF CONSTRUC-TION WORK, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2013Exhibit E GrAÑA y MontEro S.A.A. SUMMARY OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED, BY COMPANY FOR THE YEAR ENDED DECEMBER 31, 2013 CONCEPT GyM S.A. GMD S.A. GMI S.A. Viva GyM S.A. TOTAL On the contractual date or before After contractual date TOTAL 8 0 8 11 0 11 32 0 32 47 2 49 98 2 100 % 98% 2% 100% To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 25, 2014. 338 80 YEARSGROWING WITH VISIONANNuAl REpORT2013< menu Reports 1 GyM S.A. Av. Paseo de la República 4675 Oficina A-201, Surquillo, Lima 34, Perú T. 213-0444 F. 213-0400 Representante Legal: Renato Rojas Balta 2 Stracon GyM S.A. Av. República de Panamá 3531, Int. 1101, Lima 27, Perú. T. 421-7099 F. 208-0230 anexo 103 Representante Legal: Octavio Cabrera García 3 Ingenieria y Construcción Vial y Vives S.A. Alcantara 107, Las Condes, Santiago de Chile, Chile T. 52-2-23688000 Representante Legal: Eduardo Guzman 4 DSD Construcciones y Montajes S.A. Av. Santamaría 2810, Providencia, Chile T. 52-2-23688000 Representante Legal: Kai Jacobsen 5 GMI S.A. Ingenieros Consultores Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 213-5600 F. 444-0373 Representante Legal: Eduardo Villa Corta Lucchesi 6 Norvial S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 203-5160 Representante Legal: Jorge Bustamante Rodriguez 7 Survial S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 203-5180 Representante Legal: Luis Fukunaga Mendoza Inmobiliaria Almonte S.A.C. 13 Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 206-7206 F. 206-7205 Representante Legal: Aurelio Rospigliosi González-Vigil 8 Concesión Canchaque S.A.C Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 203-5175 Representante Legal: Luis Fukunaga Mendoza 14 Concar S.A. Calle Shell 459 – Miraflores, Lima 18, Perú T. 213-6535 F. 213-6538 Representante Legal: Jaime Targarona Arata Ferrovias GyM S.A. 9 Jr. Solidaridad cdra. 8 s/n, Parque Industrial, villa el Salvador, Lima 42, Perú T. 207-2900 Representante Legal: Manuel Wu Rocha 15 GMD S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 213-6300 F. 446-9667 Representante Legal: Hugo Gonzales Castañeda 16 Cam GYM Tarapacá 934, P.3, Santiago de Chile, Chile T. 56-2-23897437 F. 56-2-23897342 Representante Legal: Klaus Winkler Speringer 10 Concesionaria La Chira S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 203-6830 Representante Legal: Daniel Lezama Diago 11 GMP S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú T. 215-1500 F. 241-3030 Representante Legal: Reynaldo Llosa Mantinto 12 Viva GyM S.A. Av. Paseo de la República 4675, Surquillo, Lima 34, Perú T. 206-7206 F.206-7205 Representante Legal: Rolando Ponce Vergara 339 80 YEARSGROWING WITH VISIONANNuAl REpORT2013< menu Reports Graña y Montero S.A.A. Av. Paseo de la República 4667 Oficina C-401, Surquillo, Lima 34, Perú T. 213.6565 F. 213.6590 www.granaymontero.com.pe DESIGN AND CONCEPT icono coMunicADorES 

Continue reading text version or see original annual report in PDF format above