Grana y Montero S.A.A.
Annual Report 2014

Plain-text annual report

GRAÑA Y MONTERO WORK STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 GRAÑA Y MONTERO WORK STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 CON TENT TO THE SHARE- HOLDERS: PG._5 01_ WHAT DO WE DO? PG._13 ORGANIZATION PAG._8 MAIN FIGURES PG._9 HISTORICAL SUMMARY ENGINEERING & CONSTRUCTION INFRASTRUCTURE REAL ESTATE TECHNICAL SERVICES PG._14 PG._18 PG._24 PG._31 PG._37 02_ HOW DO WE DO IT? TRANSPARENCY CORPORATE GOVERNANCE PG._42 PG._43 03_ WHY DO WE DO IT? PG._82 REPORTS PG._83 4 >> STATEMENT OF RESPONSIBILITY “This document contains true and sufficient information on the operations of Graña y Montero S.A.A. during the year 2014. Notwithstanding the responsibility of the issuer, 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, 2015 << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 5 >> TO THE SHAREHOLDERS: We are pleased to submit to you the Annual Report 2014, the year when we celebrate 81 years of the founding of our company. Also this year, we celebrate 30 years of the forming of our subsidiaries GMI, GMD and GMP, which responded to a strategic decision to diversify towards other engineering activities and laid the groundwork for today’s Graña y Montero Group, made up of 26 companies providing engineering and infrastructure services. Within this development strategy, the highlight of the year has certainly been the purchase of the companies COGA and Morelco. COGA is a company in charge of operation and maintenance of the Camisea Trans-Andean Pipeline, in which we have acquired a 51% stake with Enagas from Spain and CPPIB from Canada as partners. Morelco is a Colombian construction company with 35 years of experience, mainly in the hydrocarbon sector, GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014TO THE SHAREHOLDERS: We firmly believe that these successes are mainly the result of having formed an outstanding team of more than 46,762 collaborators, including 6,819 professionals, which has consolidated around our four corporate values of Quality, Compliance, Seriousness and Efficiency. Values which are committed not only to the projects that we execute but also to the style and way in which we perform our work. 6 >> >> in which we have acquired a 70% stake and the founding members have kept 30%. referent in the construction and infrastructure area, especially in Peru, Chile and Colombia. In addition to these acquisitions, major contracts were awarded during the year, which strengthen our growth strategy in the region and in the long-term concessions business. This year, we were awarded the concession for the development and operation, for 30 years, of two oil blocks in northwestern Peru that currently produce 1,700 barrels of oil per day, and which are adjacent to the other two blocks that we currently have. We were also awarded the construction contract for the Ñuble Hydroelectric Plant in Chile, which brings new prospects to our subsidiary Vial y Vives DSD, acquired two years ago, and whose specialty was mainly in the mining sector. These major strides in our strategy are consistent with our decision to make a capital increase and list on the New York Stock Exchange in 2013 with the objective of becoming a regional In 2014 we billed over US$ 487 MM abroad and 47.6% of the Group’s EBITDA came from stable contracts or from concessions, progressing in the geographic diversification strategies and generation of stable flows established over 10 years ago. Thanks to these strategic accomplishments, by the end of 2014, our backlog portfolio for the next three years reached US$ 3,765 MM and the recurrent businesses reached an amount of US$ 580 MM. The revenues for the year increased by 9.9% compared to the previous year, reaching US$ 2,345 MM and generating a net profit of US$ 100MM. These figures of revenues and results don’t include COGA or Morelco yet, which were acquired at the end of December, but, that in 2013 billed US$ 105 MM and US$ 144 MM respectively. We firmly believe that these successes are mainly the result of having formed an outstanding team of more than 46,762 collaborators, including 6,819 professionals, which has consolidated around our four corporate values of Quality, Compliance, Seriousness and Efficiency. Values which are committed not only to the projects that we execute but also to the style and way in which we perform our work. We believe that one of the reasons why we have been successful throughout these eight decades is this work style. This is why this year we published a book titled precisely “Graña y Montero Work Style” and will serve as a guide for the new generations to develop successfully for many more years to come. To strengthen this style, this year we imparted 465,523 man hours of training on all levels of the organization and we have been awarded several external recognitions such us "Great Place to GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT20147 >> DOMINICAN REPUBLIC COLOMBIA GUYANA BRASIL Work", as well as the Lima Stock Exchange Key for Best Corporate Governance, the award given by the American magazine “Latin Finance” in the category of “Corporate with the best equity market strategy” and “Andean Corporate with the Best Capital Markets Strategy” and the “Best Managed Company in Latin America” distinction awarded by the English magazine “Euromoney”. These strategic accomplishments and recognitions lead us to think that we are coming closer to accomplishing our vision of being the most reliable Engineering and Infrastructure Group in Latin America. Lastly, we would like to express our very special thanks to our clients and collaborators, who have made this success possible. José Graña Miró Quesada Chairman Mario Alvarado Pflucker CEO MEXICO >> We are a Group of complementary companies which cross frontiers PANAMA PERU CHILE GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDCAPÍTULO<< menu ANNUALREPORT20148 >> ORGANIZATION >> What used to be a construction company, today has become a group of 26 complementary companies grouped into 4 areas and operating in 8 countries of Latin America. GMI GyM VIAL Y VIVES - DSD STRACON GyM MORELCO NORVIAL SURVIAL CANCHAQUE VESUR FERROVIAS GyM LA CHIRA GMP COGA VIVA GyM ALMONTE GMD CONCAR CAM GyM GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT20149 >> MAIN FIGURES 2010 2011 2012 2013 2014 2014 Crecimiento 2013-2014 Thousands S/. Thousands S/. Thousands S/. Thousands S/. Thousands S/. Thousands US$ Thousands S/. Revenues Gross Income Income before Taxes NET EBITDA Backlog 2,502,675 444,829 401,028 252,802 553,959 4,241,266 5,231,885 631,749 477,645 289,076 662,042 712,066 520,826 289,954 775,660 3,688,909 6,726,148 10,627,338 5,967,316 1,004,660 595,005 320,363 1,030,680 11,002,142 7,008,680 2,344,824 951,569 507,430 299,745 911,852 318,357 169,766 100,283 305,069 11,254,921 3,765,447 17.5% -5.3% - 14.7% - 6.4% - 11.5% 2.3% Professionals 2,816 4,810 5,575 6,077 6,819 6,819 12.2% << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014MAIN FIGURES REVENUES BY AREAS 2013 2014 Crecimiento 2013-2014 Thousands S/. Thousands US$ Thousands S/. Thousands US$ Engineering and Construction Infrastructure Real Estate Technical Services GMH and Eliminations TOTAL 4,075,070 1,457,464 5,035,674 1,684,735 680,988 313,731 1,169,115 -271,588 5,967,315 243,558 112,207 418,138 -97,135 884,766 224,560 1,208,168 -344,488 296,007 75,129 404,205 -115,252 2,134,233 7,008,680 2,344,824 S/. 23.6% 29.9% -28.4% 3.3% 26.8% 17.5% 10 >> US$ 15.6% 21.5% -33.0% -3.3% 18.7% 9.9% << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014MAIN FIGURES REVENUES (US$ IN MILLIONS) 2014 2013 2012 2011 2010 11 >> 5 4 3 , 2 >> 4 3 1 , 2 1 5 0 , 2 3 7 5 , 1 CAGR 27.4% 1 9 8 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014MAIN FIGURES BACKLOG (US$ IN MILLIONS) 2014 2013 2012 2011 2010 12 >> 5 6 7 , 3 5 3 9 , 3 >> 6 6 1 , 4 4 9 4 , 2 CAGR 30.1% 3 1 3 , 1 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014WHAT DO WE DO? AFTER 81 YEARS, IT IS CLEAR THAT OUR OBJECTIVE IS TO EXECUTE ENGINEERING PROJECTS OF THE HIGHEST QUALITY AND WITH THE BEST INTERNATIONAL STANDARDS. SINCE ITS BEGINNING IN 1933, GRAÑA Y MONTERO HAD A CLEAR VISION OF WHAT IT WANTED TO DO. OUR STYLE OF DOING THINGS HAS LED US TO LOOK AFTER THE LEGACY OF THE FOUNDING ACT OF "BRINGING TOGETHER KNOWLEDGE IN ORDER TO EXECUTE ANY WORK". 5 Antapaccay mining project, Cusco, Peru GRAÑA Y MONTERO WORK STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 << menu 14 >> HISTORICAL SUMMARY 1933 4 Graña y Montero is founded on June 22, 1933 under the name GRAMONVEL. The company was founded by engineers Carlos Graña Elizalde, Alejandro Graña Garland and Carlos Montero Bernales. 1944 3 Las Palmas Air Force Base is built based upon four hangars. 1949 4 The company merges with Morris y Montero to acquire the capacity for the execution of paving and earth moving works. By then, it has the new name of Graña y Montero. 5 1952 Consorcio de Ingenieros Contratistas Generales S.A. was formed in order to execute more complex projects. GRAÑA Y MONTERO WORK STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 << menu 15 >> 1953 Construction of the South Pan- American Highway. The Ministry of Economy is built the following year. 1957 The Cañón del Pato Hydroelectric Plant and the Ministry of Labor are built. The Chimbote Steel Mill was built the following year. 6 6 1983 Upon the celebration of the company’s 50th anniversary in 1983, the Strategic Diversification Plan towards other Engineering services was launched, leading to the formation of GMP, petroleum services company; GMD, information technology service company; and GMI, engineering consulting company. These companies were the origin of what is now the Graña y Montero Group. 5 1961 Jorge Chávez Airport is concluded. 1976 4 The company focuses its growth on major private projects such as the Cuajone and Cerro Verde mines, in Shell, Mobil and Occidental oil projects. GRAÑA Y MONTERO WORK STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 << menu 16 >> 3 1988 The Chavimochic irrigation project is completed. 2005 4 An important international development begins, by participating in the construction of mining projects in Chile, Bolivia, the Dominican Republic and Panama. 3 1997 The Graña y Montero Holding is created. Graña y Montero participated actively in the Peruvian privatization process as Telefónica’s local partner in Peru, as ENDESA’s partner in Empresa de Generación Eléctrica de Lima, and as REPSOL’s partner in La Pampilla Refinery. The Company is listed in the Lima Stock Exchange. 2010 4 The Company acquires the electricity services company CAM, which operates in Chile, Peru, Colombia and Brazil. The following year STRACON GyM is formed for mining services with New Zealand partners. GRAÑA Y MONTERO WORK STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 << menu 17 >> 2011 4 In recent years, the Company has been the first to participate in the concessions program, becoming the largest infrastructure concession holder in Peru, with three highways, Line One of the Lima Metro, and La Chira Waste Water Treatment Plant. 2013 4 Our company was listed on the New York Stock Exchange, with a capital increase of US$ 430 million. We acquired DSD Construcciones y Montajes company which then merges with Vial y Vives becoming the company Vial y Vives - DSD, Graña y Montero´s builder arm in Chile and from which we hold a participation of 80.4% 3 2012 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 2014 4 According to our strategy growth, we integrated two leading companies in their respective fields to the Group: Morelco S.A.S a Colombian company, specialized in civil works, electromechanical assemblies and services to the oil, gas and energy industry; and Compañia Operadora de Gas del Amazonas (COGA), a Peruvian company dedicated to the operation and maintenance of the transporting systems of natural gas and natural gas liquids. WITH MORE THAN 81 YEARS OF EXPERIENCE, THE ENGINEERING AND CONSTRUCTION AREA OF THE GRAÑA Y MONTERO GROUP IS THE STRATEGIC PARTNER FOR EXECUTING PROJECTS IN THE REGION. IT HAS OPERATED IN NINE COUNTRIES IN LATIN AMERICA, AND HAS A PERMANENT PRESENCE IN PERU AND CHILE. 19 >> One of the highlights of the year in the Engineering and Construction Area was the incorporation of Morelco in December 2014, a Colombian construction company specializing in the oil and gas sector. . Morelco together with the companies Vial y Vives-DSD in Chile, Stracon GyM for mining operations, GMI for engineering and consulting and the construction company GyM with its civil works, electromechanical assembly and buildings divisions form the area. In 2014, revenues of the Engineering and Construction Area were US$1,685 MM, which represents a 15.6% growth compared to the previous year, with a net profit of US$ 65 MM. As of 2014, backlog for this area was US$ 2,835MM, which guarantees stability in upcoming years. ENGINEERING AND CONSTRUCTION 5 Los Pelambres Mine, Chile. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 20 >> GyM In the mining sector, the mining company Guyana Goldfields awarded us the EPC Aurora contract for the construction of a processing plant and a power plant for the Aurora Gold Project in Guyana Republic (former British Guyana). The contract was obtained in a partnership with the Australian Company Sedgman. In a joint undertaking of our subsidiary Vial y Vives-DSD with GyM we were awarded the construction contract for the Ñuble Hydroelectric Plant (138 MW) for an amount of US$ 202MM, which started in December. During the year we continued with the execution of major projects of expansion of the Cerro Verde mine, in Arequipa, owned by Freeport-McMoRan, as well as works in the Inmaculada mine for the Hochschild Group and in Las Bambas for MMG. In the Energy sector, we continued executing the Machu Picchu Hydroelectric Plant, which we expect to deliver in the first quarter of 2015. In addition to this, we continued with the execution of the Cerro del Aguila project jointly with Astaldi. >> In a joint undertaking of our subsidiary Vial y Vives-DSD with GyM we were awarded the construction contract for the Ñuble Hydroelectric Plant (138 MW) for an amount of US$ 202MM, which started in December. 5Tunnel of Machu Picchu Hydroelectric Plant, Cusco, Peru << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201421 >> STRACON GyM Growth of this company continued in 2014, billing US$439.7MM and with a net profit of US$ 24.9MM. In addition to the projects already under execution in Constancia Mine, La Arena and Minera Panamá, in December 2014 we were awarded the contract for mining development of the Shahuindo mine, for US$ 240 MM and for an execution period of 5 years, for the client Rio Alto Mining Limited. >> Growth of this company continued in 2014, billing US$439.7MM and with a net profit of US$ 24.9MM. 5El Brocal mining project, Pasco, Peru << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201422 >> VIAL Y VIVES-DSD On July 1, 2014, in accordance with our integration plan, Vial y Vives merged with DSD, forming a new company named Vial y Vives- DSD, consolidating our mining, gas and oil experience in Chile. It is important to mention that in 2014 revenues grew by 82% in Chile, reaching an amount of US$ 227.4 MM and net profit of US$ 29.8 MM, which represents a 35% increase compared to the previous year. During 2014 we were awarded the contract for the construction of the Kelar Combined Cycle Thermoelectric Central for our client Samsung Engineering Co., Ltd in Antofagasta for US$ 91.5 MM and, as indicated before, commited with the strategy of acquiring different capabilities, we obtained the Ñuble Hydroelectric Plant contract in partnership with GyM. 5Ministro Hales Mine, Antofagasta, Chile << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201423 >> GMI During 2014, GMI obtained the engineering framework contracts for Antapaccay Mine, Goldfields Mine, Repsol Exploraciones (REPEXSA) and RELAPASA. It also obtained the basic engineering contract as well as the detail capacity increase to 15,000 TPD contract for Milpo Mine, Unidad El Porvenir. With Southern Peru Copper Corporation, GMI obtained the “Medium Equipment Shops” engineering and procurement management contracts for Unidad Toquepala. With PetroPerú, GMI was awarded the contract for the supervision of the engineering and construction of several fuel storage projects. Furthermore, the conceptual engineering work for the resettlement of destination places for our client. Río Tinto Minera Peru was completed. The supervision of the Engineering, Procurement and Construction of the Shougang Hierro Peru expansion continued. Supervision of the Expansion of Hotel Paradisus in Punta Cana, Dominican Republic also was continued. 5REPEXSA Project, Urubamba, Cusco, Peru << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 THE INFRASTRUCTURE AREA OF THE GRAÑA Y MONTERO GROUP IS THE LEADING PERUVIAN CONCESSIONAIRE IN THE COUNTRY. IT MANAGES PROJECTS THAT REQUIRE A HIGH LEVEL OF INVESTMENT AND LONG-TERM CONTRACTS. INFRASTRUCTURE 5 Line 1 of Lima’s Metro, Peru 25 >> By the end of 2014 the Infrastructure Area reached revenues for US$ 296 MM, which represents a 21.5% increase compared to the previous year considering within the business the construction investment in accordance with the new accounting standards. Also, we obtained an EBITDA of US$ 103 MM and a net profit of US$ 40 MM. During the year the new contracts for North and Center Terminals were signed for 20 years and the South Terminal contract was extended for one year. Additionally, the license contracts for oil blocks III and IV were awarded for 30 years. On the other hand, we submitted fourteen co-financed Private Initiatives (IPC’s) for an estimated investment amount of US$ 5,125 MM, four of which have been declared of relevance and priority for an estimated investment amount of US$ US$ 1,043 MM. << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201426 >> In April we started construction of the second stage of Norvial, which is the company in charge of the concession of the Ancon- Huacho- Pativilca tranche of the North Panamerican Highway for an investment amount of US$ 97 MM. Moreover, in July we started operation of the tranche 2 of Line One, completing the startup of operation of all the investment in this concession. To fund both investments, we structured two bond issues for a total amount of S/ 1,000 MM, which will be issued during the first quarter of 2015. Lastly, in December 2014 we acquired a 51% stake of COGA, in a partnership with Enagas (30%) and CPPIB (19%). >> By the end of 2014 the Infrastructure Area reached revenues for US$ 296 MM, which represents a 21.5% increase compared to the previous year considering within the business the construction investment in accordance with the new accounting standards. 5 Natural gas operating plant << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014ROAD CONCESSIONS: NORVIAL, SURVIAL Y CANCHAQUE In Norvial, which operates the Ancon to Pativilca highway, in northern Peru, the number of collectible axes reached US$ 18 MM in 2014, representing for a 2.4% traffic increase compared to 2013. Construction of the second stage, which we expect to complete in 24 months, started in April 2014. 27 >> In Survial, which goes from San Juan de Marcona to Urcos, the works of the improved traffic flow road Evitamiento Urcos and Catastrophic Events Reconstruction of Limatambo for US$ 38 MM were executed. Also, the authorization of the concession grantor to execute the Technical Maintenance Intervention 3 for US$ 29 MM in 2015 was obtained. In Canchaque, which runs from the junction with the IIRSA Norte road to Buenos Aires, up to the town of Canchaque, located in the highlands of Piura in Perú, Ositran approved the execution of the Technical Maintenance Intervention 1 at the end of 2014, leaving the approval of the budget still pending. Lastly, in VESUR Project, which consists of the expressway expansion, the approval of the draft Project, the the Environmental Impact Assessment (EIA) and the Expropriation Plan (PATCA) were obtained. Also, work on the final engineering assessment, the new demand studies and the documentation to start the expropriation process is under way. 5 Stretch 1 – IIRSA Sur Highway, Peru << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014OIL AND GAS GMP In August, the highest average monthly production of crude oil in the history of GMP was obtained, reaching 2,136 barrels per day. 28 >> Exploration and Production: 24 development wells were drilled, 23 in Block I and 1 in Block V with an investment of US$ 23.4 MM. 642,000 barrels of crude oil and 3,395 MMSCF of natural gas were produced, breaking once again the annual production record of crude and gas of GMP. Pariñas Gas Plant: 10 BSCF of natural gas, which equivalent to an average of 27.36 MMSCFD were produced. The production of liquids was of 387,000 barrels and liquid recovery efficiency reached 96%. Consorcio Terminales: (12 months South and 10 months North). An average of 63.8 thousand barrels per day of products were dispatched and storage contracted by our users was of 2.120 MM barrels per month. Terminales del Perú: (4 months Center and 2 months North). An average of 38 thousand barrels per day of products were dispatched and storage contracted by our users 1.430 MM was barrels per month. 5 Pariñas Natural Gas processing plant, Piura, Peru << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014FERROVÍAS GYM In July 2014, Tranche 2 of Line One started operating, allowing operation of the entire fleet of trains purchased to provide the service. As a result of this higher supply in the service, demand grew 29 >> steadily, rapidly exceeding the capacities in the service. Passengers transported during the year reached 70 million, with a daily record of 372,000 passengers. The line operated with 99% compliance and 98% punctuality of the service. In the average of the two surveys of the year conducted by Arellano Marketing we obtained 85% in customer satisfaction and a recommendation level of 97% in our service. In March 2014, IADB and Harvard University awarded us the “Infrastructure 360°” prize, a recognition awarded for the first time to an organization in Latin America for good social and environmental sustainability practices in infrastructure. 5 Line 1 of Lima’s Metro, Peru >> In July 2014, Tranche 2 of Line One started operating, allowing operation of the entire fleet of trains purchased to provide the service. << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201430 >> PTAR LA CHIRA The work construction continued, having been executed US$ 55 MM of works to date, which is equivalent to 78% of the total investment commitment. 5 Construction of La Chira Plant, Lima, Peru << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014IT DEVELOPS REAL ESTATE PRODUCTS SUCH AS HOUSING, OFFICES, COMMERCIAL ESTABLISHMENTS, AND INDUSTRIAL LOTS IN ALL MARKET SEGMENTS, OFFERING A WORLD CLASS ARCHITECTURE WHICH PROVIDES WELFARE TO ITS CUSTOMERS. 32 >> Within this context, we have ended the year 2014 with a 33% contraction compared to the previous year, with revenues of US$ 75.1MM and EBITDA US$ 24.4 MM. The Real Estate Area includes Viva GyM, the largest real estate company in Peru, Almonte S.A., owner of a land for major urban development in the south of Lima, and we are also partners of Inversiones Maje in the Panorama Offices Project and with Urbi in "Espacio Project" on the land site where the former military base Cuartel San Martín was located. We closed the year with a backlog of US$81MM and we have developed twenty projects in its various stages of execution, which means delivering close to 8,100 real estate units in the next five years. Among the different companies of our Real Estate Area we have a land bank of approximately 1093.49 hectares. Additionally, we have a low level of debt, which will allow us to face the opportunities that arise in the Real Estate market. REAL ESTATE The real estate sector experienced deceleration in 2014 as a result of the slowdown of the economy, the caution of banks in financing real estate projects, and the hardening of their requirements to qualify clients for mortgage credit. In addition to this, there has been a gap between the increase in the property prices and household income in recent years. 5 View from “El Sol de Barranco” building, Lima, Peru << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201433 >> VIVA GYM In 2014, only 51% of our business came from affordable housing projects, compared to 70% in 2013, consistent with the market conditions. During 2014 we sold 642 apartments and delivered 831 apartments. Also, in order to diversify the market, we have acquired an area of 91,992 m2 of land in Huancayo and we have acquired an interest of 35% in the Panorama Offices Project. During 2014, we were granted the court decision that extends the term of the urban development license of Los Parques de Comas Project with a total of 10,624 apartments. The approval of the building project is still pending, which has allowed us to start the pre-sale of >> During the fiscal year we sold 642 apartments and delivered 831 apartments. 5 Los Parques de Carabayllo II condo, Lima, Peru << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201434 >> the Club Residential apartment building while concurrently following the corresponding process required to start selling the Techo Propio product during 2015. During the year we continued with our campaigns intended to position the Viva GyM brand in the market, achieving the second place in top of mind brand recall and the highest market share regarding units sold. For the fourth consecutive year, Viva GyM was elected as one of the Great Place to Work (GPTW) companies in Peru. This 2014 we ranked sixth among the companies with 50 to 250 employees. Another important recognition that we received was the first place in the real estate ranking of most attractive employers in Peru (Employer Brand – Laborum / Arellano Marketing). 5 Bolognesi private apartment building, Lima, Peru >> For the fourth consecutive year, Viva GyM was elected as one of the Great Place to Work (GPTW) companies in Peru. This 2014 we ranked sixth among the companies with 50 to 250 employees. 5 Los Parques del Naranjal real estate project, Lima, Peru << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 35 >> ALMONTE S.A. In 2014 we obtained approval of the industrial zoning of the land and we are currently evaluating the development of storage, logistic services and sales of industrial land business. >> In 2014 we obtained approval of the industrial zoning of the land and we are currently evaluating the development of storage, logistic services and sales of industrial land business. 5 Industrial zoning plane << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201436 >> ESPACIO PROJECT This partnership with the firm Urbi is developing the “Espacio” project at the site of the former military base Cuartel San Martin, which includes four residential buildings, two office buildings, a shopping center, a hotel and a convention center. This year we obtained approval by the Municipality of Lima of the ordinance for approval of the Traffic Impact Study (EIV) which will allow us to continue with the building permit process. 5 Espacio Project, Lima, Peru << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014THE TECHNICAL SERVICES AREA, GROUPS THE COMPANIES DEDICATED TO THE OPERATION AND MAINTENANCE OF INFORMATION TECHNOLOGY, BUSINESS PROCESSES, ELECTRICAL NETWORKS AND INFRASTRUCTURE. 38 >> The Technical Services Area comprises the companies providing infrastructure operation and conservation services to the energy, telecommunications, public transportation, health, water, road, banking and insurance, and industry and commerce business sectors. The value proposal of the Technical Services Area is based on three key concepts: specialization and knowledge of business processes, the use of technology as a means to increase efficiency, and a highly specialized human group. The Technical Services Area includes the following companies of the Group: Concar, specializing in road and public infrastructure operation and conservation services; GMD, specializing in business process and Information Technology infrastructure operation services; and CAM, specializing in electricity and telecommunication infrastructure operation and conservation services in Chile, Colombia, Peru and Brazil. Revenues for the Technical Services Area in 2014 reached US$ 404.2 MM and EBITDA was of US$ 21.2 MM which represent 16% and 7%, respectively, of participation in the Group. Even though growth of the Technical Services Area was sustained in the last five years, this was not the case in 2014, primarily due to the termination of the road network contracts of CONCAR with Cusco Region. However, the backlog increased from US$ 619 million to US$ 646 million, which represents a 4.3% growth. On the area level, we have been working on a first joint strategic plan of the companies that comprise this area, aimed at building a consistent and comprehensive vision of the services supply, as well as of its organization identifying synergies and possible value contributions to the businesses and investments of the Group, based on adding value through the operational excellence strategy and using innovative technologies as a differentiating mechanism. Furthermore, we started to work comprehensively in opportunities of infrastructure operation and conservation using the various capabilities of each of the companies of this area, and pursuing opportunities in the Infrastructure Area. TECHNICAL SERVICES 5 GMD’s technological operations center << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201439 >> CONCAR In 2014, CONCAR started operation of the second tranche of Line One of the Lima Metro, as well as the operation of the Cerro de Pasco - Tingo María Highway, while the maintenance contract of Red Vial 1 was terminated. The budget deviation of the road network contracts with the Cusco Government evidenced the need to reformulate and strengthen processes, reason why Concar focused on implementing the project “Concar Avanza” (“Concar Advances”) with the purpose of returning to its previous margins and results, and defining a business vision with a clear strategy and objectives, which can be measurable in the short and medium term. This project is vital to accomplish the business plan. In terms of Human Resources Management, Concar was recognized as the company with the highest working climate increase in 2014, according to Great Place to Work (GPTW). 5 Icapal highway concession, Peru << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201440 >> GMD GMD has continued its organic growth in 2014, increasing its operating margins and, to a lesser extent, its EBITDA, which was affected mainly by delays in the extension of contracts with the public sector. However, GMD was awarded the concession of the Trujillo public transportation collection system. This year, GMD completed construction of the new operations center which has a category TIER III Data Center for design and construction, the only one in Peru, a vault for documents with legal values, and expansion of the software factory an the Call Center, laying the ground for its future growth. During 2014, GMD ratified its commitment to Human Resources Management, being recognized as one of the 12 best companies to work in Peru, according to GPTW (Great Place to Work), as well as to Quality Management, by certifying the software factory with CMMI Level 5, being the only company in Peru with such certification. GMD also renewed its ISO 9001 certification for all processes, including Electronic Intermediation, and obtained OSHAS 18001 and ISO 20000 certifications, thus ensuring the reliability, availability and quality of its operations. >> This year, GMD completed construction of the new operations center which has a category TIER III Data Center for design and construction, the only one in Peru, a vault for documents with legal values, and expansion of the software factory an the Call Center, laying the ground for its future growth. 5 GMD´s data center << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014CAM In the year 2014, CAM focused its efforts on implementing the CAM Cumple (CAM Accomplishes) project, which seeks operational excellence, prioritizing the use of productivity indicators and process tracking, with the objective of improving the efficiency and reliability of its forecasts. As a result, margins have improved and projects that affected profitability 41 >> stabilized, which will in turn allow to undertake new services. Backlog increased notably this year, by obtaining the contracts for the operation and conservation of networks from Telefónica in Chile and Codensa in Colombia. Additionally, CAM continued with the process of integration to the Group with the taking over of Coasin Instalaciones, a firm engaged in operation and conservation of telecommunication networks, which was purchased in 2013 to expand the portfolio of services provided to such sector. The revenues of CAM grew by 8.5% in dollars (15.9% in soles) from 2013, and such growth was not higher due to the strategic decision to focus on the service business, reducing works and sales projects, and expanding its business pipeline to non-electrical sectors, where it accomplished increased efficiency, improved prrofitability, became more competitive with prices and provided better service quality. Furthermore, the results of subsidiaries show major progress in Chile, Colombia and Peru; and, in Brazil, CAM started a deep restructuring that rendered positive results in the second quarter of the year. 5 Connection of the power cable to the AC network << menuGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014HOW DO WE DO IT? WE HAVE A HUMAN GROUP ENGAGED WITH PROFESSIONALISM, TEAM WORK, SERIOUSNESS, TRUST, TRANSPARENCY AND MANY OTHER QUALITIES THAT SUM UP TO THE PRIDE OF DOING THINGS RIGHT, IN OUR WAY OF "BEING" AND "ACTING". THE PILLARS OF OUR WORK STYLE ARE OUR VALUES OF "PROFESSIONALISM", "QUALITY", "RELIABILITY" AND "EFFICIENCY". TRANSPARENCY: WE CREATE AN ENVIRONMENT OF TRUST, WE PROMOTE THE FREE ACCESS TO INFORMATION AND OPEN COMMUNICATION. CORPORATE GOVERNANCE _ BOARD OF DIRECTORS _ PROFILE OF THE BOARD OF DIRECTORS _ AWARDS AND RECOGNITIONS 2014 _ RESULTS ANALYSIS TO DECEMBER 31ST, 2014 44 >> CORPORATE GOVERNANCE In March 2014, Graña y Montero S.A.A. elected a new Board of Directors for the 2014-2017 period and, considering the new equity structure of the Group after its listing in the New York Stock Exchange, it was decided to have a majority of Independent Directors in the Board. At present, 5 of the 9 Directors elected are Independent Directors and the Audit and Process Committee and the Human Resources Management and Social Responsibility Committee consist entirely of Independent Directors, who also make up the majority of the Investment and Risk Committee. In accordance with the Regulations of the Board of Directors, upon the addition of 3 new Directors to the Board, induction meetings were held with such new Directors prior to the first meeting of the Board, which provided them with an overview of the Graña y Montero Group and its main companies. Also, two visits to businesses were scheduled and made, which allowed the Directors to approach such businesses and acquire a first-hand view of safety, commercial and other matters. On the other hand, the Ethics Channel established in 2013 continued operating and the management of the Ethics Commission elected for such purpose was strengthened. Furthermore, consulting was hired to aid in the implementation of specific control-related improvements to prevent corrupt practices in the Group, from which we have received recommendations that we are in the process of implementing. We continued training in the Ethics Letter of the Code of Conduct in the induction week for new collaborators of the Group, and of the trainees, strengthening also the communication on the “Graña y Montero Work Style” by publishing a book of the same name prepared by the Chairman of the Board José Graña and distributed to 28 thousand collaborators of the Group. On the external front, the company not only continued in the Good Corporate Governance Index of the Lima Stock Exchange, but also received the Key of the Lima Stock Exchange, an award that speaks of trust and recognition of the best corporate governance practices that we have in place, and of the liquidity of our shares. Additionally, as part of the Companies Circle, Graña y Montero participated in writing of a paper on Corporate Governance of Company Groups and was elected Chairman of the Steering Committee, showing its commitment and ongoing activity to promote good corporate governance practices both internally and externally. In 2014 we worked extensively on the application of internal control systems for the Group, in compliance with SOX standards, and 2,432 collaborators of GyM and 130 of Viva GyM were trained in the Asset Laundering and Financing of Terrorism Prevention System. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201445 >> CORPORATE GOVERNANCE BOARD OF DIRECTORS. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201446 >> CORPORATE GOVERNANCE BOARD OF DIRECTORS. The members of the Board of Directors are the following: JOSÉ Chlimper Ackerman HERNANDO Graña Acuña MARK Hoffmann Rosas CARLOS Montero Graña JOSÉ Graña Miro Quesada MARIO Alvarado Pflucker PEDRO PABLO Errazuriz Domínguez FEDERICO Cúneo de la Piedra HUGO Santa María Guzmán Independent External Director Internal Director Independent External Director Vice Chairman External Director Chairman External Director Internal Director Chief Executive Officer Independent External Director Independent External Director Independent External Director GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014 47 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS JOSÉ Graña 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 and 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 a director of Mexichem Amanco Holding and Banco de Crédito del Perú. He has previously served as a member of the board of directors of our subsidiaries CONCAR, GMP, GMI, GMD, as well as Refinería La Pampilla S.A.A, Edegel S.A.A. and Telefónica S.A.A., Chairman of Viva GyM and Director of Empresa Editora El Comercio S.A., Prensa Popular S.A., Servicios Especiales de Edicion S.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. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201448 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS CARLOS Montero 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 subsidiary GMP S.A. He has previously served as Vice Executive Chairman of our subsidiary GyM until 2007. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201449 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS FEDERICO Cúneo Mr. Cúneo has been a director of Graña y Montero S.A.A. since march 2014. Since 2006 he has been a Partner and Director of Amrop Peru, Panama, Costa Rica and Ecuador, from 2003 to 2005 he served as a Business Director in Ernst & Young and between 1996 and 2002 he served as CFO in the Boston Bank. He has a BBA degree in Accounting at the Eastern Michigan University, USA and postgrade work at Escuela Superior de Administración de Negocios (ESAN), Universidad de Piura y Harvard Business School, and the IMD. Mr. Cúneo has been Chairman of Peru 2021 and Forum Empresa and a Member of the Board of Mesa de Concertacion de Lucha contra la Pobreza (Executive Board of Agreement for the fight against poverty), Programa Juntos, Spirit in Business, IPAE, Ethos Brazil and Repsol’s La Pampilla Refinery where he headed the Audit Committee (RELAPASA-REPSOL). He is currently the Vice Chairman of Amcham Peru, member of the Investment Committee of Apoyo Capitales and Member of the Board of Peru 2021, Graña y Montero, Tununga Forestry Investments, Osaka Holding, and Chairman of Sporting Cristal Football Club. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201450 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS JOSE Chlimper 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., ComexPerú and the Instituto de Formación Bancaria (IFB). He is Chairman of the board of directors of Compec. 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. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201451 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS PEDRO PABLO Errazuriz Mr. Errazuriz is currently a director of Graña y Montero SAA. He is a Civil Engineer from the Universidad Catolica de Chile, he have a Master’s Degree in Science Engineering from the same university and a Master’s Degree in Science Operations Research (Finance) from the London School of Economics. He is currently partner of Veta Tres. Until March 2014 he served as Minister of Transport and Telecommunications in Chile, a position he assumed in 2011. He has been director of several companies on behalf of Holding Ontario Teachers' Pension Plan, Fund of which he was general manager between 2009 and 2011. In the same period he served as Chairman of Biodiversa, Esval, Aguas del Valle and SAESA- Group. He was the CEO and Chairman of water utility ESSBIO. He was CEO of LanExpress between 2000 and 2006 and Vice President of Corporate Planning of Lan Chile between 1999 and 2000. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201452 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS HUGO Santa Maria 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. Mr. Santa María previously served as director of Fondo Consolidado de Reserva (FCR) , Compañía Minera Atacocha and between 2007 and 2012 he served as an independent director at Mibanco and it’s Chairman of the Board of Directors until 2014. He is also a director of APOYO Comunicación Corporativa, as well as a partner and chief economist at APOYO Consultoría and director of Banco Santander. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201453 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS MARK Hoffmann Mr. Hoffmann is currently director of Graña y Montero S.A.A. and President of Amazonas Infraestructura. He has been CEO of Duke Energy from 2008 to 2013, CEO of Electroandes from 2003 to 2007, among others. He is Industrial Engineering from Georgia Institute of Technology in Atlanta, Georgia, USA and holds an MBA in Finance from Cornell University, Ithaca, NY. He is currently a board member since 2012 in Financial Qapaq, since 2014 IPAE, from 2010 Radio Philharmonic and since 2007 from Markham College. Mr. Hoffmann has previously served as a member of the boards of Luz del Sur, Electroandes, AmCham and served as Vice President of Caminando Juntos and the National Society of Mining, Petroleum and Energy. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201454 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS HERNANDO Graña 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 Chairman of the Board of Directors of our subsidiaries GyM and Stracon GyM as well as director of our subsidiaries Vial y Vives-DSD, GMI, CAM and Transportadora de Gas del Perú. Mr. Graña has participated as Director-Manager of GyM since 1996. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201455 >> CORPORATE GOVERNANCE PROFILE OF THE BOARD OF DIRECTORS MARIO Alvarado 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 Viva GyM S.A. 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. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201456 >> CORPORATE GOVERNANCE COMMITTEES OF THE BOARD OF DIRECTORS AUDIT AND PROCESSES COMMITTEE: • José Chlimper, Chairman • Federico Cúneo • Hugo Santa María This committee held 5 meetings during the year HUMAN RESOURCES MANAGEMENT AND SOCIAL RESPONSIBILITY COMMITTEE: • José Chlimper, Chairman • Federico Cúneo • Mark Hoffmann This committee held 6 meetings during the year INVESTMENT AND RISK COMMITTEE: • José Graña, Chairman • Hugo Santa María • Pedro Pablo Errazuriz This committee held 3 meetings during the year OPERATING COMMITTEES OF THE BOARD OF DIRECTORS ENGINEERING AND CONSTRUCTION COMMITTEE: • José Graña, Chairman • Mario Alvarado • José Chlimper • Hernando Graña • Carlos Montero This committee held 12 meetings during the year INFRASTRUCTURE COMMITTEE: • José Graña, Chairman • Mario Alvarado • Hugo Santa María • Hernando Graña • Pedro Pablo Errazuriz Domínguez This committee held 12 meetings during the year REAL ESTATE COMMITTEE: • José Graña, Chairman • Mario Alvarado • Mark Hoffmann This committee held 12 meetings during the year TECHNICAL SERVICES COMMITTEE: • José Graña, Chairman • Mario Alvarado • Carlos Montero • Federico Cúneo This committee held 12 meetings during the year GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201457 >> CORPORATE GOVERNANCE EXECUTIVE COMMISSION The Executive Commission is in charge of the Groups coordination and it is made up by the Area Managers Group: Mario Alvarado Gonzalo Ferraro Juan Manuel Luis Díaz Jaime Dasso Rolando Ponce This committee held 10 meetings during the year 2014. Chief Executive Officer Chairman of the Executive Commission President of the Infrastructure Area Engineering and Construction Area Officer Infrastructure Area Officer Service Area Officer Real Estate Area Officer GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014CORPORATE GOVERNANCE 58 >> SHAREHOLDER SERVICES OFFICE Mr. Dennis Gray is the Investor Relations Officer and Stock Exchange representative of the company before the Securities Market Superintendence, the Lima Stock Exchange and the New York Stock Exchange. During 2014 we had the opportunity to participate in 10 international conferences in Santiago, New York, Toronto, Miami, Sao Paulo, London and Lima, where we had meetings with 158 investors. In addition, we conducted a "non- deal roadshow" in Europe to visit institutional investors specifically in London, Stockholm, Frankfurt and Madrid. SELF-EVALUATION OF THE BOARD OF DIRECTORS During 2014, the Self-Evaluation of the Board of Directors process was conducted at the Board of Directors Meeting of Graña y Montero S.A.A. prior to the change in the Board. As a result of the self-evaluation, we received suggestions from the outgoing Directors and from those that would remain in the Group, improving the structure of the information submitted to the Board of Directors, incorporating the commercial component of Group and the relevant developments in the business areas, so that the Directors are fully informed. Visits to works also continued, having visited Line One of the Lima Metro and works at Cerro Verde, in Arequipa. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201459 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES MARIO Alvarado MONICA Miloslavich ANTONIO Rodríguez 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 Viva GyM S.A. 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. Mrs. Miloslavich joined the group in 1993 and she has been our Chief Financial Officer since 2009. She is an Economist graduated from the 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 and as Chief Financial Officer of our subsidiary GyM from 2004 to 2009. Mr. Rodriguez joined the group in 1999 and he has been our Chief Investment Officer since 2010. He is an Accountant graduated from the 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 and GMD. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201460 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES CLAUDIA Drago JUAN JOSE Arrieta JOSÉ CARLOS Ascarza Mrs. Drago joined the Group in 1997 and she has been our Chief Legal Officer since 2007. She is a Lawyer from the 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 Graña y Montero’s representative to the Lima Stock Exchange and the Secretary of the board of directors. Mr. Arrieta joined the Group in 1999 and is our Corporate Social Responsibility Manager since 2011. He received a Bachelor’s degree in Sociology from Pontificia Universidad Católica del Peru, a postgraduate diploma in Business Administration from ESAN. He previously served as our Human Resources and Social Responsibility Manager from 2007 to 2011 and as Human Resources Manager of our subsidiary GyM from 1999 to 2007. Mr. Ascarza joined the Group in 2004 and has been our Chief Human Resources Officer since 2012. He is an Industrial Engineer graduated from the Universidad de Lima and received a postgraduate diploma from Tecnológico de Monterrey. He previously served as Human Resources Manager at our subsidiary GyM from 2007 to 2012. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201461 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES DENNIS Gray Febres JORGE LUIS Izquierdo GONZALO Ferraro Mr. Gray joined the Group in 2011 and has been our Corporate Finance and Investor Relations Officer. He is an Economist with a degree from the 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. Mr. Gray is Graña y Montero’s representative to the Lima Stock Exchange and in the Ney York Stock Exchange. Mr. Izquierdo joined the Group in 1999 and is our Manager Operational Excellence and has been since 2011 our Corporate Learning Center Manager, having previously served as manager of the Project Management Officer. 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. 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 Industrial Engineer graduated from Universidad de Lima, with studies at Universidad Nacional de Ingeniería and 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. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201462 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES HERNANDO Graña FRANCISCO Dulanto JUAN MANUEL Lambarri 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 and STRACON GyM as well as director of our subsidiaries Vial y Vives-DSD, GMI, CAM and Transportadora de Gas del Perú. Mr. Graña has participated as Director-Manager of GyM since 1996. 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. Mr. Lambarri joined the Group in 1982 and is our Corporate Engineering and Construction Area Officer, having previously served as 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-DSD and GMI. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201463 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES LUIS FRANCISCO Diaz JAIME Dasso WALTER Silva Santisteban. Mr. Díaz joined the Group in 1993 and is our Corporate Infrastructure Area Officer since april 2013, having previously served as Chief Executive Officer of our subsidiary GMP since March 2011. 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. Mr. Diaz 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. He is also a member of the board of directors of GMP, GyM Ferrovias, Norvial, La Chira, Survial and Via Expresa Sur. Mr. Dasso joined the Group in 1991 and is our Corporate Service Area Officer, having previously served as 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, Concar and CAM and the President of the board of directors of our subsidiary GSD. 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 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. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201464 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES JAIME Targarona ROLANDO Ponce RENATO Rojas 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. Mr. Ponce joined the Group in 1993 and has been the Chief Executive Officer of our subsidiary Viva GyM since 2008 and Corporate Real Estate Area Officer since march 2014. 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 of GyM’s Real Estate Division. Currently, he is a member of the board of directors of our subsidiaries Viva GyM and Almonte. Mr. Rojas joined the Group in 1995 and is the Chief Executive Officer of GyM since February 2014. He previously served as Manager of the Civil Works Division of GyM from 2010 to 2014, Sub Manager of the same Division from 2002 to 2010. Mr. Rojas holds a degree in civil engineering from Pontificia Universidad Catolica del Peru. He also completed a Master’s degree in Company Management at the Universidad de Piura. He is currently a member of the board of directors of GMI and GyM. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201465 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES HUGO González MARITZA Zavala REYNALDO Llosa Mrs. Zavala, joined us in 1997 and is the Corporative Technology Manager since September 2013. She holds a degree in industrial engineering from University of Lima, with a Master’s degree in International Business Administration from Nova Southeastern University. Mr. González joined the Group in 1997 and is the Chief Executive Officer of GMD since February 2014. He previously served as Manager of the Technology Solutions Division of GMD from 2008 to 2014, Manager of the Outsourcing Technology Division from 2005 to 2008. He holds a degree in system engineering from Lima University. He also completed a Master’s degree in General and Strategic Management, with double degree at Maastricht School of Management (MSM) and Pontificia Universidad Católica del Perú (Centrum Catolica). He is currently a member of the board of directors of our subsidiary GMD. Mr. Llosa joined the Group in 2014 and is the Chief Executive Officer of GMP since February 2014. He holds a degree in mechanical engineering and graduated from the University of Houston, he holds a Senior Executive MBA from Universidad de Piura. He has completed extensive technical and management executive education programs including Certificate Programs at Rice University and Northwestern Kellogg School of Management. He previously served as deputy general manager at BPZ Energy from 2010 to 2013, and was employed by Schlumberger for 25 years where he held several managerment positions over the most recent 15 years. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201466 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES EDUARDO Villa Corta KLAUS Winkler CÉSAR Neyra Mr. Villa Corta joined the Group in 1995 and is the Chief Executive Officer of GMI since February 2014. He previously served as Technical Manager of GyM from 2010 to 2014, Manager of the Industry Division from 2003 to 2010. In the year 2000 he joined GyM Mexico as the General Director. He holds a degree in civil engineering from Catholic University of Peru. He also completed a MBA from University of Piura. He is currently a board member of our subsidiaries GMI and Vial y Vives-DSD. 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. He is currently a board member of our subsidiaries Vial y Vives-DSD and CAM. 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. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201467 >> CORPORATE GOVERNANCE SENIOR EXECUTIVES OCTAVIO Cabrera NURIA Esparch Mr. Cabrera joined the Group in March 1974 and has been the Chief Executive Officer of Stracon GyM S.A. since January 2012. Previously he served as Division Manager of Civil Works from January de1994. Mr. Cabrera has a degree in Civil Engineering from the National University of Engineering, he also has a Masters in Executive Management Program from the University of Piura. He is currently a board member of Stracon Gym S.A. Mrs. Esparch joined the Group in September 2014 and is our Chief Officer of Institutional Relations. She is a lawyer of the Pontificia Universidad Catolica del Perú with a master's degree in Public Administration from Maxwell School of Citizenship and Public Affairs at Syracuse University in New York. Ms. Esparch was Senior Manager of Communications and External Relations Rio Tinto Project Farm and previously spent two years doing research and consulting for public and Research Affiliate at GRADE well as in Apoyo. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201468 >> CORPORATE GOVERNANCE KINSHIP: Mr. José Graña Miró Quesada, Chairman of the Board of Directors, has first-degree kinship by blood with Maria Teresa Graña Canepa, a shareholder of the company and director of our subsidiaries Viva GyM, GMD, GyM Ferrovías and GMI, third-degree kinship by blood with Ms. Yamile Brahim Graña, a share¬holder of the company, and fourth-degree kinship by blood with the director and shareholder Hernando Graña Acuña, who also holds the position of Chairman of the Board of our subsidiaries GyM and Stracon GyM and of director of our subsidiaries Vial y Vives-DSD S.A., GMI, CAM and Transportadora de Gas del Perú. 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, 2014 is S/.660,053,790 represented by 660,053,790 shares, S/.1.00 par value each. PRINCIPAL SHAREHOLDERS As of December 31, 2014 we have 1,854 shareholders, of which about 99.19% are holders of less than 1% of the capital stock and about 0.32% hold 1% to 5%. Our principal shareholders are GH Holding Group, represented by José Graña Miro Quesada, Chairman of the Board, Bethel Enterprises Inc, represented by Carlos Montero Graña Vice-President of the Board, and JP Morgan Chase Bank NA as depositary and on behalf of all ADS holders. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201469 >> CORPORATE GOVERNANCE LIST OF PRINCIPAL SHAREHOLDERS AS OF 12.31.2014 FULL NAME NUMBER OF SHARES INTEREST NATIONALITY JP Morgan Chase Bank Na en calidad de depositario y en representación de todos los 253,865,985 titulares de ADS’s GH Holding Group Bethel Enterprises inc. AFP Integra (ING Group) Profuturo AFP (Grupo Scotiabank) Subtotal Other Shareholders Total 117,538,203 33,785,285 40,304,651 37,488,166 482,982,290 177,071,500 660,053,790 United States Panamá Panamá Peru Peru 38.46% 17.81% 5.12% 6.11% 5.68% 73.17% 26.83% 100% GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201470 >> CORPORATE GOVERNANCE EVOLUTION OF THE SHARES The price quoted at the year-end was S/. 7.26 per share. The volume traded during the year was S/. 667.827,357.59. Lastly, the IGBVL (general index) decreased by 6.09% from 2013, and the ISBVL (selective index) also decreased by 11.42% from 2013. It should be noted that variation in the GRAMONC1 share decreased by 38.99% vis-à-vis the 2013 year-end price (including the effect of the issue of stock dividends). ISIN CODE MNEMONIC YEAR-MONTH OPENING S/. CLOSING S/. MAXIMUM S/. MINIMUM S/. AVERAGE PRICE S/. PRICING 2014 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 PEP736581005 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 GRAMONC1 2014-01 2014-02 2014-03 2014-04 2014-05 2014-06 2014-07 2014-12 2014-09 2014-10 2014-11 2014-12 11.90 10.85 10.75 9.75 9.85 9.26 10.00 7.62 9.33 8.72 7.95 7.62 11.90 10.75 9.80 9.92 9.35 10.00 9.35 7.26 8.75 7.95 7.70 7.26 12.35 11.85 11.40 10.19 9.85 10.00 10.20 7.62 9.40 8.72 7.95 7.62 11.20 10.51 9.65 9.27 9.18 8.99 9.30 6.90 8.75 7.67 7.15 6.90 12.05 10.86 10.58 9.61 9.47 9.25 9.89 7.25 9.15 8.04 7.39 7.25 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201471 >> CORPORATE GOVERNANCE DIVIDEND POLICY The Dividend Policy of the company in force in 2014 was to distribute 30%-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/. 7.26 per share. The volume traded during the year was S/. 667.827,357.59. Lastly, the IGBVL (general index) decreased by 6.09% from 2013, and the ISBVL (selective index) also decreased by 11.42% from 2013. It should be noted that variation in the GRAMONC1 share decreased by 38.99% vis-à-vis the 2013 year-end price (including the effect of the issue of stock dividends). GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014CORPORATE GOVERNANCE 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 ) $ S U S D N A S U O H T ( E M U L O V D E D A R T ) . / S ( E C I R P G N I S O L C 0 9 . 1 1 5 7 . 0 1 0 8 . 9 2 9 . 9 0 0 0 1 . 5 3 . 9 5 3 . 9 3 3 . 9 5 7 . 8 5 9 . 7 0 7 . 7 6 2 . 7 0 8 1 , 8 1 5 0 8 , 5 2 5 0 9 , 2 2 6 6 2 , 4 1 5 3 8 , 0 2 1 8 6 , 7 1 4 3 2 , 4 2 7 2 1 , 8 1 3 2 2 , 8 2 8 5 , 3 1 1 4 8 , 0 2 JAN. 2014 FEB. 2014 MAR. 2014 APR. 2014 MAY. 2014 JUN. 2014 JUL. 2014 AUG. 2014 SEP. 2014 OCT. 2014 NOV. 2014 DEC. 2014 72 >> 12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014 73 >> CORPORATE GOVERNANCE Corporate Name Address Telephone Fax Investor Relations Manager Officers Electronic Mail Incorporation Public Registry Capital Stock Shares Treasury Stock Graña y Montero S.A.A. Av. Paseo de la República 4667, Surquillo 51-1-213 6565 51-1- 213 6590 51-1-2136566 Dennis Gray Febres / Mónica Miloslavich Hart dgray@gym.com.pe / mmiloslavich@gym.com.pe Public Instrument dated August 12, 1996 Record 131617- Electronic Registry File 110286522 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 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201474 >> CORPORATE GOVERNANCE Sector and Competence Net Sales Investment Plans Main Assets 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. Year 2014 3,581,480.47 49,630,821.74 Leases Management All services have been rendered in-country. US$ 385 million 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 Concesionaria Via Expresa Sur Shares Agenera Shares S.A.C. Viva GyM Shares S.A. GMD S.A. Shares Concar S.A. Shares CAM Chile S.A. Shares TGP S.A. Shares COGA Shares Year 2013 3,124,220 47,423,660 97.86% 89.41% 95% 67.00% 99.96% 99.00% 50% 75% 99.99% 99% 60.62% 89.15% 99.74% 75% 1.64% 51% GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014 75 >> CORPORATE GOVERNANCE Administrative or Arbitration Proceedings See Notes to the Audited Financial Statements Persons Responsible for Preparing and Reviewing Gonzalo Rosado Solís Financial Information Mario Alvarado Pflucker External Auditors Price Waterhouse Coopers Corporate Controller Chief Executive Officer GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014HISTORICAL REVIEW Graña y Montero was founded almost 81 years ago on June 22, 1933, under the name GRAMONVEL by engineers Carlos Graña Elizalde, Alejandro Graña Garland and Carlos Montero Bernales. It started as a construction company and continued as such until the year 1949, when it merged with Morris y Montero to acquire capacity for the execution of paving and earth moving works under the new name Graña y Montero. In those times, Graña y Montero participated in the country’s major infrastructure works, such as the Southern Pan-American Highway, El Pato Air Base for the United States government or the city of Talara, and built some of Lima’s most emblematic buildings, such as the Ministry of Economy and the Ministry of Labor. In the 1950’s, Graña y Montero formed Consorcio de Ingenieros Contratistas Generales S.A. to execute more complex projects, such as the Cañón del Pato Hydroelectric Plant, the Steel Mill in Chimbote and the runway for Callao’s Jorge Chávez Airport. Subsequently, the company focused its growth on large-scale private projects such as the Cuajone and Cerro Verde mines, the Shell, Mobil and Occidental petroleum projects, and the Chavimochic and Chinecas irrigation projects. 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. 76 >> >> It started as a construction company and continued as such until the year 1949, when it merged with Morris y Montero to acquire capacity for the execution of paving and earth moving works under the new name Graña y Montero. In the 1990’s, 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. In recent years, Graña y Montero was the first company to participate in the concession program and it is currently the largest infrastructure concession holder in Peru, with GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT201477 >> >> At present, the Group has 6,819 professionals, it is the only company in its industry listed on the Lima Stock Exchange and on the New York Stock Exchange, it is clearly the leader in the country’s engineering and infrastructure sector, has activities in eight other Latin American countries including Peru and is a leader in mining construction in the region. HISTORICAL REVIEW three highways, Line One of the Lima Metro, and La Chira Waste Water Treatment Plant. The Group has undertaken a major international development in recent years, participating in the construction of mining projects in Chile, Bolivia, the Dominican Republic and Panama. Additionally, in 2010 we acquired the electricity services company CAM, which operates in Chile, Peru, Colombia and Brazil, in 2011 we formed Stracon GyM for mining services with Australian partners and in 2012 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. Today, we have 80.4% of that company, after it merged with DSD, company which we acquired in 2013. In 2013, the company made a successful initial public offering of stock for approximately 413 million dollars in the New York Stock Exchange. Also, the company granted the placing banks an option for up to an additional 62 million dollars, which was exercised in 30 days. The aforementioned issue was for 19,534,884 American Depositary Shares (ADSs); each of which ADS represents five shares of the company. In 2014, the company acquired 70% of the Colombian construction company Morelco, specialized in the oil and gas sector, 50% of the company COGA,(Compañía Operadora del Gas del Amazonas). At present, the Group has 6,819 professionals, it is the only company in its industry listed on the Lima Stock Exchange and on the New York Stock Exchange, it is clearly the leader in the country’s engineering and infrastructure sector, has activities in eight other Latin American countries including Peru and is a leader in mining construction in the region. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCEND<< menu ANNUALREPORT2014CORPORATE GOVERNANCE 78 >> 14 AWARDS AND RECOGNITIONS IN 2014 • Best managed company in Latin America, given by the British Magazine Euromoney. • Key of the Lima Stock Exchange, for having the best corporate governance practices. • Company with the best strategy for Latin America equity market, granted by the LatinFinance magazine. • Corporate with the best equity market strategy, and Andean corporate with the best capital markets strategy awarded by the American magazine LatinFinance. >> 26 recognitions awarded in the last two years CAPÍTULO<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201479 >> CORPORATE GOVERNANCE • One of the 10 most admired companies of Peru, awarded by the magazine G of Gestion and PwC. In addition, our companies obtained the following awards: • The Infrastructure 360° Award, given by • Rank 7 in the ranking of the 100 Peruvian companies with the best reputation, according with the study conducted by the international consulting company, MERCO, with the support of KPMG. the Inter-American Development Bank with the support of the Harvard University, for work in the Lima Metro Line 1, as the project demonstrated the most comprehensive implementation of a sustainability strategy • Rank 11 in the ranking of the 100 more responsible companies in Peru and with the best governance in 2014, according to the study conducted by the international consulting company, MERCO, with the support of KPMG. • Award Peru 2021, first place in the Multistakeholder category for the program IMPULSO to the shared innovation. • GyM, 4th in the overall ranking and 1st in the construction companies ranking of the study "Where do I want to work" developed by Arellano Marketing and Laborum. • Viva GyM, 1st in the real estate companies ranking of the study “Where do I want to work” developed by Arellano Marketing and Laborum. • Viva GyM, 6th -in the category of companies >> Rank 7 in the ranking of the 100 Peruian companies with the best reputation, according with the study conducted by the international consulting company, MERCO, with the support of KPMG. between 30 and 250 workers- in the ranking “The best companies where to work 2014" of Great Place to Work ® Peru. • GMP, 11th -in the category of companies between 251 and 1,000 workers- in the ranking “The best companies where to work 2014” of Great Place to Work ® Peru. • GMD, 12th - in the category of companies with more than 1,000 workers- in the ranking “The best companies where to work 2014" of Great Place to Work ® Peru. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT201480 >> ANALYSIS OF RESULTS TO DECEMBER 31, 2014 • Revenues for 2014 increased 17.5% in Nuevos Soles, compared to 2013, reaching S/. 7,008.7 MM (US$ 2,344.8MM, 9.9% growth in dollars) • Net profit for 2014 was S/.299.7 MM (US$ 100.3 MM), which represents 4.3% of the revenues. • EBITDA for 2014 amounted to S/.911.9 MM (US$ 305.1 MM) which represents 13% of the revenues. • Consolidated Backlog for 2014 amounted to S/.11,254.9 (US$ 3,765.4 MM) which represents an increase of 2.3% compared to 2013. From the consolidated backlog, S/. 5,506.0 (US$1,842.1 MM) will be executed during 2015, S/.3,437.4 MM (US$1,150.0 MM) in 2016 and the remaining in 2017 and the following years. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014GRAÑA Y MONTERO WORK STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 << menu 81 >> REVENUES BY AREA (US$ MM) EBITDA BY AREA (US$ MM) NET PROFIT BY AREA (US$ MM) 3% 12% 7% 8% -1% 8% 16% 69% 34% 51% 35% 56% ENGINEERING AND CONSTRUCTION US$ 1,685 69% 16% TECHNICAL SERVICES 12% 3% INFRASTRUCTURE REAL ESTATE US$ 404 US$ 296 US$ 75 ENGINEERING AND CONSTRUCTION US$ 154 INFRASTRUCTURE REAL ESTATE TECHNICAL SERVICES US$ 103 US$ 24 US$ 21 51% 34% 8% 7% ENGINEERING AND CONSTRUCTION US$ 65 INFRASTRUCTURE REAL ESTATE TECHNICAL SERVICES US$ 40 US$ 9 US$ -2 56% 35% 8% -1% WHY DO WE DO IT? OUR VISION OF BEING "THE MOST RELIABLE ENGINEERING AND INFRASTRUCTURE GROUP IN LATIN AMERICA” DOESN'T COMMIT TO AN AMOUNT, BUT TO AN ATTRIBUTE, AND HAS IMPLIED THE COMMITMENT OF TRANSCENDING, FORMING A GROUP OF ENGINEERS CAPABLE OF DEVELOPING EVERY STAGE OF THE MAJOR ENGINEERING PROJECTS OUR REGION NEEDS. 5 Larco Mar shopping center REPORTS _ AUDITED FINANCIAL STATEMENTS _ INDIVIDUAL FINANCIAL STATEMENTS _ COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES _ SPECIAL REPORT OF PROCEEDINGS _ PREVIOUSLY AGREED DOCUMENTS ON CONSTRUCTION PROJECTS AND SERVICES PERFORMED, CULMINATING AND DELIVERED GRAÑA Y MONTERO STYLE INSPIRES US DISTINGUISHES US ALLOWS US TO TRANSCEND ANNUAL REPORT 2014 << menu 84 >> CONSOLIDATED FINANCIAL STATEMENTS GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS S/. = US$ = NEW PERUVIAN SOL UNITED STATES DOLLAR INDEPENDENT AUDITORS REPORT 86 >> Note 2013 2014 As of December 31 8 10 11 12 13 14 16 959,415 - 521,872 971,743 87,328 553,218 762,797 25,687 21,473 818,402 7,105 1,109,209 1,152,790 99,061 579,654 833,570 26,444 9,513 3,903,533 4,635,748 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Current assets Cash and cash equivalents Financial asset at fair value through profit or loss Trade accounts receivables Unbilled 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 The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuCONSOLIDATED STATEMENT OF FINANCIAL POSITION Continuation ASSETS Non-current assets Long-term trade accounts receivable Long-term unbilled work in progress Prepaid expenses Other long-term accounts receivable Available-for-sale financial assets Investments in associates and joint ventures Investment property Property, plant and equipment Intangible assets Deferred income tax asset Total non-current assets Total assets The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. 87 >> Note 2013 2014 As of December 31 10 11 13 9 15 16 17 23 591,917 - - 38,151 88,333 87,967 36,945 952,906 480,885 135,521 2,412,625 6,316,158 579,956 35,971 9,478 44,553 93,144 229,563 36,244 1,148,651 780,784 135,807 3,094,151 7,729,899 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 88 >> Note 2013 2014 As of December 31 18 19 12 20 21 486,119 991,397 25,585 66,645 837,683 8,895 2,416,324 1,425,455 1,178,849 83,027 89,615 1,007,743 11,441 3,796,130 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Continuation LIABILITIES AND EQUITY Current liabilities Borrowings Trade accounts payable Accounts payable to related parties Current income tax Other accounts payable Provisions Total current liabilities The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 89 >> Note 2013 2014 As of December 31 18 19 20 21 7 23 309,703 2,157 205,396 43,418 3,911 138,554 703,139 3,119,463 326,124 3,779 294,886 46,904 2,999 79,155 753,847 4,549,977 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Continuation LIABILITIES AND EQUITY Non-current liabilities Borrowings Long-term trade accounts payable Other long-term accounts payable Provisions Derivative financial instruments Deferred income tax liability Total non-current liabilities Total liabilities The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 90 >> Note 2013 2014 As of December 31 22 660,054 111,657 1,027,533 18,423 947,766 2,765,433 431,262 3,196,695 6,316,158 660,054 132,011 899,311 (113,895) 1,113,697 2,691,178 488,744 3,179,922 7,729,899 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Continuation LIABILITIES AND EQUITY Equity Capital Legal reserve Share Premium Other reserves Retained earnings Equity attributable to controlling interest in the Company Non-controlling interest Total equity Total liabilities and equity The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 91 >> Note 25 25 27 15 For the year ended December 31, 2012 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) 75,619 - 530,505 2013 3,820,393 1,748,127 398,980 5,967,500 (3,354,420) (1,349,850) (259,108) (4,963,378) 1,004,122 (361,792) 25,302 5,722 673,354 2014 4,749,159 1,912,646 346,875 7,008,680 (4,336,388) (1,489,573) (231,150) (6,057,111) 951,569 (421,367) 15,136 - 545,338 CONSOLIDATED INCOME STATEMENT 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 Operating profit The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuCONSOLIDATED INCOME STATEMENT Continuation 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 92 >> Note 26 26 15 28 For the year ended December 31, 2012 (68,129) 57,846 604 520,826 (154,575) 366,251 289,954 76,297 366,251 2013 (152,802) 40,353 33,562 594,467 (182,323) 412,144 320,016 92,128 412,144 2014 (102,816) 11,462 53,445 507,429 (146,196) 361,233 299,744 61,489 361,233 Earnings per share from continuing operations attributable to owners of the Company during the year 33 0.519 0.533 0.454 The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu93 >> CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Profit for the year Other comprehensive income: Items that will not be reclassified to profit or loss Remeasurement of 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, net of tax Exchange difference from net investment in a foreign operation, net of tax Other comprenhensive income for the year, net of tax Total comprehensive income for the year Comprehensive income attributable to: Owners of the Company Non-controlling interest The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. For the year ended December 31, Note 2012 366,251 2013 412,144 2014 361,233 29 29 9 29 (3,678) (6,121) (1,777) (2,369) (2,019) - - (4,388) (8,066) 358,185 282,870 75,315 358,185 3,733 (1,071) 19,060 - 21,722 15,601 427,745 337,564 90,181 427,745 568 (21,040) 4,649 (12,794) (28,617) (30,394) 330,839 277,913 52,926 330,839 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu94 >> CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 ATTRIBUTABLE TO THE CONTROLLING INTERESTS OF THE COMPANY Number of shares In thousands Capital Legal reserve Premium for issuance of shares Other reserves Retained earnings Non- controlling interest Total Total In thousands Balances as of January 1, 2012 558,284 390,488 78,104 4,880 (310) 715,860 1,189,022 264,064 1,453,086 Profit for the year Cash flow hedge Adjustment for actuarial gains and losses 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 - - - - - - - - - - - - - - - - 167,485 - - - - - - 28,907 - - - - - - - - - - - - - 289,954 289,954 76,297 366,251 (2,251) - - (3,678) (1,155) - (2,251) (3,678) (1,155) (118) - (864) (2,369) (3,678) (2,019) (3,406) 286,276 282,870 75,315 358,185 - - - - (28,907) - - - (86,723) (86,723) (37,512) (124,235) (167,485) - - - - - 5,750 5,750 The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu95 >> CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 Continuation ATTRIBUTABLE TO THE CONTROLLING INTERESTS OF THE COMPANY - Purchase of subsidiaries (Note 31 d-e) - 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) - Sale to 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 Balances as of January 1, 2013 Profit for the year Number of shares In thousands Capital Legal reserve Premium for issuance of shares Other reserves Retained earnings Non- controlling interest Total Total In thousands - - - - - - - - - - - - - 140 171 - - - - - - - 167,796 28,907 - - - 364 291 1,292 (171) 1,776 - - - - - - - - - - - - - - 4,951 - - - 364 291 1,432 4,951 48,055 48,055 12,232 12,232 26,096 26,096 (4,757) (4,393) 902 - 889 1,193 1,432 5,840 (278,164) (79,685) 51,655 (28,030) 558,284 558,284 107,011 6,656 (3,716) 723,972 1,392,207 391,034 1,783,241 558,284 558,284 107,011 6,656 (3,716) 723,972 1,392,207 391,034 1,783,241 - - - - - 320,016 320,016 92,128 412,144 The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu96 >> CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 Continuation ATTRIBUTABLE TO THE CONTROLLING INTERESTS OF THE COMPANY Number of shares In thousands Capital Legal reserve Premium for issuance of shares Other reserves Retained earnings Non- controlling interest Total Total In thousands 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 - Contributions of non-controlling shareholders (Note 34 d) - Additional acquisition of non-controlling (Note 34 a) - Deconsolidation of former subsidiaries (Note 34 e) - - - - - - The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. - - - - - 4,646 - - - - - - - - - - - - 1,055,488 - (34,611) - 3,546 - 3,546 187 3,733 - (4,591) (467) 19,060 - - (4,591) (467) 19,060 (1,530) (604) (6,121) (1,071) - 19,060 22,139 315,425 337,564 90,181 427,745 - - - - - - (4,646) - - - (86,985) (86,985) (51,794) (138,779) - - - - 1,157,258 - 1,157,258 - 34,774 34,774 (34,611) (29,257) (63,868) - (19,377) (19,377) GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu97 >> CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 Continuation ATTRIBUTABLE TO THE CONTROLLING INTERESTS OF THE COMPANY Number of shares In thousands Capital Legal reserve Premium for issuance of shares Other reserves Retained earnings Non- controlling interest Total Total In thousands - Purchase of subsidiaries (Note 31 c) - - - - Total transactions with shareholders 101,770 101,770 4,646 1,020,877 - - - - 15,701 15,701 (91,631) 1,035,662 (49,953) 985,709 Balances as of December 31, 2013 660,054 660,054 111,657 1,027,533 18,423 947,766 2,765,433 431,262 3,196,695 Balances as of January 1, 2014 660,054 660,054 111,657 1,027,533 18,423 947,766 2,765,433 431,262 3,196,695 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 Exchange difference from net investment in a foreign operation Comprehensive income of the year - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 299,744 299,744 61,489 361,233 540 - (13,086) 4,649 (12,602) - 540 28 568 (1,332) (1,332) (445) (1,777) - - - (13,086) (7,954) (21,040) 4,649 - 4,649 (12,602) (192) (12,794) (20,499) 298,412 277,913 52,926 330,839 The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu98 >> CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014 Continuation ATTRIBUTABLE TO THE CONTROLLING INTERESTS OF THE COMPANY Number of shares In thousands Capital Legal reserve Transactions with shareholders: - Transfer to legal reserve - Dividend distribution (Note 32 and 34 g) - Contributions of non-controlling shareholders (Note 34 d) - Additional acquisition of non-controlling (Note 34 a) - Sale to non-controlling interest in GyM Chile Spa (Note 34 b) - Deconsolidation of subsidiaries (Note 34 e) - Put option liability from acquisition of non-controlling (Note 20) - Purchase of subsidiaries (Note 31 a-b) Total transactions with shareholders Balances as of December 31, 2014 - - - - - - - - - - - - - - - - - - 20,354 - - - - - - - The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. Premium for issuance of shares - - - (128,222) - - - - Other reserves Retained earnings Non- controlling interest Total Total In thousands - - - - - - (111,819) - (20,354) - - - (112,127) (112,127) (68,062) (180,189) - - - - - - 47,376 47,376 (128,222) (50,109) (178,331) - - 1,627 2,284 1,627 2,284 (111,819) (2,010) (113,829) - 73,450 73,450 660,054 660,054 132,011 899,311 (113,895) 1,113,697 2,691,178 488,744 3,179,922 20,354 (128,222) (111,819) (132,481) (352,168) 4,556 (347,612) GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu99 >> Note 2012 2013 2014 For the year ended December 31 520,826 594,467 507,429 16 17 14 10 21 173,018 71,485 10,981 2,707 - - - - 181,479 78,387 2,239 110 - 774 - 15,084 185,309 74,730 62 71 2,415 14,170 (1,169) 6,559 CONSOLIDATED STATEMENT OF CASH FLOWS OPERATING ACTIVITIES Profit before income tax Adjustments to profit not affecting cash flows from operating activities: Depreciation Amortization of other assets Impairment of inventory Impairment of accounts receivable Impairment of property, machinery and equipment Impairment of other assets Recovery of impairment of inventory Provisions Share of the profit and loss in associates The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuCONSOLIDATED STATEMENT OF CASH FLOWS Continuation under the equity method of accounting 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 Increase (decrease) in other accounts receivable Decrease in other accounts receivable from related parties Decrease in inventories Increase (decrease) in pre-paid expenses and other assets Increase in trade accounts payable Increase (decrease) in other accounts payable Increase (decrease) in other accounts payable to related parties Decrease in other provisions The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. 100 >> Note 15 a-b 27 16 15 a For the year ended December 31 2012 2013 2014 (604) (67,556) (1,261) - (49,897) (346,429) (24,451) (197,802) 21,644 224,935 373,637 23,069 (3,759) (33,562) (14,556) (734) (5,722) (783,965) (33,606) (34,089) (21,071) (539) 56,836 (145,379) (14,677) (16,269) (53,445) (9,394) (4,845) - (594,993) 32,159 (15,291) (51,489) (8,634) 82,051 (19,731) 58,342 (7,208) GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuCONSOLIDATED STATEMENT OF CASH FLOWS Continuation Payments related to Norvial Concession Payment of income tax Net cash provided by (applied to) operating activities INVESTING ACTIVITIES Sale of investment in associates Sale of available-for-sale investment Sale of property, plant and equipment Dividends received Payment for purchase of available-for-sale investment Payment for purchase of investments properties Payments for intangible purchase Payments for purchase and contributions on investment in associate and joint ventures Direct cash outflow from acquisition of subsidiaries The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. 101 >> Note 2012 2013 2014 For the year ended December 31 (28,406) (159,408) 542,729 (2,329) (190,556) (367,678) - 342 23,471 2,057 - (956) (10,851) - 6,800 - 15,861 4,688 (56,100) (2,974) (22,375) - (133,648) (88,342) (82,698) (154,878) (40,478) - - 42,968 36,718 - (1,450) (60,846) (129,859) (167,921) 15 -a,b 15 -a,b 31 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuCONSOLIDATED STATEMENT OF CASH FLOWS Continuation Payments for property, plant and equipment purchase Net cash applied to investing activities 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 from non-controlling shareholders Acquisition or sale of interest in a subsidiary of non-controlling shareholders Capital contribution Issuance of shares, net of related expenses Repurchase of shares 102 >> Note 2012 2013 2014 For the year ended December 31 (280,402) (399,987) (197,553) (339,995) (265,567) (545,957) 610,399 1,351,964 2,852,271 (490,398) (1,378,359) (2,053,422) (46,659) (86,723) (37,512) 26,096 (3,200) 5,750 - 1,432 (61,013) (86,986) (51,794) 34,774 (63,868) - 1,147,418 - (46,411) (112,127) (63,990) 47,376 (175,824) - - - 34-d Net cash (applied to) provided by financing activities (20,815) 892,136 447,873 The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuCONSOLIDATED STATEMENT OF CASH FLOWS Continuation Net increase (net decrease) 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 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 of former subsidiaries Change in fair vaue of available-for-sale financial asset Account payable - acquisition of Morelco Put option liability from acquisition of non-controlling The accompanying notes on pages 8 to 110 are an integral part of the consolidated financial statements. 103 >> Note 2012 2013 2014 For the year ended December 31 121,927 - 658,187 780,114 167,485 12,232 123,815 24,994 - - - 184,463 (5,162) 780,114 959,415 - 7,989 43,812 - (19,943) 19,060 - - (138,562) (2,451) 959,415 818,402 - - 163,399 - 2,284 4,649 45,684 113,829 GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu104 >> 1. GENERAL INFORMATION a. Incorporation and operations - Graña y Montero S.A.A. (hereinafter indistinctly 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. 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 issuance related costs. The total outstanding common shares as of the date of the financial statements are 660,053,790 shares listed in the Lima Stock Exchange, from that 253,635,480 shares are represented in ADS in the NYSE. The excess of the total proceeds obtained by this transaction in comparison with the nominal value of the shares amounted to S/.1,055,488 (net of commissions, other related costs and tax effects for that amounted to S/.38,535) recorded as share premium in the consolidated statement of financial position (Note 22). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 105 >> c. Authorization for issue of the financial statements - The consolidated financial statements for the year ended December 31, 2014 have been prepared and authorized by Management on January 29, 2015, which will submit them for the consideration of the Board and Annual Shareholders’ Meeting to be held within the term established by Peruvian law. Management expects that the financial statements as of December 31, 2014 will be approved by the Board of Directors’ and the General Shareholders’ Meetings 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, financial assets at fair value through profit and loss 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 106 >> 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 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. 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 less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss as a bargain purchase 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 107 >> 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 interest, 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 amount previously recognized in other comprehensive income is reclassified to profit or loss. d. Joint arrangements - Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to have both joint ventures as well as joint operations. Joint ventures are accounted for using the equity method (par.e below). 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 108 >> 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 post-acquisition profits or losses. The Group’s investment in associates includes goodwill identified on acquisition. 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 ‘share of profit or loss in associates and joint ventures under the equity method of accounting’ 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 109 >> 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 arrangements 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 and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency of the Group are translated into the presentation currency as follows: i) 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; ii) income and expenses for each income statement are translated at the average exchange rate (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the rate on the date of the transaction); iii) capital is translated by using the historical exchange rate for each capital contribution made; and NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 110 >> iv) all resulting exchange differences are recognized as separate components in other comprehensive income. 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. Exchange differences arising on loans from the Parent to its subsidiaries in foreign currencies are recognized in the separate financial statements of the Parent and individual financial statements of the subsidiaries. In the consolidated financial statements, such exchange differences are recognized in other comprehensive income and are subsequently re-classified in the income statement on the disposal of the subsidiary; to the extent such loans qualifying as part of the “net investment of the foreign operation”. 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). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 111 >> 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). 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 three categories: a. b. Financial assets at fair value through profit or loss - Financial assets at fair value through profit or loss are non-derivatives that are designated by the Group as at fair value upon initial recognition and are held-for-trading. They are included in current assets. The changes in their fair value are recognized in “Other income and expenses” in the income statement. 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 accounts receivables’, ‘accounts receivable from related parties’, ‘other accounts receivable’, ‘unbilled work in progress’ and ‘cash and cash equivalents’. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 112 >> c. 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. 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. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘Other income and expenses’ in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the group’s right to receive payments is established. Changes in the fair value of monetary securities classified as available for sale are recognised in other comprehensive income, When a financial asset classified as available for sale is sold or impaired, the accumulated fair value adjustments recognised in equity are recycled to 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. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 113 >> 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 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 available for sale is impaired. For debt securities, if any such evidence exist 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 recognised in profit or loss – is removed from equity and recognized in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 114 >> 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 consolidated income statement. For 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. 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 maturity period of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity period of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. Cash flow hedge - The effective portion of changes in the fair value of derivatives that are designated and qualify as fair value hedges is recognized as other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 115 >> Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecasted sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the income statement as ‘Financial income or expenses’. However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains or losses previously deferred in equity are transferred from equity and are included in the initial measurement of the cost of the non-financial asset. The deferred amounts are 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 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 receivables Trade receivables 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 receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less any provision for impairment. 2.12 Unbilled work in progress Unbilled 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 (see Note 2.26 for detail on Revenue from construction activities) 2.13 Inventories Inventory mainly includes land, work in progress and finished property which is assigned to the real- estate activity. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 116 >> 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. 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. 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 and considering its significant components with substantially different useful lives (each component is treated separately for depreciation purposes and depreciated over its individual useful life). The estimated useful life of investments properties fluctuate between 5 and 20 years. The Group maintains only one investment property, a Shopping Mall owned by the subsidiary Viva GyM S.A. Its fair value amounted to US$19 million at December 31, 2014. The stores in this mall are leased to third parties under operating leases. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 117 >> 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 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: Years Own occupied buildings Machinery and equipment Vehicles Furniture and fixtures Other equipment Replacement units Between 33 and 50 Between 4 and 10 Between 4 and 10 Between 2 and 10 Between 2 and 10 5 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 118 >> Non - current assets (or disposal groups) are classified as non- current assets held for sale when its carrying amount is recovered mainly through a sale operation and this sale is considered highly probable. These are estimated through the lowest carrying amount and the fail value amount less sale costs. 2.16 Intangible assets a. Goodwill - Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the income statement. 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 its recoverable amount, which is the higher of its value in use and its fair value less costs of disposal. Any impairment is recognized immediately as an expense and is not subsequently reversed. b. Trademarks - Separately acquired trademarks and licences are shown at historical cost. Trademarks and licences acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licences have an indefinite useful life. c. Concessions rights - The intangible asset related to the right to charge users for the services related to service concessions agreements (Note 2.5 and.5.b) 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 119 >> 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. Cost of development of Wells - Costs incurred to prepare the wells to extract the hydrocarbons associated with Block I and Block V, are capitalized as intangible assets. 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 (9 and 10 years for Blocks I and V, respectively), 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; 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 120 >> g. Rights of use of land - Right of use of land are stated at historical cost less amortization and any accumulated impairment losses. The useful life of this asset is based on the agreement signed (60 years) and 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. 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 121 >> 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 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 122 >> The deferred income tax arising from the temporary differences in investments in subsidiaries, associates and interest in joint-controlled businesses is not recognized due the tax legislation in Chile, Colombia, Panama, Brasil, Dominican Republic and Peru does not consider the income from dividends as a taxable item and the Group expects to recover the investment through the dividends rather than their sale. 2.22 Employee benefits Profit sharing - a. The Peruvian entities of the Group recognize a liability and an expense for statutory workers’ profit sharing. Workers’ profit sharing is equivalent to 5% of the taxable income determined separately 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. In Brazil, Colombia and Chile these benefits are not provided to employees. b. Bonuses - The Peruvian entities of the Group recognize an expense and the related liability for statutory bonuses based on applicable laws and regulations effective in Peru. Statutory bonuses comprise two additional one-month salaries paid every year in July and December, respectively. According to Chilean legislation, employees receive a fixed amount of sixty five thousand of Chilean pesos (equivalent to three hundred and eighteen new Peruvian 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 123 >> e. Pension plans - The subsidiary CAM Chile 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 plan 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 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. Remeasurements 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 for possible obligations that are not yet determined to be probable. Contingent assets are not recognized and only disclosed if it is probable that future economic benefits will flow to the Company. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 124 >> 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. 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 2.17). 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 that determines the amount of the obligation over the time. 2.24 Put option arrangement The potential cash payments related to put options issued by the group on shares of an existing subsidiary that are held by non-controlling interests are accounted for as financial liabilities. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 125 >> The financial liability is recognised at the present value of the redemption amount and accreted through finance charges in the income statement over the contract period up to the final redemption amount. Any adjustments to the redemption amount are recognised as finance charges in the income statement. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity. 2.25 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. 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. 2.26 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 of the contract based on the completion of a physical proportion of the contract work considering total costs and revenues estimated at the end of the project, in accordance with IAS 11, Construction Contracts. Under the physical proportion method revenues are determined based on the proportion of actual physical completion compared to the total contract physical construction commitment. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 126 >> 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 the outstanding approval by the owners, the Company recognizes revenue with an increase in accounts receivable - “Unbilled 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 settlement provisions. 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 third 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, consulting services and other services - For sales of services, revenue is recognised in the accounting period in which the services are rendered. 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 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 127 >> 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 their 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. 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). 2.27 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 128 >> 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. 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. 2.28 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. 2.29 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 129 >> 2.30 Contingent liabilities and assets Contingent liabilities are not recognized in the financial statements, but are disclosed in the Notes to the financial statements.. 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. 2.31 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 of their nature or amount. 2.32 New standards, amendments and interpretations a) New standards, amendments and interpretations adopted by the Group in 2014 The following standards have been adopted by the group for the first time for the 2014 financial statements. Principal impacts of the adoption of these standards are related to the presentation and disclosure of the financial statements: - Amendment to IAS 32, “Financial Instruments: Presentation”. This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment did not have a significant effect on the group financial statements. - Amendments to IAS 36, “Impairment of assets”. This amendment removed some disclosure requirements regarding: a) eliminating the requirement about disclosing the recoverable value when a cash generating unit (CGU) contains a goodwill or indefinite life intangible assets, but that has not been impaired; b) disclosing the recoverable value of an asset CGU when an impairment loss has been recognized or reversed and c) detailed disclosures about how the recoverable value less costs of sales has been measured when an impairment loss has been recognized or reversed. The Group has applied the amendment and consequently there has been no significant impact on the Group financial statements. - Amendments to IAS 39 “Financial instruments: Recognition and measurement”. This amendment requires to discontinue the hedging accounting when a hedging instrument expires or is sold, finished or exercised, unless the replacement or incorporation of a hedging instrument in another hedging instrument is part of the hedging strategy documented by the entity. The Group has applied the amendment and consequently there has been no significant impact on the Group financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 130 >> - Amendment to IAS 19 “Employee benefits”. The amendment applies to contributions from employees or third parties to defined benefit plans and clarifies the treatment of such contributions. The amendment distinguishes between contributions that are linked to service only in the period in which they arise and those linked to service in more than one period. The objective of the amendment is to simplify the accounting for contributions that are independent of the number of years of employee service, for example employee contributions that are calculated according to a fixed percentage of salary. Entities with plans that require contributions that vary with service will be required to recognize the benefit of those contributions over employee’s working lives. The Group has applied the amendment and consequently there has been no significant impact on the Group financial statements. - IFRIC 21, “Levies”, sets out the accounting for an obligation to pay a levy if that liability is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when a liability should be recognized. The Group is not currently subjected to significant levies so the impact on the Group is not material. Other standards, amendments and interpretations which are effective for the financial year beginning on January 1, 2014 are not material to the Group. b) New standards, amendments and interpretations not yet adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, and have not been applied in preparing these consolidated financial statements. None of these is expected to have a significant effect on the consolidated financial statements of the Group, except the following set out below: - IFRS 9, ‘Financial instruments,’ addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through Other Comprehensive Income and fair value through Profit and Loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in Other Comprehensive Income not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 131 >> be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is permitted. The Group is yet to assess IFRS 9’s full impact. - IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted. The group is in the process of assessing the impact of IFRS 15, whose application is expected to impact several operating segments of the Group. As part of this assessment the Group is evaluating the transition options established by IFRS 15 and the effect on the current contracts entered into by the different subsidiaries. - Amendments to IFRS 10 ‘Consolidated Financial Statements’ and IAS 28 ‘Investments in associates’, prospectively applicable from January 1, 2016. Amendments will only be applicable to transactions in which the investor sells or transfers of assets to its associates or joint ventures. Amendments are not intended to take into account the accounting that an investor will apply in selling or transfer of assets transactions to joint ventures. The resulting impact is that the investor will recognize all the profit or loss in cases in which non-monetary assets constitute a business. If assets do not meet the business definition, the investor will recognize the profit or loss up to the limit of the interest of the other investors in the associate or joint venture. The Group is evaluating the impact of these amendments. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 132 >> 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 some 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. Foreign exchange risk - a. Market risks - i) 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, 2014 and 2013, this exposure is mainly concentrated in fluctuations of the U.S. dollar and Chilean and Colombian pesos. The foreign exchange risk of the investments in Brazil, and Dominican Republic are not significant due their low 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. As of December 31, 2014, the consolidated statement of financial position includes assets and liabilities in foreign currency (U.S.dollar) equivalent to S/.2,096 million and S/.2,176 million, respectively (S/.1,886 million and S/.2,746 million, respectively, as of December 31, 2013) equivalent to US$455.5 million and US$580 million respectively (US$470 million and US$811 million respectively as of December, 2013). During 2014 the Nuevo Sol has been exposed against the U.S. dollar and Chilean Pesos. The Group’s exchange gains and losses for 2014 amounted to S/.357.3 million and S/.401.6 million, respectively (S/.431 million and S/.501 million respectively in 2013, and S/.264 million and 243 million, respectively in 2012). If, at December 31, 2014, the new Peruvian sol and the Chilean pesos had strengthened/weakened by 2% against the U.S. dollar and Chilean and Colombian Pesos, with all variables held constant, the pre-tax profit for the year would have increased/decreased by S/.0.9 million (S/.1.4 million in 2013 and S/.0.4 million in 2012). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 133 >> As of December 31, 2014, the consolidated statement of changes in shareholder´s equity comprises a foreign currency translation adjustment originated by its subsidiaries. Their financial position include assets and liabilities in functional currency equivalent to Ch$109,187 million and Ch$62,163 million respectively (Ch$90,904 million and Ch$77,415 million, respectively as of December, 2013), Col$189,649 million and Col$149,150 million respectively (Col$38,545 million and Col$27,595 million, respectively as of December, 2013), R$20.1 million and R$7.05 million respectively (R$29 million and R$22 million, respectively as of December, 2013). The Group´s foreign currency translation adjustment for 2014 amounted to S/.18.27 million (S/. 1.1 million in 2013 and S/.2.02 million in 2012). ii) Price risk - Management considers that the exposure of the Group to the price risk of its investments in mutual funds, bonds and equity securities is low, since the invested amounts are not significant. Any fluctuation in their fair value will not have any significant impact on the balances reported in the consolidated financial statements. iii) Cash flow and fair value interest rate risk - The Group’s interest rate risk mainly arises from its long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain most of its borrowings in fixed rate instruments; 97% of total debt in 2014 (86% in 2013) was contracted at fixed rates. Management has established mechanisms with the banks to negotiate in time intervals the interest rates of loans. During 2014 and 2013 the Group’s borrowings at variable rates are denominated in U.S. dollars and the Group’s policy is to manage their cash flow risk by using interest-rate swaps, which are recognized under hedge accounting. The variable portion of the hedging derivative only comprises 3% of the total debt for 2014 and (14% in 2013) and an increase or decrease of 5% 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 2014 and 2013. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 134 >> For accounts receivable, 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) Riesgo de liquidez - Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. In this sense, the Group has no significant liquidity risks given the fact that historically its cash flows have enabled it to maintain sufficient cash to meet its obligations. 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 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 135 >> Less than 1 year From 1 to 2 years From 2 to 5 years Over 5 years Total 371,302 118,347 64,698 - 22,912 - - 2,354 - 25,266 - 11,224 - - - - 554,347 308,931 993,554 25,585 251,709 3,911 2,138,037 1,447,719 364,832 1,182,628 83,027 383,376 2,999 178,584 11,224 3,464,581 - 1,719,395 1,318,817 138,988 1,178,849 83,027 337,692 3,057,373 3,911 235,652 72,696 92,242 3,779 45,684 2,999 217,400 - - 157,724 56,206 122,378 - - - - At December 31, 2013 Other financial liabilities (except finance leases) Finance leases Trade payable Payables to related parties Other payables Other non-financial liabilities At December 31, 2014 Other financial liabilities (except finance leases) Finance leases Trade payables Payables to related parties Other payables Other non-financial liabilities NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu136 >> 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, 2013, there is no gearing ratio due to the Company having a cash surplus higher than borrowings and equity was not used to guarantee the fulfilment of those borrowings. As of December 31, 2014, the gearing ratio is presented below indicating the Company’s strategy to keep it in a range from 0.10 to 1.00. As of December 31, 2013 and 2014 the gearing ratio was as follows: Total borrowing Less: Cash and cash equivalents Net debt Total equity Total capital Gearing ratio 2013 795,822 (959,415) (163,593) 3,196,695 3,033,102 0.00 2014 1,751,579 (818,402) 933,177 3,179,922 4,113,099 0.23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 137 >> 3.3 Fair value estimation - For the classification of the type of valuation used by the Group for its financial instruments at fair value, the following levels of measurement have been established. - - - Level 1: Measurement based on quoted prices in active markets for identical assets or liabilities. Level 2: Measurement based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Measurement based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs, generally based on internal estimates and assumptions of the Group). The fair value of the investment held in Transportadora de Gas del Perú S.A. (TGP) classified as available-for-sale financial asset was based on unobservable inputs in the market; the Group calculated its fair value based on its discounted cash flows as of the financial statement date. The information used to determine the fair value of this investment corresponds to Level 3 (Note 9). Financial assets classified as at fair value through profit or loss corresponds to investments in mutual funds and bonds. Their fair value has been determined with observable information of Level 2. Other financial instruments measured at fair value correspond to the interest rate swaps signed by subsidiary GMP S.A., by which a variable-interest instrument is changed to a fixed interest rate (cash flow hedge) and the forward foreign exchange contracts signed by the subsidiaries GyM Ferrovías S.A. and Viva GyM S.A. (the later up-to 2013) to hedge the Group’s exposure to changes in the exchange rate of the Euro and US 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 N.A. The carrying amounts of cash and cash equivalents correspond to their fair values. The Company considers that the carrying amount of trade 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 (Level 2). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 138 >> 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 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 and other intangible assets with indefinite useful life Impairment reviews are undertaken annually to determine if goodwill arising from business acquisitions and other intangible assets with indefinite useful life have suffered any impairment, in accordance with the policy described in Note 2.16). For this purpose, goodwill is attributed to the different CGUs to which it relates while other intangible assets with indefinite useful life are assessed individually. The recoverable amounts of the CGUs and of other intangible assets with indefinite useful life have been determined based on their value- in-use. 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. 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 as well as other intangible assets with indefinite useful life may be deemed to be impaired, which may cause their write-down to be necessary. Based on the impairment tests performed by Group Management, no goodwill nor intangible (trademarks) 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 139 >> 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 above its carrying amount and if the gross margin was adjusted down by 10% the fair value would be 26.04% higher than the carrying amount and if the gross margin was adjusted up by 10% the fair value would be 88.26% higher than carrying amount. Therefore the Group’s businesses would still be greater than the carrying amount 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 carrying amount and if the discount rate was adjusted down by 10% the fair value would be 76.64% higher than the carrying amount and if the discount rate was adjusted up by 10% the fair value would be 39.42% higher than carrying amount. Therefore the Group’s businesses would still be greater than the carrying amount even under a significant upward adjustment to the discount rate in value and the Group would not need to impair its goodwill. 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 Tax Authorities (mainly Peruvian, Chilean and Colombian 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. 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 and tax loss carryforwards can be utilized. For this purpose, the Group takes into consideration all available positive and negative evidence, including factors such as historical data, projected income, current operations and tax planning strategies.. A tax benefit related to a tax position is only recognized if it is more likely than not that the benefit will ultimately be realized. The maximum exposure of the Group related to tax contingencies amounts to S/.37.5 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 140 >> 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 progresses and is approved. In this regard, Management considers that the estimates made at the year-end closing are reasonable. When unapproved change orders occur, revenue is recognized equal to costs incurred (no profit component recognized) until the additional work is approved. 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 expensed 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, 2014, 2013 and 2012, a sensitivity analysis was performed considering a 10% increase/decrease in the Group’s gross margins, as follows: Sales Gross profit % Increase 10% Increase in profit before taxes 2012 2013 2014 3,341,539 371,852 11.13 12.24 37,185 409,037 3,820,393 465,973 12.20 13.42 46,597 512,570 4,749,159 412,771 8.69 9.56 41,249 454,020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 141 >> Decrease 10% Decrease in profit before taxes d) Provision for well closure costs - 10.02 (37,185) 334,667 10.98 (46,597) 419,376 7.82 (41,387) 371,384 The Group 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 2.17% based on the 10 year bond rate as of December, 2014 (2.74% as of December, 2013). At December 31, 2014 the present value of the estimated provision for closure activities for 78 wells amounted to S/. 7.21 million (S/.4.85 million as of December 31, 2013 for closure activities for 83 wells). 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, 2014, 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 Impact in pretax profit 2014 (59) 60 During 2014, the Company recorded a provision amounting to S/.2.7 million with charge to intangibles to reflect the estimated obligation to close productive wells included in the service agreements for Blocks I and V. 4.2 Critical judgments in applying the entity’s accounting policies - Consolidation of entities in which the Group holds less than 50% - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 142 >> The Company owns some direct and indirect subsidiaries of which the Group has control even though it has less than 50% of the voting rights. These subsidiaries mainly comprise indirect subsidiaries in the real-estate business owned through Viva GyM S.A., where even though the Group holds interest between 30% and 50%, has the power to affect the relevant activities that impact the subsidiaries’ returns. Additionally, the Group owns de facto control of Promotora Larcomar S.A. on which owns 42.80% of equity interest considering the fact that the ownership of the 57.2% is disperse. 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 (Note 2.2-d). a) Principal subsidiaries - The following chart shows the principal direct and indirect subsidiaries allocated by operating segment (Note 6): Name Country Economic activity ENGINEERING AND CONSTRUCTION: GyM S.A. Stracon GyM S.A. Peru and Dominican Republic Peru and Panama Civil construction, electro-mechanic assembly, buildings, management and implementing housing development projects and other related services. Mining contracting activities, providing mining services and carrying out drilling, demolition and any other activity related to construction and mining operations. GyM Chile S.p.A. Chile Electromechanical assemblies and services to energy, oil, gas and mining sector. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 143 >> V y V - DSD S.A. (*) Chile Electromechanical assemblies and services. Develop 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. GMI S.A. Morelco S.A.S. 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.C. Concesionaria Vía Expresa Sur S.A. REAL ESTATE: VIVA GyM S.A. TECHNICAL SERVICES: GMD S.A. Gestión de Servicios Digitales S.A. Peru Advisory and consultancy services in engineering, carrying out studies and projects, managing projects and supervision of works. Colombia and Ecuador Providing construction and assembly services, supplying equipment and material to design, build, assemble, operate and maintain all types mechanical engineering, instrumentation and civil work. Peru Peru Peru Peru Peru Peru Peru Peru Peru Peru Peru Concession of services for treating and selling oil, natural gas and by-products as well as for storing and dispatching 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 Via Expresa - Paseo de la República in Lima. Developing and managing real estate projects directly or together with other partners. Information technology services. Information technology services. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu144 >> CAM Holding S.p.A. Concar S.A. Coasin Instalaciones Ltda. PARENT COMPANY OPERATION: Generadora Arabesco S.A. Larcomar S.A. Promotora Larcomar S.A. Promotores Asociados de Inmobiliarias S.A. Chile, Peru, Brazil and Colombia Peru Chile Peru Peru Peru Peru Electric and technological services for the power industry. Operating and maintaining roads under concession. Installing and maintaining network and equipment for telecommunications. Implementing projects related to electric power-generating activities. Exploiting land right to use the Larcomar Shopping Center. Building 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. (*) The subsidiaries Ingeniería y Construcción, Vial y Vives S.A., DSD Construcciones y Montajes S.A. and GyM Minería S.A. (all from Chile) merged and combined in July 2014, The merged entity’s name is V y V – DSD S.A. The following are the Group’s subsidiaries and related interests on December 31, 2014: Percentage of ordinary shares directly held by Parent (%) Percentage of ordinary shares held by Subsidiaries (%) Percentage of ordinary shares held by the Group (%) Percentage of ordinary shares held by non-controlling interests (%) ENGINEERING AND CONSTRUCTION: GyM S.A. 98.23% - 98.23% 1.77% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu - GyM S.A. subsidiarias Stracon GyM S.A. GyM Chile SpA V y V – DSD S.A. GMI S.A. Morelco S.A.S. 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. Concesión Canchaque S.A. Concesionaria Vía Expresa Sur S.A. REAL ESTATE: Viva GyM S.A. - Viva GyM S.A. subsidiarias - - - - 89.41% - 95.00% - - 75.00% 99.99% 67.00% 99.97% 99.98% 60.62% - - 87.64% 99.99% 82.04% - 70.00% - 50.00% 99.93% - - - - - 38.97% - - 87.64% 99.99% 82.04% 89.41% 70.00% 95.00% 50.00% 99.93% 75.00% 99.99% 67.00% 99.97% 99.98% 99.59% - 145 >> 14.20% 12.36% 0.01% 17.96% 10.59% 30.00% 5.00% 50.00% 0.07% 25.00% 0.01% 33.00% 0.03% 0.02% 0.41% 40.58% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu146 >> 10.85% - 0.26% - - 1.00% 20.34% 57.20% 0.01% TECHNICAL SERVICES: GMD S.A. Cam Holding S.p.A. Concar S.A. Gestión de Servicios Digitales S.A. Coasin Instalaciones Ltda. PARENT COMPANY OPERATIONS: Generadora Arabesco S.A. Larcomar S.A. Promotora Larcomar S.A. Promotores Asociados de Inmobiliarias S.A. 89.15% 100.00% 99.74% - - 99.00% 79.66% 42.80% 99.99% - - - 100.00% 100.00% - - - 89.15% 100.00% 99.74% 100.00% 100.00% 99.00% 79.66% 42.80% 99.99% In December 2014, the Group through its subsidiary GyM S.A. acquired control over Morelco S.A.S. for a consideration amounting to US$93.7 million (equivalent to S/.277.1 million). In March 2014, the Group through its subsidiary CAM Chile S.A. acquired control of Coasin Instalaciones Ltda. (hereinafter Coasin) for a consideration amounting to US$2.1 million (equivalent to S/.6.4 million). The details of these transactions and their resulting accounting impact are disclosed in Note 31. The following are the Group’s subsidiaries and related interests on December 31, 2013: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 147 >> Percentage of ordinary shares directly held by Parent (%) Percentage of ordinary shares held by Subsidiaries (%) Percentage of ordinary shares held by the Group (%) Percentage of ordinary shares held by non-controlling interests (%) 93.67% - - - - - - 89.41% 95.00% - - 75.00% 99.99% 67.00% 99.97% - - 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% 99.97% 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% 0.03% ENGINEERING AND CONSTRUCTION: GyM S.A. - GyM S.A. subsidiaries 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. Concesión Canchaque S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu148 >> Concesionaria Vía Expresa Sur S.A. 99.99% - 99.99% 0.01% REAL ESTATE: Viva GyM S.A. - Viva GyM S.A. subsidiaries TECHNICAL SERVICES: GMD S.A. Cam Holding S.p.A. Concar S.A. Gestión de Servicios Digitales S.A. PARENT COMPANY OPERATIONS: Generadora Arabesco S.A. Larcomar S.A. Promotora Larcomar S.A. Promotores Asociados de Inmobiliarias S.A. 59.25% - 89.15% 100.00% 99.74% - 99.00% 79.66% 42.80% 99.99% 38.97% - - - - 100.00% - - - - 98.22% - 89.15% 100.00% 99.74% 100.00% 99.00% 79.66% 42.80% 99.99% 1.78% 40.58% 10.85% - 0.26% - 1.00% 20.34% 57.20% 0.01% 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). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 149 >> In 2012, the Group, through some of its subsidiaries acquired control of certain entities as follows: i) A Chilean entity, Ingeniería y Construcción Vial y Vives S.A. (hereinafter Vial y Vives) for a consideration amounting to US$55.6 million (equivalent to S/.142 million), and ii) Stracon GyM, for a consideration amounting to US$16.4 million (equivalent to S/.41.9 million). The details of these transactions and their resulting accounting impact are disclosed in Note 31. 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 common 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. Others 2013 176,210 5,411 101,601 40,616 39,811 19,585 18,853 14,042 9,960 5,173 431,262 2014 191,826 8,414 147,660 18,953 41,820 24,137 18,204 19,878 9,697 8,155 488,744 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 150 >> Summarized financial information of subsidiaries with material non-controlling interests Set out below is the summarized financial information for each subsidiary that has non-controlling interests that are material to the Group. Summarized statement of financial position Current: Assets Current liabilities, net Non-current: Assets Liabilities Total non-current net assets (liabilities), net Net assets Viva GYM S.A. December 31, GyM S.A. December 31, Norvial S.A. December 31, 2013 2014 2013 2014 2013 2014 672,627 (217,609) 455,018 76,506 (97,762) (21,256) 433,762 760,815 (266,576) 494,239 117,352 (138,880) (21,528) 472,711 1,794,604 (1,578,685) 215,919) 915,000 (385,495) 529,505 745,424 2,622,112 (2,490,013) 132,099 1,221,016 (391,293) 829,723 961,822 19,977 (50,362) (30,385) 152,228 (1,207) 151,021 120,636 6,092 (109,134) (103,042) 230,401 (633) 229,768 126,726 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 151 >> Summarized income statement Revenue Profit before Income tax Income tax Post-tax profit Other comprehensive Income Total comprehensive Income 2012 240,110 65,282 (19,967) 45,315 - 45,315 Viva GYM S.A. December 31, 2014 224,560 37,967 (11,452) 26,515 (25) 26,490 2013 313,731 80,467 (21,427) 59,040 - 59,040 GyM S.A. December 31, 2014 4,861,362 239,597 (54,657) 184,940 (26,199) 158,741 2013 3,903,916 350,687 (105,674) 245,013 (1,240) 243,773 2012 3,341,539 250,132 (79,690) 170,442 (962) 169,480 Norvial S.A. December 31, 2014 178,170 41,998 (10,908) 31,090 - 31,090 2013 92,252 40,341 (10,245) 30,096 - 30,096 2012 85,700 38,734 (11,578) 27,156 - 27,156 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 152 >> Summarized cash flows Cash flows from operating activities (used), net Cash flows from investing activities (used), net Cash flows from financing activities (used), net Increase (decrease) in cash And cash equivalents, net Cash received for acquisition Cash decrease due to deconsolidation Cash and cash equivalents and overdrafts at the beginning of the year Cash and cash equivalents at the end of the year Viva GYM S.A. December 31, GyM S.A. December 31, Norvial S.A. December 31, 2012 2013 2014 2012 2013 2014 2012 2013 2014 5,104 (46,450) 18,656 467,606 69,768 143,917 48,052 37,746 30,645 (4,158) (5,609) (39,444) (263,724) (139,563) (207,645) (16,729) (412) (71,469) 22,804 22,081 32,030 (179,416) (87,296) 84,710 (32,757) (24,791) 20,832 23,750 (29,978) 11,242 24,466 (157,091) 20,982 (1,434) 12,543 (19,992) - - - - - - - - - (2,614) (1,458) - - - - - - - 49,254 73,004 43,026 398,435 422,901 264,352 14,383 12,949 25,492 73,004 43,026 54,268 422,901 264,352 282,720 12,949 25,492 5,500 The information above is the amount before inter-company eliminations. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 153 >> 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 with an investment of 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 Peruvian Ministry of Transport and Communications (“MTC”), according to the terms established in the contract. PAMO revenues are generated by periodic and routine maintenance. The 46.88% of the total PAMO 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’ . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 154 >> 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. The Company owns 99.97% of Canchaque S.A. 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 MTC in consideration for the operation and maintenance of the road (PAMO), 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 per year. The 20.30% of the total PAMO is periodic maintenance, and the difference is for routine maintenance. 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 S.A. 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% interest 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. The concession maintains payback mechanisms through certificates of progress of the works, hereinafter CAO´s, because the concession is under construction. At December 31, 2013, the concession has issued two CAO´s 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. During 2014, no CAO was issued. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 155 >> 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 1 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 MTC 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’. V) Transportadora de Gas Natural Comprimido 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 156 >> 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 MTC and adjusted on a yearly basis in accordance with a contractual formula that takes into account the new Peruvian 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 MTC 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 has begun in 2014. 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. As part of the construction of the second stage, the Company is also 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. 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 or executed to the extent their amount and borrowing costs can be estimated reliably. Bifurcated model: i) 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 Av. República de Panamá and Panamericana highway. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 157 >> 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. c) Principal Joint Operations - As of December 31, 2014, the Group participated in 65 Joint Operations in association with third parties (64 as of December 31, 2013). The following table contains the principal Joint Operations in which the Group participated: JOINT OPERATIONS GRAÑA Y MONTERO S.A.A. - Concesionaria la Chira S.A. GyM S.A. - 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 2013 2014 Percentage of interest 50.00% 50.00% 40.00% 33.00% 49.00% 50.00% 50.00% 50.00% 40.00% 50.00% 50.00% 40.00% 29.64% 49.00% 50.00% 50.00% 50.00% 40.00% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu - Consorcio Norte Pachacutec - Consorcio La Chira - 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 - Terminales del Perú CONCAR S.A. - Consorcio Ancón-Pativilca - Consorcio Peruano de Conservación GMD S.A. - Consorcio Cosapi-Data – GMD S.A. - Consorcio TLBG - Consorcio Procesos digitales - Consorcio Indra 158 >> 49.00% 50.00% 60.00% 46.00% 50.00% 66.70% 55.00% 25.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.10% 50.00% 70.00% 66.45% 43.65% 50.00% 49.00% 50.00% 60.00% 46.00% 50.00% 66.70% 55.00% 50.00% 50.00% 50.00% 50.00% 50.00% 50.10% 50.00% 70.00% 66.45% 43.65% 50.00% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu159 >> 50.00% 50.00% 59.00% 50.00% - Consorcio Fábrica de Software - Consorcio Gestión de Procesos Electorales (ONPE) VIVA GYM S.A. - Consorcio Cuartel San Martín CAM HOLDING S.P.A. - Consorcio Mecam - Consorcio Seringel All of the joint arrangements listed above operate in Peru. The description of the main activities of the joint arrangements is as follows: JOINT ARRANGEMENTS IN ECONOMIC ACTIVITY 50.00% 50.00% 50.00% 50.00% 50.00% 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. 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. GMP S.A. Consorcio Terminales and Terminales del Peru provide services for reception, storing, shipping and transportation for liquid hydrocarbons, such as gasoline, jet fuel, diesel fuel and residual among others. CONCAR S.A. Joint operations Concar provides rehabilitation service, routine and periodic maintenance of the road, further provides conservation services and supervision. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 160 >> GMD S.A. Viva GyM S.A. GMD joint arrangements are 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 services to the electric power sector. The Group’s consolidated financial statements do not include any other type of entities in addition to those mentioned above, such as trust funds or special purpose entities. 6 SEGMENT REPORTING Operating segments are reported consistently with the internal reports that are reviewed by the Executive Committee led by the Corporate General Manager; this Committee 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. The revenues derived from foreign operations (Chile, Brazil, Panama, Dominican Republic, Colombia and Bolivia) comprise 17.23% of the Group’s total revenue in 2014 (13.72% in 2013 and 17.21% in 2012). Inter-segmental sales transactions are 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 the Group: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 161 >> 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) electro mechanic 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) in telecommunications. e) 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: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 162 >> Operating segments financial position Segment reporting As of December 31, 2013 Assets.- Cash and cash equivalents Trade Accounts receivable Unbilled work in progress Accounts receivable from related parties Other accounts receivable Inventories Prepaid expenses Non-current assets classified as held for sale Engineering and construction Energy Toll roads Mass transit Infrastructure Water treatment Real estate Technical services Parent Company Operations Eliminations Consolidated 265,788 265,544 734,976 111,210 360,936 90,671 7,440 21,473 17,764 29,527 6,966 4,083 26,840 7,741 1,318 - 80,785 12,347 2,433 18,660 11,180 - 5,442 - 23,318 4,090 31,187 163 34,263 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 4,131 - 481,820 44 - 733,645 33,469 486 363 - - - - (834,839) (1,760) (2,507) - - 959,415 521,872 971,743 87,328 553,218 762,797 25,687 21,473 Total Current assets 1,858,038 94,239 130,847 109,342 42,494 672,627 585,225 1,249,827 (839,106) 3,903,533 Long-term trade accounts receivable Long-term trade accounts receivable from related parties Other long-term accounts receivable Available-for-sale financial asset Investments in associates and joint ventures Investment property Property, plant and equipment Intangible assets - - - - 153,555 - 534,067 174,771 - - - 1,058 7,287 - 190,844 101,978 - - 10,081 - - - 3,919 145,711 591,917 - - - - - 6,724 6,450 - - 1,858 - - - - 1,151 - - 11,811 - 16,297 36,945 5,636 957 - - 12,301 2 - 69,001 2,100 88,333 (69,001) - (1,060) 10,454 1,309,293 (1,408,919) - 114,081 18,883 - 103,840 15,282 - (6,205) 15,702 - 38,151 88,333 87,967 36,945 952,906 480,885 - 591,917 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu163 >> Deferred income tax asset Total non-current assets Total assets Liabilities.- Borrowings Trade accounts payable Accounts payable to related parties Current taxes Other accounts payable Provisions Total current liabilities Borrowings Long-term trade accounts payable Accounts payables to related parties Other long-term accounts payable Provisions Derivative financial instruments Deferred income tax liability Total non-current liabilities Total liabilities Equity attributable to controlling interest in the Company Non-controlling interest Total liabilities and equity 68,700 931,093 2,789,131 644 301,811 396,050 195,083 751,097 43,373 54,670 589,412 - 1,633,635 33,847 19,950 877 519 13,840 4,207 73,240 4,258 163,969 294,816 46,007 3,353 25,572 1,627 43,779 3,846 8,765 613,856 723,198 - 9,912 642,510 - 960 - - 3,009 45,503 5,869 280 35,558 366 - - 4,860 76,506 749,133 77,854 42,484 21,493 1,841 73,937 - 42,119 197,840 783,065 1,264 4,911 1,589,113 (1,464,572) 2,838,940 (2,303,678) 135,521 2,412,625 6,316,158 126,872 160,104 77,613 7,622 101,925 842 587 4,217 - - 24,928 (846,339) - 13,830 - - - - 486,119 991,397 25,585 66,645 837,683 8,895 124,184 653,382 42,073 217,609 474,978 43,562 (846,339) 2,416,324 127,067 86,334 9,780 - - 124,344 14,832 - 119,367 385,610 2,019,245 622,899 146,987 - - - 4,668 3,563 453 95,018 168,258 211,431 16,361 2,789,131 396,050 - - 462 - - 166 10,408 134,592 120,407 39,817 294,816 - 2,157 - - - 201 - 2,358 655,740 50,594 16,864 723,198 - - - - - - 340 340 42,413 3,090 - 45,503 52,318 - 28,500 9,723 - 147 7,074 97,762 315,371 152,713 281,049 749,133 31,367 - 29,001 69,957 23,918 - 5,864 160,107 635,085 125,738 22,242 2,837 - - 910 - - 3,599 7,346 - - (57,501) - - - 1,691 (55,810) 50,908 (902,149) 2,778,148 (1,299,587) 9,884 (101,942) 309,703 2,157 - 205,396 43,418 3,911 138,554 703,139 3,119,463 2,765,433 431,262 783,065 2,838,940 (2,303,678) 6,316,158 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 164 >> Operating segments financial position Segment reporting As of December 31, 2014 Assets.- Cash and cash equivalents Financial asset at fair value through profit or loss Trade Accounts receivable Unbilled work in progress Accounts receivable from related parties Other accounts receivable Inventories Prepaid expenses Non-current assets classified as held for sale Engineering and construction Energy Toll roads Mass transit Infrastructure Water treatment Real estate Technical services Parent Company Operations Eliminations Consolidated 285,367 54,085 53,312 7,105 604,951 1,136,404 121,989 384,484 126,293 11,489 9,513 - 35,201 1,414 6,723 10,781 7,921 891 - - 46,598 - - 9,042 - 822 - 51,522 - 71,817 - 216 29,515 13,909 6,056 - 8,407 54,268 134,679 176,762 - - 14,972 - 3,154 - 407 - - - 57,584 293,024 - 6,561 11,409 630,758 235 - - 65,242 63,797 55,601 5,119 - - 34 - 371,765 66,414 486 1,425 - - - - - (473,435) 1,058 (1,398) - - 818,402 7,105 1,109,209 1,152,790 99,061 579,654 833,570 26,444 9,513 Total Current assets 2,687,595 117,016 109,774 173,035 26,940 760,815 617,462 616,886 (473,775) 4,635,748 Long-term trade accounts receivable Long-term unbilled work in progress Long-term trade accounts receivable from related parties Prepaid expenses Other long-term accounts receivable Available-for-sale financial assets Investments in associates and joint ventures - - - - 6,192 - 161,938 - 25,387 - - 4,449 1,058 7,316 - 579,956 10,584 408 2,416 11,776 - - - - 7,062 4,131 - - - - - - 1,587 - - - - - - 9,705 - 62,863 - - 433 - 4,496 2 - - - - 182,548 (183,389) - 2,217 93,144 - - (1,060) 579,956 35,971 - 9,478 44,553 93,144 10,059 1,729,640 (1,742,253) 229,563 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 165 >> - - 1,100 - 2,687 29,627 - 159 24,552 138 - - 36,244 7,344 1,187 9 117,352 878,167 144,314 31,690 24,106 1,150 65,316 - - - 166,323 119,483 32,838 37,363 17,417 926 - (6,785) 14,652 586 36,244 1,148,651 780,784 135,807 251,514 2,145,375 (1,918,249) 3,094,151 868,976 2,762,261 (2,392,024) 7,729,899 80,531 155,714 82,203 11,259 101,973 3,027 632 8,461 12,421 6 22,425 - - - (485,259) - - - 1,425,455 1,178,849 83,027 89,615 1,007,743 11,441 Investment property Property, plant and equipment Intangible assets Deferred income tax asset Total non-current assets Total assets Liabilities.- Borrowings Trade accounts payable Accounts payable to related parties Current taxes Other accounts payable Provisions Total current liabilities Borrowings Long-term trade accounts payable Accounts payables to related parties Other long-term accounts payable Provisions Derivative financial instruments Deferred income tax liability Total non-current liabilities Total liabilities Equity attributable to controlling interest in the Company Non-controlling interest Total liabilities and equity - 652,797 325,943 91,361 - 193,183 - 2,036 146,477 234,923 714 4,604 - 14,270 6,247 244 1,238,231 378,584 266,747 611,910 3,925,826 495,600 376,521 784,945 95,902 3,250 55,679 249 26,076 - 404,915 12,385 278,819 32 2,308 - 629,584 940,042 89,445 71,288 771,127 - 2,501,486 144,081 - - 214,462 26,878 - 51,556 436,977 2,938,463 817,356 170,007 69,577 27,148 1,061 5,493 18,518 8,414 130,211 99,767 - - 349 5,774 2,999 1,331 110,220 240,431 236,925 18,244 181,156 698,459 24,849 266,576 434,707 43,945 (485,259) 3,796,130 16,368 63,070 2,205 633 1,622 - 495 - - - - 2,157 - 4,820 - - - 2,750 6,977 183,906 705,436 150,788 41,827 59,633 19,876 - - - - - - 325 325 25,174 4,453 - - 109,126 4,679 - - 8,707 138,880 405,456 157,276 315,435 - 62,522 69,201 14,252 - 7,021 216,066 650,773 - - 880 - - 10,215 13,300 57,245 - - (171,648) - - - - 326,124 3,779 - 294,886 46,904 2,999 79,155 (171,648) 753,847 (656,907) 4,549,977 128,429 2,695,401 (1,559,083) 2,691,178 89,774 9,615 (176,034) 488,744 3,925,826 495,600 376,521 784,945 29,627 878,167 868,976 2,762,261 (2,392,024) 7,729,899 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu166 >> Engineering and construction Energy Toll roads Mass transit Water treatment Real estate Technical services Parent Company operations Eliminations Consolidated Infrastructure 3,524,585 287,040 123,345 73,067 41,007 240,110 1,083,323 44,654 (185,246) 5,231,885 86,706 103,935 (17,409) (105,363) 408,021 (159,845) (602) 247,574 (17,727) 37,393 9,178 276,418 (87,918) 188,500 165,116 23,384 188,500 110,847 (14,739) (2,530) 93,578 (5,529) 3,765 - 91,814 (28,457) 63,357 58,029 5,328 63,357 53,341 (6,361) 61 47,041 (8,382) 3,219 - (2,712) (7,926) (27) (10,665) (3,958) 15 - 41,878 (14,608) (12,526) 29,352 3,584 (11,024) 15,800 13,552 29,352 (8,268) (2,756) (11,024) 11,155 (1,485) - 9,670 (6,557) 126 - 3,239 (972) 2,267 1,134 1,133 2,267 (1,711) 67,586 (4,366) 2,062 - 65,282 (19,967) 45,315 12,375 32,940 45,315 (26) (3,971) 8,426 4,429 (8,538) 7,438 (59,201) 712,066 59,919 (257,180) (1,583) (865) 75,619 530,505 543 (68,129) (4,722) 57,846 604 - 294,607 (303,181) 73,585 72,157 (13,615) 8,550 67,092 (5,638) 61,454 50,623 10,831 61,454 297,936 (308,225) 520,826 (4,235) 1,554 (154,575) 293,701 (306,671) 366,251 293,242 (298,097) 289,954 459 (8,574) 293,701 (306,671) 76,297 366,251 Operating segments performance Segment Reporting Year 2012 - Revenues Gross profit Administrative expenses Other income and expenses Profit before interests and taxes Financial expenses Financial income Share of the profit or loss in associates and joint ventures under the equity method Profit before income tax Income tax Profit for the year Profit attributable to: Owners of the Company Non-controlling interest Profit for the year NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu167 >> Operating segment performance Segment Reporting Year 2013 Revenue Gross profit Administrative expenses Other income and expenses Gains from the sale of investments Profit before interests and taxes 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 Net profit for the period Profit attributable to: Owners of the Company Non-controlling interest Net profit for the period Engineering and construction Energy Toll roads Mass transit Water treatment Real estate Technical services Parent Company operations Eliminations Consolidated Infrastructure 4,075,255 559,544 (217,927) 10,762 - 321,097 97,495 (16,170) (3,561) - 352,379 77,764 (49,349) (14,264) 22,714 41,971 33 1,587 367,715 65,120 (111,240) (20,066) 256,475 45,054 195,861 66,455 (6,600) (35) - 59,820 (7,416) 3,006 - 55,410 (14,971) 40,439 118,541 19,670 (8,025) 758 - 12,403 (40,012) 14,035 - (13,574) 477 (13,097) 211,594 44,881 41,635 3,419 26,077 14,362 (9,823) (3,274) 256,475 45,054 40,439 (13,097) 45,489 3,179 (212) (2) - 2,965 (44) 14 - 2,935 (881) 2,054 2,054 - 2,054 313,731 113,732 1,169,115 179,175 (20,993) (132,486) (1,749) 3,197 94,187 (14,639) 855 64 80,467 (21,427) 59,040 19,154 39,886 59,040 24,669 - 71,358 (17,881) 2,028 1,070 56,575 (16,655) 39,920 34,296 5,624 39,920 51,525 (323,114) 5,967,500 (4,031) (8,616) (2,689) 2,525 (12,811) (21,615) 35,680 318,705 (31,097) 1,004,122 49,237 (2,851) - 15,289 12,418 (38,012) (329,835) (361,792) 25,302 5,722 673,354 (152,802) 40,353 33,562 319,959 (340,140) 594,467 (781) 3,221 (182,323) 319,178 (336,919) 412,144 319,275 (324,246) (97) (12,673) 320,016 92,128 319,178 (336,919) 412,144 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu168 >> Engineering and construction Energy Toll roads Mass transit Water treatment Real estate Technical services Parent Company operations Eliminations Consolidated Infrastructure 5,035,674 535,360 (258,554) (9,796) - 267,010 (69,046) 6,623 48,242 252,829 (59,252) 193,577 350,339 124,455 (17,256) (3,359) - 103,840 (11,564) 120 29 92,425 (29,768) 62,657 164,095 29,482 193,577 59,010 3,647 62,657 338,153 76,697 (8,035) 33 - 68,695 (10,822) 1,320 - 59,193 (16,158) 43,035 32,774 10,261 43,035 166,951 42,109 (14,714) 18 - 27,413 (5,245) 727 - 22,895 (10,842) 12,053 9,040 3,013 12,053 2,307 (317) - - 1,990 (55) 16 - 1,951 (588) 1,363 1,363 - 1,363 29,323 224,560 1,208,168 62,413 142,343 53,241 (7,574) (397,729) 7,008,680 (26,541) 951,569 (21,058) (122,506) (35,444) (852) - 40,503 (14,807) 93 12,178 37,967 (11,452) 26,515 7,995 (2,139) 25,693 (27,393) 1,821 591 22,063 - (20,955) (1,566) 59,734 56,517 (966) 2,139 31,149 37,682 (58,992) 270,045 (277,640) (421,367) 15,136 - 545,338 (102,816) 11,462 53,445 712 307,258 (267,801) 507,429 (5,788) (5,076) (12,582) 234 (146,196) 294,676 (267,567) 361,233 9,527 16,988 26,515 (5,339) 294,948 (265,674) 263 (272) (1,893) (5,076) 294,676 (267,567) 299,744 61,489 361,233 Operating segment performance Segment Reporting Year 2014 Revenue Gross profit Administrative expenses Other income and expenses Loss from the sale of investments and taxes Financial expenses Financial income in associates and joint ventures under the equity method of accounting Profit before income tax Income tax Net profit for the period Utilidad atribuible a: Owners of the Company Non-controlling interest Net profit for the period NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu169 >> Engineering and construction Energy Toll roads Mass transit Water treatment Real estate Technical services Parent Company operations Eliminations Consolidated Infrastructure 276,418 91,814 41,878 (14,608) 3,239 65,282 67,092 297,936 (308,225) 520,826 131,133 (62,061) (61,468) 159,597 126,885 570,504 (60,205) 4,119 (393,856) - (449,942) 17,465 (100,820) - - - 42,821 (6,356) (908) (26,566) 5,047 105,852 392 - (63,113) - (62,721) 38,991 (87,429) - - - 24,494 1,941 - (667) 51,143 118,789 (17) - 101 - 84 (23,108) (20,750) - - - 454 (5,464) (6,251) 9,866 47,270 31,267 (458) - (3,940) - (4,398) - - - - - (14,354) (97,709) (3,128) (51,566) (7,849) (51,707) (262) (262) 104 (37,419) - (14) 31,836 (2,254) - - - - - 8,271 - - - - (6,557) 1,714 2,922 (18,902) (154,804) 58,190 52,416 5,104 (1,032) - 39,447 5,868 14,197 (5,976) (33,573) 87,055 (961) - (3,126) (30,582) 2,075 (22) 851 782 (475,969) (174,347) 9,637 252,288 (22,229) - (144,160) - (4,158) 34,728 (10,571) - - - (31,543) (2,934) (29,956) - - - (1,353) 22,804 (10,736) (43,626) 95,536 153,845 (124,235) 26,096 (4,393) 1,193 4,619 57,125 1,053 72,518 10,581 29,723 (4,891) (199,241) 76,115 (254,350) 91,230 144,160 57,155 (107,257) 249,526 5,750 - - (5,607) 142,412 244,503 (49,897) (197,802) 224,935 (199,836) 542,729 23,471 2,057 (425,515) - (399,987) 120,001 (124,235) 31,846 (4,393) 1,193 (45,227) (20,815) 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 Cash flows from operating activities Sale of assets Dividends received Purchase of assets Loans to subsidiaries, net Cash flows from investing activities Debt repayment Dividend distribution Cash received from non-controlling shareholders Acquisiton of interest in non-controlling subsidiary Sale of interest in non-controlling subsidiary Other payments Cash flows from financing activities NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu170 >> Cash increase (decrease) Cash at the beginning of the year Cash at the end of the year Operating segments cash flows Segment Reporting Year 2013 Profit before income tax Adjustments to profit Depreciation and amortization Accounts receivable Inventories Accounts payable Other variations Cash flows from operating activities Sale of assets Dividends received Purchase of assets Loans to subsidiaries, net Cash flows from investing activities Debt repayment 22,853 400,479 423,332 (8,435) 39,085 30,650 67,166 23,478 90,644 26,607 1,705 28,312 (540) 608 68 23,750 49,254 73,004 11,886 73,401 85,287 (21,686) 70,177 48,491 326 - 326 121,927 658,187 780,114 Engineering and construction Energy Toll roads Mass transit Water treatment Real estate Technical services Parent Company operations Eliminations Consolidated Infrastructure 367,715 65,120 55,410 (13,574) 2,935 80,467 56,575 319,959 (340,140) 594,467 151,885 (388,772) 64,957 34,397 (149,752) 80,430 15,134 12,064 53,432 (10,343) 546 753 (24,371) 85,137 86 1,708 (171,126) (70,835) - - (143,928) (371,997) (69,041) (29,430) 10,047 (4,316) - (7,250) (26,279) 27,612 - - (555) - (555) 632 52 (322,993) (20,131) (5,508) 337,027 4,735 319 - - (5,313) - (5,313) - 16,444 (622) (1,322) - - - - - 3,610 1,949 (58,500) (50,784) (23,192) 37,219 1,986 1,003 259,866 (137,016) (41,017) 70,979 (851,660) (4,667) 32,424 - (17,899) (21,071) 5,184 (471,415) (103,220) (29,371) (322,254) 325,046 (246,060) (46,450) (44,836) (36,142) (432,426) (367,678) 317 - 316 - 6,799 119,791 9 (128,875) 22,661 4,688 (5,926) (30,880) (134,946) 52,237 (367,344) - - (446,387) 446,387 - (5,609) (30,564) (454,743) 369,758 (339,995) (10,662) (34,400) (43,567) (135,472) (285,472) (537,484) 9,112 (1,439,372) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu171 >> (4,728) (86,986) 113,854 (138,780) - - - - - (54,764) - 1,147,418 437,332 19,107 - - - - (41,926) (19,107) 34,774 (63,868) - 1,147,418 1,351,964 - Dividend distribution (73,936) (29,163) (25,240) Contribution of non-controlling shareholders Acquisiton of interest in non-controlling subsidiary Issue of common shares, proceeds from shares issuance, net of related expenses - (9,104) - - - - - - - - - - - - - - - - - - - - (32,581) 34,774 - - - Other payments Loans received from subsidiaries, net Cash flows from financing activities Cash increase (decrease) Cash decrease in deconsolidation Cash at the beginning of the year Cash at the end of the year Operating segments cash flows Segment Reporting Year 2014 Profit before income tax Adjustments to profit Depreciation and amortization Accounts receivable Inventories 362,449 32,881 (1,014) 34,400 45,300 155,360 327,182 - - - (92,588) (25,712) (36,916) - - (156,086) (1,458) 423,332 265,788 (9,616) (3,270) 30,650 17,764 (9,859) (4,994) - 90,644 80,785 - 28,312 23,318 - 1,733 411 (34) 68 445 - - 22,081 36,982 924,623 61,933 892,136 (29,978) (38,418) 433,738 (735) 184,463 - 73,004 43,026 (400) 85,287 - 48,082 46,469 481,820 - 735 - (5,162) 780,114 959,415 Engineering and construction Energy Toll roads Mass transit Water treatment Real estate Technical services Parent Company operations Eliminations Consolidated Infrastructure 252,829 92,425 59,193 22,895 1,951 37,967 712 307,258 (267,801) 507,429 144,235 (484,177) (12,127) 58,144 (16,538) (180) 11,419 (6,651) - 907 (26,838) (1,982) 52 24,192 - 3,821 (37,035) (30,861) 37,185 8,962 3,972 3,222 (73,546) - 1,054 33,506 (10,311) 260,039 (578,125) (51,489) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 172 >> 95,353 14,036 (472,016) 120,662 (34,997) (270,528) 278,353 (298,994) 111,187 18,618 (19,558) (437,215) (40,478) - (16,998) - 164,929 (153,340) 42,968 36,718 54,846 (15,762) 12,976 - 3,375 (42,819) (71,816) - - (297,701) (19,080) 202,150 (625,643) 19,080 - (39,444) (53,198) (151,852) 50,892 (545,957) 32,175 (6,261) 20,896 - - (8,265) - (8,265) (11,129) (1,004) 14,062 - - - - - (604,894) (18,400) - - - - - - - - (39,046) (28,022) 48,793 - - (253,978) (585) (842) (112,351) - - - - - - (1,438) (19,017) 386,329 (2,099,833) 154,871 (1,417) (176,117) 47,376 (103,003) (175,824) (1,627) - (69,425) 2,852,271 19,017 - 1,749,831 83,776 114,576 620,467 12,300 55,985 286,199 - - - - - - - 74,820 14,049 29,088 15,573 (6,100) 37,710 31,636 (133,648) 384,745 447,873 - 22,193 (2,614) 265,788 285,367 - - - 36,321 (27,473) 28,204 - 17,764 54,085 - 80,785 53,312 - 23,318 51,522 - 7,962 - 445 8,407 - 11,242 - 43,026 54,268 - 89,625 (1,415) 46,469 134,679 - (305,058) - 481,820 176,762 - (1,578) 1,578 - - (138,562) (2,451) 959,415 818,402 385,388 (128,619) 157,529 40,058 38,810 10,656 (21,640) 122,867 1,259 - (289,024) (101,854) 11,353 (98,536) (23,222) 31 (17,056) (16,314) - - - (210,156) (100,595) (1,480,390) (123,427) (33,879) (35,848) (33,339) (54,733) (30,755) - (72,821) 1,627 - - - - - - Accounts payable Other variations Cash flows from operating activities Sale of assets Dividends received Purchase of assets Loans to subsidiaries, net Cash flows from investing activities Debt repayment Dividend distribution Contribution of non-controlling shareholders Acquisiton of interest in non-controlling subsidiary Sale of interest in non-controlling subsidiary Other payments Loans reveiced from subsidiaries, net Cash flows from financing activities Cash increase (decrease) Cash decrease in deconsolidation Cash at the beginning of the year Cash at the end of the year NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Segments by geographical area Revenue: - Peru - Chile - Colombia - Guyana - Brazil - Bolivia - Dominican Republic - Panama Non-current assets: - Peru - Chile - Colombia - Guyana - Brazil - Bolivia - Panama 173 >> 2012 2013 2014 4,326,471 660,152 114,757 92,899 37,606 5,231,885 5,072,251 631,883 112,573 74,399 - - 76,394 5,967,500 1,895,217 499,580 8,987 - 8,717 - 124 5,611,844 1,011,822 125,929 49,525 68,045 1,849 - 139,666 7,008,680 2,461,288 359,686 259,915 2,974 8,398 1,890 - 2,412,625 3,094,151 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuLiabilities: - Peru - Chile - Colombia - Guyana - Brazil - Bolivia - Dominican Republic - Panama Total allocated Unallocated - Borrowings (excluding finance leases) - Derivative financial instruments - Deferred income tax liability Total liabilities 174 >> 1,999,143 2,220,982 431,119 23,039 - 9,435 - 34 521,299 227,511 11,697 8,073 9,741 31 49,061 2,462,770 3,048,395 514,228 3,911 138,554 3,119,463 1,419,428 2,999 79,155 4,549,977 Comprises the Group’s financial debt, excluding finance leases and derivative finance liabilities; liabilities from the segment that should be reported to the Executive Committee were not taken into consideration because they are managed by the Group’s Corporate Finance department. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 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 - Unbilled work in progress - Financial assets related to concession agreements (1) - Accounts receivable from related parties Available-for-sale financial assets (Note 9) Financial asset at fair value thorough profit and loss 175 >> December 31 2014 818,402 1,225,690 1,188,761 702,531 99,061 4,034,445 93,144 7,105 2013 959,415 669,134 971,743 620,943 87,328 3,308,563 88,333 (1) Financial assets related to concession agreements are recorded in the statement of financial position within the line items of other short-term accounts receivable and other long-term accounts receivable. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 176 >> December 31, 2014 1,419,428 332,151 1,566,004 83,027 3,400,610 2,999 2013 514,228 281,594 1,242,235 25,585 348 2,063,990 3,911 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) (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 up-to January 2014. This contract was accounted for as a fair value hedge by the Group and it recognized the fair value of the financial instrument (cross currency swap) in profit or loss and, as a counterpart, it recognized the fair value of the firm commitment associated with the contract with the foreign supplier. At December 31, 2013, the change in fair value amounted to S/.14 million which is presented in “Financial income and expenses" (Note 26). The cross currency swap matured in January 2014. (b) (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. At December 31, 2014, the changes in fair value amounted to S/.568, net of deferred income tax of S/.221 (S/.2,433 plus tax effect of S/.731 at December 31, 2013). The fluctuation observed in deferred income tax in 2013 includes the effect of the revision of the tax effect that was not calculated for 2012 which amounts to S/.569. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu177 >> 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 (*) Cash and cash equivalents (*) Banco de Crédito del Perú (A+) Banco Continental (A+) Banco Bogotá (A) Banco Interbank (A) Banco de la Nación (A) Banco Santander - Chile (A) Banco Scotiabank (A+) Banco Continental Chile (A) ITAU - Chile (A) Banco de Crédito e Inversiones - Chile (A) Banco de Chile (A) Banco Interamericano de Finanzas (A) Citibank (A) Banco Santander - Perú (A) Banco GNB Perú (A) Other lesser amounts 2013 558,540 254,439 - 9,360 45,782 7,544 2,401 - - 25,568 - 652 850 42,102 10,771 958,009 December 31, 2014 453,942 76,408 67,959 64,962 56,028 40,577 11,611 7,396 7,391 10,597 5,328 1,855 677 183 115 4,962 809,991 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 178 >> 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 Peruvian banking and insurance regulator (“Superintendencia de Banca, Seguros y AFP – SBS”). For banks located in Chile, the ratings were derived from risk rating agencies authorized by the Chilean stock and insurance regulator (“Superintendencia de Valores y Seguros – SVS”). (*) 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. Trade accounts receivable (Note 10 and Note 11) Counterparties with no external risk rating A B C Receivable to related parties (Note 12) B 2013 2014 44,474 2,040,541 517 87,328 51,844 2,700,295 125,787 99,061 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 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 2014. 8 CASH AND CASH EQUIVALENTS This account comprises: Cash on hand Checking accounts Time deposits (a) In-transit remittances Mutual funds (b) 179 >> 2013 1,406 548,630 407,763 1,616 - 959,415 Al 31 de diciembre de 2014 8,411 530,246 259,035 1,986 18,724 818,402 (a) At December 31, 2014, this balance mostly comprises the Company’s short-term deposits for S/.168 million; GyM S.A. for S/.29 million, GyM Ferrovías S.A. for S/. 29 million and ViVa GyM S.A. for S/.18 million. Interest rates range between 0.10% and 3.97% (mainly comprises GyM’s short-term bank deposits for S/.127 maintained in Banco de Credito del Peru - Chile for S/.58 million, local banks for S/.69 million and the Company’s short-term deposits for S/.269 million maintained in Banco de Credito at December 31, 2013). (b) This balance comprises mutual funds for S/.7.4 million, S/.7.4 million and S/.3.9 million which are maintained by the subsidiary VyV – DSD S.A. in Itaú, BBVA Banco Continental and Santander banks, respectively, at rates ranging from 0.29% to 0.32%. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 180 >> 9 AVAILABLE-FOR-SALE FINANCIAL ASSETS This account comprises the investment held by the Company, directly and indirectly, in Transportadora de Gas del Perú S.A. (TGP), a Peruvian entity engaged in providing gas transportation services. 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) obtaining a total interest of 1.64% at December 31, 2013. At December 31, 2013, the fair value of the Group´s interest in TGP equals S/.88.3 million, based on the price paid in one recent arm's length transaction which occurred in December 2013 among knowledgeable willing parties. The fluctuation in the fair value of this investment in 2013 amounts to S/.19.1 million, net of its income tax effect amounting to for S/.8.2 million. The net amount has been recognized in the statement of other comprehensive income. 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-sheet transaction because, in substance, the Company is acting as an agent to CPPIB. Therefore, the Company did not recognized either 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. On February 27, 2014, the Company transferred the shares to the above indicated entities, retaining in TGP an interest equivalent to 1.64%, for this transaction the Group obtained a commission fee of S/.7.5 million which is included in ‘other income and expenses’. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 181 >> At December 31, 2014, the fair value of the Group´s interest in TGP equals S/.93.14 million the base on the discounted cash flow method. The information used in the calculation is as follows: - Discounted cash flows from operating activities of TGP net of cash flows from investment activities (CAPEX). - - - Cash flows were estimated for a 30 year term. The discount rate used is 8% corresponding to the Company’s WACC. The interest of the Company in TGP is 1.64% as of December 31, 2014 The fluctuation in the fair value of this investment in 2014 amounts to S/.3.56 million, net of its income tax effect amounting to S/.1.25 million, plus the adjustment for changes in rate of income tax amounting to S/.1.09 million (see note 28-b), which has been recognized in the statement of other comprehensive income. 10 TRADE ACCOUNTS RECEIVABLE This account comprises: Invoices receivable Collection rights from concession agreements Impaired accounts 2013 1,058,078 58,528 1,116,606 (2,817) 1,113,789 December 31, 2014 1,414,185 277,547 1,691,732 (2,567) 1,689,165 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Less: non-current portion Invoices receivable Collection rights from concession agreements Total non-current Total current (545,736) (46,181) (591,917) 521,872 182 >> (529,201) (50,755) (579,956) 1,109,209 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. The non-current portion of the trade accounts receivable is related to GyM Ferrovías S.A.; the balance at December 31, 2013 and 2014 is the account receivable from the expenses incurred in the electric train Project (acquistion of the Alstrom trains) and the construction of the Patio – Taller. Collection rights as of December 31, 2014 comprises GyM Ferrovías S.A., CAM Holding S.p.A,GMD S.A., GMI S.A., Concar S.A., Viva GyM S.A. and Concesion Canchaque S.A.C. for S/.116 million, S/.51 million, S/.31 million, S/.37 million, S/.35 million, S/.6 million and S/.2 million respectively (GyM Ferrovías S.A., Survial S.A. and Canchaque for S/.46,181, S/.7,617 and S/.4,730 respectively in 2013). The collection rights that arise from GyM Ferrovías S.A., a concession signed with the Peruvian Government comprising Line 1 of the Lima Metro (train line), by which this entity has to acquire, on the Government’s behalf, certain infrastructure needed for the implementation of the transport system that will be operated by the GyM Ferrovías S.A once completed (Note 5-b-iv). This account will be collected through the cash flows determined at the inception of the concession under the "price per kilometer traveled" method (PKT). For this purpose, the subsidiary has applied certain criteria to determine the amount of the interest to be accrued on the outstanding balances and the beginning of the collection of the amounts pending. These balances bear interest at a 7.7% rate and their collection began in 2014 jointly with the beginning of operation. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Aging of trade accounts receivable is as follows: Current Past due up to 30 days Past due over 30 days 183 >> 2013 937,932 117,985 60,689 1,116,606 December 31, 2014 1,402,635 174,633 114,464 1,691,732 As of December 31, 2014, trade accounts receivables totaling S/.289.1 million (S/.178.7 million in 2013) are past due but not impaired. The related 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 unbilled work in progress (note 11). The movement of the account receivables reserve is as follows: Initial balance Additions Write-offs Final balance 2013 2,707 110 - 2,817 Al 31 de diciembre de 2014 2,817 71 (321) 2,567 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 11 UNBILLED WORK IN PROGRESS This account comprises: Unbilled rights receivable Deferred costs of work in progress Less: Non – current portion Deferred costs of work in progress Total current 184 >> December 31, 2014 957,916 230,845 1,188,761 35,971 1,152,790 2013 748,376 223,367 971,743 - 971,743 Rights receivable correspond to the unbilled rights for services rendered by the Engineering and Construction Segment. Each month, under the percentage of completion method, the Company estimates the work completed to date. Based on its monthly estimates, the Company recognizes the corresponding revenue. Until such revenue is billed, it is recorded in the account, rights receivable. At December 31, 2014 and 2013, rights receivable are presented net of advances received for S/.334 million and S/.273 million, respectively the terms of which vary based on each contract. These advances substantially correspond to those received by subsidiary GyM S.A. At December 31, 2014, advances amounting to S/.305 million, correspond to a scheme by mean of which certain customers agree to grant revolving monthly advances which are settled with the amount billed the month following the reception of the advance. Other advances received from customers are recognized netting the corresponding receivables and are offset following the pattern of actual services provided. In these cases, if the contract is terminated, the amount received in advance is offset against any receivable balance determined by the work progress at termination date. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 185 >> Deferred costs of work in progress include all those expenditures incurred by the Group that relate to future activities to be performed under current construction contracts. At December 31, 2014, the balance mainly comprises costs incurred in the following projects: i) Concentrating Plant Cerro Verde, ii) Las Bambas, iii) Machu Picchu, iv) Servicios Cerro del Águila and v) Chile Spa for S/.53.8 million, S/.32.9 million, S/.31.4 million, S/.22.3 million and S/.12.7 million, respectively. Other smaller projects for which certain cost amounting to S/.52 million have been deferred are: Red Gas Contugas, Preliminary work Aurora Gold, Pad I FASE III Cerro Verde.. The non-current portion mainly comprises the expenditures incurred by Concesionaria Vía Expresa Sur S.A. for S/.10 million that related to future activities to be performed under the construction contract(implementation of the 4km extension of Vía Expresa Sur connecting the district of “San Juan de Miraflores”). This Project is expected to be completed in August 2018. Additionally the non-current portion comprises the expenditures incurred by the subsidiary GMP S.A. for for S/.25.39 million (work in progress related to Transportadora de Gas Natural Comprimido Andino Concession). This Concession is in a pre-operative stage. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 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 Expenses from purchase of goods and services: - Associates - Joint operations Inter-company transactions are based on the price lists in force and terms that would be available to third parties. 2012 49,252 51,385 100,637 5,818 8,030 13,848 2013 4,915 67,601 72,516 5 6,068 6,073 186 >> 2014 6,040 43,897 49,937 42 715 757 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 187 >> b) Key management compensation - 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 2014 amounted to S/.100.4 million (S/.93.5 million as of December 31, 2013). c) Balances at the end of the year resulting from the sale/purchase of goods/services - Joint operations: Consorcio GyM Conciviles Consorcio Peruano de Conservación Consorcio Tren Electrico Consorcio Terminales Consorcio Rio Urubamba Consorcio Sistemas SEC Consorcio La Gloria Consorcio Constructor Alto Cayma Consorcio JV Panamá Consorcio Lima Consorcio Norte Pachacutec Consorcio Huacho Pativilca Receivable 33,405 15,080 2,499 4,294 2,798 - 3,696 566 1,323 312 556 - 2013 Payable - - - - - - 3,398 4,881 - - 952 - Receivable December 31, 2014 Payable 48,581 15,365 7,380 6,837 5,107 4,349 3,805 1,424 1,043 877 531 369 - - - - 3,796 - 3,423 - - - 1,068 4,555 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Consorcio Rios Pallca Consorcio Constructor Chavimochic Consorcio Alto Cayma Consorcio Construcciones y Montajes Consorcio Vial Quinua Bechtel Vial y Vives Servicios Complementarios Ltda. - Consorcio Atocongo Consorcio Brocal Pasco Consorcio Ingenieria y Construcción Bechtel Consorcio Rio Mantaro Consorcio Vial Ipacal Consorcio Vial Sullana Consorcio Vial Sur Consorcio EIM ISA Ingeniería y Construcción Sigdo Koppers-Vial Consorcio DSD Echevarría Izquierdo Other Other related parties: Ferrovias Argentina Besco 3,903 - 5,557 - 37 - 712 1,913 - 3,822 283 470 737 - - 3,478 1,887 87,328 - - - 87,328 - - 666 - 1,315 - 41 3,924 - - - - 1,050 16,227 8,771 587 9,358 25,585 187 141 121 115 116 96 - - - - - - - - - - 2,617 99,061 - - - 99,061 188 >> 282 2,896 700 1,198 4,648 915 - 5,140 - - - - 2,955 35,302 - 2,056 68,934 14,093 - 14,093 83,027 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu189 >> Receivables and payables are of current maturity and do not have specific guarantees. Accounts receivable from related parties mainly have maturity periods of 60 days and arise from sale of goods and services. These balances are non-interest-bearing due to their short- term maturities and are not impaired. Accounts payable to related parties mainly have maturity periods of 60 days and arise from engineering, construction, maintenance and other services received. These balances are not interest bearing due to their short-term maturities. Transactions with non-controlling interest are disclosed in Note 34. 13 OTHER ACCOUNTS RECEIVABLE This account comprises: Advances to suppliers (a) Guarantees deposits (b) Income tax on-account payment (c) Fiscal credit (d) Accounts receivable from sale of investments Temporary taxes on net assets Claims to the tax administration (tax paid in advance) Claims to third-parties Account receivable from personnel 2013 183,464 56,851 95,488 109,050 33,601 10,901 7,913 15,799 14,633 December 31, 2014 162,544 103,086 96,026 91,442 23,822 19,223 14,572 13,155 11,235 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu VyV Collahuasi – Guarantee deposit Account receivable from Morelco´s non -controllng shareholders Association agreement – Obrainsa (Red vial 1) 7,416)Overseas Bechtel Incorp. Suc.del Peru Legal credits CAM Brasil Loans provided to third parties Consorcio Fábrica de Software Petróleos del Perú S.A.- Petroperú S.A. (e) Municipalidad de la Brea - Talara Indemnification asset (note 31-d) Compensation fund (f) Loans receivable from employees Right to recover taxes (Brasil and Colombia) Others (g) Less non-current portion: Fiscal credit Legal credits CAM Brasil Transportadora de Gas Natural Comprimido Andino Others Current portion 190 >> 9,938 7,768 7,416 4,287 4,170 4,136 3,925 2,518 2,298 1,344 1,154 651 - 39,497 624,207 (35,608) (4,170) (4,449) (326) (44,553) 579,654 10,745 - 2,284 5,107 3,430 - - 18,087 - 6,006 812 584 2,259 14,355 591,369 (34,071) (3,430) - (650) (38,151) 553,218 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu191 >> Other non-current accounts receivable have maturities between 2 and 5 years. Company’s Management estimates that the fiscal credit will be applied against the credit balance of the corresponding tax over the medium term. The following contains a description of major accounts receivable: (a) Advances to suppliers - Mainly corresponds to advances amounting approximately to S/.146.5 million (S/.163.1 million in 2013) granted by the subsidiary GyM S.A. to import the equipment of the projects, detailed as follows: Consorcio Río Mantaro Panorama Plaza Negocios EPC Planta Minera Inmaculada Morelco GyM Chile SPA ABB Inc. Stracon GyM Harvin Electric Centro Empresarial Leuro Consorcio constructor Chavimochic ABB AB Importaciones Consorcio Peruano de Conservación 2013 54,311 1,312 7,207 - 1,888 - 1,655 - - - - 4,708 December 31, 2014 81,153 17,270 9,387 5,681 4,042 3,487 2,771 2,007 1,651 1,368 1,353 1,350 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Edificio Real 8 Nuevo Campus Universitario UTEC GyM Operaciones Internacionales Central Hidroeléctrica Machu Picchu Consorcio GyM Conciviles Consorcio Rio Urubamba Consorcio Tren Eléctrico Consorcios – Cam Mantenimiento Periodico/Red Vial 1 Proyectos inmobiliarios Other smaller projects 192 >> 1,219 1,104 1,064 717 345 312 - - - - 26,263 162,544 3,025 - - 20,998 2,144 704 64,567 2,800 2,439 2,379 13,327 183,464 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu193 >> (b) Guarantee deposits - Guarantee deposits are the funds retained by customers for work contracts assumed basically by subsidiary GyM S.A. These deposits are retained by the customers in order to have a guarantee that the subsidiary will perform is obligations under the contracts. The amounts retained will be recoup once the work has been completed. Such deposits mainly correspond to the following projects: Project: Empresa Colombiana de Petróleos S.A. Minera Antucoya Proyecto Machupicchu Construcción Planta de Cal Pachachaca Minera los Pelambres Nuevo Campus Universitario UTEC Centro Empresarial Leuro Panorama Plaza Negocios Metapetroleum Corp Garantías - arriendos CAM Chile La Zanja Maersk Container Industry San Antonio SPA Colombiana S.A. Planta Minera Inmaculada December 31, 2013 - 3,814 8,624 - - - 554 - - 573 1,348 - - 881 2014 38,100 12,279 11,495 6,299 5,168 3,735 3,684 3,104 2,966 2,222 1,818 1,562 1,072 1,069 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Trabajos Electromecánicos llenado de agua Quellaveco CC Interbank Valle Hermoso Edificio Real 8 Consorcio HV Conga Reticulation Camp Proyecto Chancadora Caserones Refineria Cartagena S.A. Mansarovar Energy Colombia Ltda. Agrocascadas SA Stracon GyM Pozas almacenamiento de agua Pampa Verde Garantías - Arriendos CAM Perú Campamentos Congas Others 194 >> 523 488 392 331 307 151 200 192 131 - - - - - 5,798 103,086 - - 1,417 287 5,473 - - - 18,834 7,143 3,601 605 415 3,282 56,851 (c) Income tax on-account payment – Mainly comprises income tax payments in advance from the subsidiaries GyM S.A., the Holding, CAM Holding S.p.A., Concar S.A. and Viva GyM S.A. for S/ 41 million, S/. 30 million, S/.11 million, S/.5 million and S/.4 million respectively (S/.60 million, S/.3 million, S/.11 million, S/.6 million and S/.6 million respectively in 2013). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 195 >> (d) Fiscal credit - Mainly corresponds to the subsidiaries Survial S.A., GyM S.A. and GyM Ferrovias S.A. for S/.10 million, S/.28 million, S/.25 million respectively, (Survial S.A., GyM S.A., GyM Ferrovías S.A., Viva GyM S.A. and Concar S.A. for S/.17 million, S/.25 million and S/.27 million, S/.12 million and S/.9 million, respectively in 2013). Management estimates that this fiscal credit related to value added tax payments will be recovered during the ordinary course of the future operations of these subsidiaries. (e) Petróleos del Perú S.A. - Petroperú S.A. - 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 year 2013, the consortium incurred additional investments of US$6.1 million. 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. The effective period of the agreements with Consorcio Terminales ended on August 1, 2014; in this context, receivables from Petroperú S.A. were fully settled. The outstanding balance of S/.2.5 million is related to current operations in the Southern terminals which contract was renewed to July 2015. (f) 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 2014 GMP S.A. received payments of S/.0.3 million (S/.1.7 million in 2013 and S/.9.3 million in 2012) and applications of contributions amounting to S/.1.6 million in 2013 (3.7 million in 2012). (g) Others - Other receivables do not present past due amounts or impairment and the non-current balances are supported by contractual agreements with third-parties. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 196 >> The fair value of other short - term accounts receivable is similar to their carrying amount due to the fact of short term maturity. The non – current portion is not significant to the financial statements for any period presented. 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. 14 INVENTORIES This account comprises: Land Work in progress - real estate Construction materials Materials and supplies Finished properties Impairment of inventories 2013 411,822 104,908 92,299 92,909 71,304 773,242 (10,445) 762,797 December 31, 2014 494,024 84,683 125,665 84,869 51,767 841,008 (7,438) 833,570 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu At December 31, 2013 and 2014, land comprises properties for the development of the followings projects: Lurín (a) Comas (b) Miraflores (c) San Isidro (d) Callao (e) San Miguel (f) Huancayo (g) Others 197 >> 2013 90,000 57,000 78,000 48,000 52,400 86,422 411,822 December 31, 2014 91,000 61,000 78,700 52,000 52,800 67,300 11,000 80,224 494,024 (a) Plot of land of 812.8 hectares located in the district of Lurin, province Lima, for industrial development and public housing. (b) Plot of land located in the district of Comas, which will be used to develop the project of approximately 8,000 social housing projects called Los Parques de Comas. (c) Plot of land located in Av. El Ejército, Urbanizacion. Santa Cruz, Miraflores, development complex consisting of a 5-star hotel, convention, business, cultural, commercial and residential building center. (d) Plot of land located at Av. Pezet 583, San Isidro, development consisting of building with 32 apartments each of more than 300 m2 each. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 198 >> (e) Plot of land located at Av. Argentina 2430-Callao, for the project of approximately 984 housing in 3 phases called Los Parques del Callao. (f) Plot of land located in the district San Miguel of 1.4 hectares to develop a traditional mulit-family building of 1,004 apartments in 4 stages. (g) Plot of land located in the province Huancayo of 8.5 hectares, to develop a social housing Project of 900 housing units in 4 stages. Work in progress - real estate - As of December 31, 2014, this item mainly includes the 2nd stage of the green area project “Los Parques de San Martin” for S/.35 million that, such as in the 1st stage, comprises 20 multi- family buildings of 5, 10 and 12 stories located in the district San Martin de Porres; the project Rivera Navarrete for S/.22 million comprising 17 offices from 350 mts2 to 680 meters located in the district of San Isidro, the project Villa El Salvador 2 for S/.17 million comprising 280 apartments in 20 buildings, located in the district Villa El Salvador and the green area project “Parques de Piura” for S/.10 million. 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 a 16-storey building with 40 apartments; and the “Real 8-9” project (S/.21.4 million) where a 16-storey building will be built with 32 offices of 500m2 each. During the year, the Company has capitalized financing costs for these construction projects amounting to S/.5.9 million (S/.6 million in 2013 and S/.4.3 million in 2012). Construction materials - In 2014, the Group opened new projects and acquired construction materials by S/.10.1 million, which mainly relate to the projects: Km 117 Montaje Electrico Concentradora by S/.2.9 million, the Chancadora Primavera project for S/.2.3 million, PAD project Phase 111 – Cero Verde for S/.1.5 million and other minor projects for S/.3.3 million. The balance at December 31, 2014 shows an increase compared to 2013 which mainly corresponds to the EPC projects “Immaculate Mining Plant” which increased S/.23 million and Consorcio Vial Quinua project which increase for S/.10.05 million. However, the Consorcio Rio Mantaro project decreased from 2013 for S/.10 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 199 >> At December 31, 2014, projects in the closing process include Consorcio Tren Eléctrico Lima, Estación de Gas y Acometida Fénix – Calidda, Edificio Real 8 & 9, Oficina Rivera Navarrete, Consorcio Tormocho and other smaller projects. The movement of the provision for impairment of inventories is as follows: Initial balance Additions Write off Final balance 2013 10,981 2,239 (2,775) 10,445 2014 10,445 62 (3,069) 7,438 At December 31, 2014 borrowings are guaranteed with land and real state work in progress of the followings projects: “Parque Central”, “Barranco”, “Parque de San Martín”, “Pezet” and “Parque del Agustino II”. The amount guaranteed amounts to S/.203.47 million (S/.509.57 million in 2013). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 15 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES This account comprises: Associates Joint ventures Los montos reconocidos en el estado de ganancias y pérdidas comprenden: Associates Joint ventures 200 >> 2013 28,209 59,758 87,967 2013 11,104 22,458 33,562 December 31, 2014 82,494 147,069 229,563 December 31, 2014 29,132 24,313 53,445 2012 114 490 604 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 201 >> Investment in associates a) Set out below are the associates of the Group as at December 31, 2013 and 2014. The associates listed below have share capital solely consisting of common 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 Asociación en Participación Panorama Plaza de Negocios Promoción Inmobiliaria del Sur S.A. Concesionaria Chavimochic S.A.C. JV Panama Betchel Vial y Vives Servicios Complementarios Ltda. Ingenieria y Construccion Vial y Vives OGP-1 Ltda. Sierra Morena S.A. Others Class of share Common Common Common Common Common Common Common Interest in capital 2014 % 35.00 23.86 26.50 15.00 40.00 40.00 33.33 2013 % - 23.86 15.00 40.00 33.33 Carrying amount At December 31, 2013 2014 - 16,298 - 2,755 - 8,450 305 401 28,209 38,932 23,930 13,336 2,755 2,345 286 272 638 82,494 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 202 >> The most significant investments are described as follows: i) Asociación en Participación Panorama Plaza de Negocios - An entity which owns a land property in the District of Santiago de Surco, on which a real estate Project is being developing which comprises a commercial area and two buildings. ii) Promoción Inmobiliaria del Sur S.A - An entity with major asset in the form of 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. iii) Concesionaria Chavimochic S.A.C. - An entity that was awarded with the implementation of the Chavimochic irrigation Project, including: a) design and construction of the work required for the third-phase of the Chavimochic irrigation project in the province of La Libertad; b) operation and maintenance of works; and c) water supply to the Project users. Construction activities will start in 2015; the concession effective period is 25 years and the total entire investment amounts US$647 million. iv) JV Panama - A limited company incorporated under the laws of Barbados, which provides engineering services to mining companies in Panama. v) Betchel Vial y Vives Servicios Complementarios Limitada - An entity mainly engaged in providing engineering services, acquisitions, construction services and other related services, including sales and leases of machinery, tools and equipment. vi) Ingeniería y Construccion 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; its business purpose is to expand the processing capacity of its client. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 203 >> The following table shows financial information of the principal associates: Summarized financial information for associates - Promoción Inmobiliaria del Sur S.A Ingeniería y Construcción Vial y Vives OGP-1 Ltda. Chavimochic S.A.C. Asociación en participación Panorama Plaza de Negocios(*) At December 31, At December 31, At December 31, At December 31, 2013 937 146 1,083 187 102 289 156,749 89,237 68,306 2014 48,545 25,806 74,351 - 34,351 34,351 49,365 - - 89,365 2013 572 156,328 156,900 - 135,761 135,761 - - - 21,139 2014 3,238 43,380 46,618 27,229 18,674 45,903 - - - 715 2014 5,200 81,324 86,524 30,288 14,834 45,122 8,980 57 50,325 2014 52,748 216,296 269,044 2,385 200,590 202,975 61,945 16,418 247 111,349 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 Non-current Assets Financial liabilities Other liabilities Net assets NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Promoción Inmobiliaria del Sur S.A Ingeniería y Construcción Vial y Vives OGP-1 Ltda Chavimochic S.A.C 204 >> Asociación en participación Panorama Plaza de Negocios(*) 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 At December 31, At December 31, At December 31, At December 31, 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 2014 88,870 (73) 29 (3) 82,080 (24,521) 61,402 - 61,402 2012 6,437 (5,562) - - 875 (175) 700 - 700 2013 127,528 (101,320) - - 26,208 (5,398) 20,810 - 20,810 2014 220,701 - - - 27,828 (5,694) 22,134 - 22,134 2014 67,473 (216) 61 (126) 175 57 118 - 118 2014 9 (489) 10,918 (7,420) 955 654 301 - 301 (*) Asociación en Participación Panorama Plaza de Negocios financial statements are presented to November 30, 2014. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu The movement of the investments in associates is as follows: Opening balance Acquisition through business combinations (Note 31) Contributions Equity interest in results Dividends received Return of capital Sale of investments Conversion adjustment Final balance 205 >> 2014 28,209 - 51,244 29,132 (25,191) - - (900) 82,494 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 2012, 2013 and 2014 the following significant movements were carried out: - In March 2014, Constructora Norberto Odebrecht S.A. and Odebrecht Partipacoes e Investimentos S.A. formed Concesionaria Chavimochic S.A.C., in which the Company has a 26.5% interest by means of a capital contribution of S/.13.3 million in March 2014. - In June 2014, the Company acquired 35% interest in the share capital of Asociacion Panorama Plaza de Negocios, through its subsidiary Viva GyM for S/.37.8 million. - During the course of 2014, the Group received dividends mainly from its associates Promoción Inmobiliaria del Sur S.A., Ingeniería y Construcción Vial y Vives OGP -1 Limitada and from Betchel Vial y Vives Servicios Complementarios Ltda. totaling S/.3.4 million, S/.16.6 million and S/.4.9 million, respectively. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 206 >> - 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. b) Investment in Joint Ventures Set out below are the joint ventures of the Group as of December 31, 2013 and 2014. Entity Class Interest in capital Tecgas N.V. Constructora SK-VyV Ltda. Sistemas SEC G.S.J.V. SCC Logistica Químicos del Sur S.A.C. Consorcio DSD Echeverria Izquierdo Consorcio Vial y Vives Mena y Ovalle Ltda. Common Common Common Common Common Common Common 2013 % - 50.00 49.00 - 50.00 50.00 50.00 2014 % 51.00 50.00 49.00 50.00 50.00 50.00 50.00 Carrying amount At December 31, 2014 75,836 42,175 10,057 8,121 7,316 3,388 176 147,069 2013 37,542 10,452 - 7,287 4,284 193 59,758 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 207 >> i) Tecgas N.V. This entity provides services of operations and maintenance of oil pipelines and related activities. Currently its activities are focused in the service agreement of operations and maintenance of oil pipelines of the concession of Transportadora de Gas del Perú S.A.A. - TGP (its largest customer). The acquisition of an additional interest in the latter company will enable the Company to extend its services in to order to bring operating and maintaining services to the Southern gas pipeline (“gasoducto del sur”). ii) Constructora SK - VyV Ltda - This 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. iii) Sistemas SEC - 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 SEC in 2005 for a period of 16 years. iv) G.S.J.V. SCC - An entity engaged in designing, acquiring and building the gold-processing plant for Sedgman S.A. its partner in the implementation the Aurora Project of Guyana Goldfields. v) Logistica de Quimicos del Sur S.A.C. - The business 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. vi) Consorcio DSD Echeverria Izquierdo Limited - The purpose of this company is exclusively the execution of civil works and electromechanical assemblies for mining project Ministro Hales, which is owned by Codelco. It was made part of the Group through the acquisition of DSD Construcciones y Montajes S.A. (see Note 31-c). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 208 >> The following table shows financial information of the principal joint ventures: Summarized financial information for joint ventures - Constructora SK-VyV Ltda. At December 31, Sistemas SEC At December 31, Tecgas N.V. At December 31, 2013 2014 2013 2014 2013 2014 Current Cash and cash equivalents Other current assets (excluding cash) Total current assets 871 153,019 153,890 692 91,606 92,298 181 22,248 22,429 68 18,329 18,397 Financial liabilities (excluding trade payables) - 68 1,935 42 Other current liabilities (including trade payables) Total current liabilities Non-current Assets Financial liabilities 7,921 7,989 17,487 19,422 8,867 8,909 103 24,618 16,239 78,782 78,782 - - - - - - - - 35,009 53,370 88,379 81,917 81,917 201,362 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Other liabilities Total non-current liabilities Net assets 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 - - 75,108 593,258 (68) - - 63,266 (12,164) 51,102 - 51,102 91 91 84,321 298,156 (426) 83 46,916 (8,964) 37,952 - 37,952 6,296 6,296 21,329 37,912 (236) - (582) 2,835 (684) 2,151 - 2,151 5,198 5,198 20,529 362 (2,069) 1,409 (1,065) 2,474 (1,305) (1,169) - (1,169) - - - - - - - - - - - - 209 >> 59,126 59,126 148,698 - NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuThe movement of the investments in joint ventures is as follows: Opening balance Acquisition through business combination (v) (Note 31) Contributions Debt capitalization Equity interests in results Dividends received Adjustment SEC (iv) Adjustment LQS (iv) Conversion adjustment Final balance 210 >> 2014 59,758 78,615 - 24,313 (11,527) - - (4,090) 147,069 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 2014, 2013 and 2012 the following significant movements were carried out: i) In December 2014, the Company acquired 51% of the share capital of Tecgas N.C. (current strategic partner of Transportadora de Gas del Perú), which holds 100% the share capital of Compañía Operadora de Gas del Amazonas (hereinafter COGA) for a total of S/.75.8 million. This investment includes goodwill resulting from the purchase amounting to S/.61.4 million. ii) In July 2014, the Company acquired 50% interest in the share capital of G.S.J.V. SCC, through a subsidiary of GyM S.A. for S/.2.78 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 211 >> iii) The Group received dividends in 2014 from Constructora SK – VyV Ltda., for S/.11.5 million. iv) v) 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 of the 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 joint ventures maintained by Vial y Vives which corresponds to mainly Constructora SK-VyV Ltda. for S/.12.2 million. Additionally, these investments also include Consorcios Vial y Vives and Mena y Ovalle Ltda. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 212 >> 16 PROPERTY, PLANT AND EQUIPMENT The movement in property, plant and equipment accounts and its corresponding accumulated depreciation for the year ended December 31, 2014, 2013 and 2012 is as follows: 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 Depreciation for transfers Foreign currency translation effect Net final cost At December 31, 2012 Cost Accumulated depreciation Net cost Land Own occupied buildings Machinery Vehicles Furniture and fixtures Other equipment Replacement units In-transit units Assets under construction Total 17,674 - 17,674 17,674 3,713 5,128 - - - - - - - - - - 86,265 (15,624) 70,641 70,641 17,955 - - (608) - (5,790) 1,791 (6,664) 1,198 362 - 629,163 (288,659) 340,504 340,504 136,853 32,055 24,504 (21,555) - (45,868) (3,216) (81,798) 34,234 1,821 22,427 - 222,227 (89,600) 132,627 132,627 82,363 75 47,233 20,459 - (16,284) 1,994 (53,306) 10,987 1,185 (2,565) - 28,501 (16,530) 11,971 11,971 7,161 1,547 31 (216) - (633) 1,675 (8,738) 537 5,248 91,542 (59,751) 31,791 31,791 29,962 379 - 22,045 - (6,281) (1,729) (21,642) 5,704 644 236 (20,449) - 9,071 - 9,071 9,071 784 - - 1,218 - (63) (806) (47) - 5 (11) - 6,922 - 6,922 6,922 28,033 - - (15,609) - - (23) - - - - - 26,515 78,885 439,961 222,398 18,819 40,424 10,151 19,323 26,515 - 26,515 99,613 (20,728) 78,885 751,936 (311,975) 439,961 358,067 (135,669) 222,398 38,066 (19,247) 18,819 135,918 (95,494) 40,424 10,204 (53) 10,151 19,323 - 19,323 65,712 - 65,712 65,712 97,393 - - (5,734) (59,755) - 683 - - - - (1,244) 97,055 97,055 - 97,055 1,157,077 (470,164) 686,913 686,913 404,217 39,184 71,768 - (59,755) (74,919) 369 (172,195) 52,660 6,533 - (1,244) 953,531 1,536,697 (583,166) 953,531 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 213 >> Land Own occupied buildings Machinery Vehicles Furniture and fixtures Other equipment Replacement units In-transit units Assets under construction Total 26,515 - 26,515 99,613 (20,728) 78,885 751,936 (311,975) 439,961 26,515 78,885 439,961 6,713 624 (1,555) 10,184 - 63,155 44,493 (5,187) 35,627 (948) (2,467) (20,432) - (2,641) (5,706) (5,752) 358,067 (135,669) 222,398 222,398 31,445 2,973 (119) 6,193 - (19,213) (15,767) (1,592) 38,066 (19,247) 18,819 18,819 3,419 94 (382) 1,108 - 135,918 (95,494) 40,424 40,424 22,061 1,773 (158) 10,204 (53) 10,151 10,151 3,537 - - 19,323 - 19,323 19,323 19,585 - - (4,417) (2,494) (15,823) - (2,579) (2,676) - - - - (2,074) (3,004) (601) ( 1,256) 97,055 - 97,055 97,055 91,450 - (19,108) (30,525) (38,656) - (2,173) 1,536,697 (583,166) 953,531 953,531 241,365 52,922 (26,509) - (39,604) (47,367) (21,473) (19,093) (7,387) (84,454) (59,126) (9,247) (19,235) (144) 1,587 542 (15) 84,326 110,456 (26,130) 84,326 (2,623) 14,984 3,787 (2,102) 474,803 855,084 (380,281) 474,803 1,746 11,961 295 (111) 181,083 361,876 (180,793) 181,083 (12) 2,432 2,168 23 13,769 37,675 (23,906) 13,769 1,010 1,276 2,138 ( 59) 39,133 149,438 (110,305) 39,133 - - (179,487) (38) 23 - - - - - - - - - - - 10,578 21,829 98,043 10,646 (68) 10,578 21,829 - 21,829 98,043 - 98,043 - 32,240 8,930 (2,549) 952,906 1,674,389 (721,483) 952,906 2,965 - 147 - - - - - - - - (285) 29,342 29,342 - 29,342 At January 1, 2013 Cost Accumulated depreciation Net cost Net initial cost Additions Acquisition of subsidiary – DSD (Note 31) Desconsolidation SEC y LQS Reclassifications Transfers to intangibles (Note 17) Deduction for sale of assets Transfer to held for sale assets Adjustments and/or reclassifications for cost – assets disposal Depreciation charge Depreciation for transfers Depreciation for sales deductions Adjustments and/or reclassification for cost – asset depreciation Foreign currency translations effect Net final cost At December 31, 2013 Cost Accumulated depreciation Net cost NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu214 >> Land Own occupied buildings Machinery Vehicles Furniture and fixtures Other equipment Replacement units In-transit units Assets under construction Total At January 1, 2014 Cost Accumulated depreciation Net cost Net initial cost Additions Acquisition of subsidiary - Morelco (Note 31 a) Acquisition of subsidiary - Coasin (Note 31 b) Reclassifications Transfers to intangibles (Note 17) Deduction for sale of assets Adjustments and/or reclassification for cost – assets disposal Depreciation charge Depreciation for transfers Depreciation for sale deductions Adjustments and/or reclassification for cost – asset depreciation Foreign currency translations effect Net final cost At December 31, 2014 Cost Accumulated depreciation Net cost 29,342 - 29,342 29,342 17 794 - - - - - - - - - (677) 29,476 29,476 - 29,476 110,456 (26,130) 84,326 84,326 19,349 1,370 855,084 (380,281) 474,803 474,803 133,230 61,212 - - 67,454 24,523 361,876 (180,793) 181,083 181,083 87,958 1,844 - (3,048) - - - (61,508) (10,404) (52,364) (1,402) 37,675 (23,906) 13,769 13,769 8,434 332 - 468 (2,514) (585) (3,316) - (3,087) (8,319) 149,438 (110,305) 39,133 39,133 40,125 1,829 10,646 (68) 10,578 10,578 98 - 21,829 - 21,829 21,829 19,982 - 98,043 - 98,043 98,043 119,773 3,375 711 - - - ( 3,066) (2,327) (11,996) (2,222) 2,959 1,910 (285) 157,472 192,951 (35,479) 157,472 (89,462) (52,697) (6,896) (22,100) 375 45,001 8,339 (8,449) 577,685 993,713 (416,028) 577,685 (3,036) 33,458 1,253 (787) 192,262 394,077 (201.815) 192,262 958 2,214 351 (585) 15,946 43,225 (27,279) 15,946 3,925 2,394 5,753 (335) 56,173 177,046 (120,333) 56,713 (2,043) (31,415) (851) (605) (7) 71 - - 7,241 7,245 (4) 7,241 (830) - - - - - (389) 9,177 9,177 - 9,177 1,674,389 (721,483) 952,906 952,906 428,966 70,756 711 - (66,604) (124,220) (22,841) (183,158) - 86,097 17,606 (52,623) (66,604) - 801 - - - - (86) (11,568) 102,679 1,148,651 102,679 102,679 1,949,589 (800,938) 1,148,651 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 215 >> In 2014 and 2013, additions to cost correspond to the acquisition of fixed assets under finance leases and by direct acquisition. The balance of assets under construction at December 31, 2014, relate mainly to investments made by the subsidiary GMP SA for S/.47.4 million (S/.37.6 million at December 31, 2013) for the activities of oil drilling in order to increase exploitation of oil and gas (25 wells in 2014 and 16 wells in the 2013). Additionally, the balance includes the construction work of the offices in the new administrative headquarters of the Company in Petit Thouars avenue, amounting to S/.28.9 million (S/.26.8 million in 2013 and S/.25.3 million by remodeling the administrative headquarters in Surquillo in 2013) and the subsidiary GyM S.A. maintains a balance of S/.12 million relating to the construction of a corrective preventive maintenance at the Constancia mine. In 2014 the sale of fixed assets amounted to S/.43.1 million (S/.20.4 million and S/.22.2 million in 2013 and 2012, respectively), resulting in a profit of S/.4.9 million (a profit of S/.0.7 million and S/.1.2 million in 2013 and 2012, respectively), which is shown in the income statement under “other income and expenses”. The amount of S/.21.5 million transferred to held-for-sale assets in 2013 consisted of certain machinery and furniture owned by the Chilean subsidiary of GyM S.A., for the execution of a project in Chile. Management approved their sale. Most of these assets could not be sold in 2014 due to unfavorable market conditions. As a consequence, Management performed an assessment of their fair value which resulted in the recognition of an impairment loss of S/.11.96 million (S/.10.34 million which is included in “other income and expenses” and S/.1.6 million of translation adjustment included in other comprehensive income. Management expects to recoup this amount through the sale of the assets in 2015. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Depreciation of fixed assets and investment properties for the year is broken down in the income statement as follows: 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 2012 159,526 11,980 689 172,195 1,512 689 173,018 2013 166,098 13,389 - 179,487 1,992 - 181,479 216 >> 2014 168,633 14,525 - 183,158 2,151 - 185,309 The net carrying amount of machinery and equipment, vehicles and furniture and fixtures acquired under finance lease agreements is broken down as follows: Cost Accumulated depreciation Net cost Property, plant and equipment amounting to S/.95.6 million (S/.240.5 million in 2013) have been pledged granted as guarantee of certain borrowings. 2013 480,099 (201,999) 278,100 December 31, 2014 643,498 (264,343) 379,155 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 217 >> 17 INTANGIBLE ASSETS The movement of intangible assets and that of their corresponding accumulated amortization, as of December 31, 2014, 2013 and 2012, is as follows: At January 1, 2012 Cost Accumulated amortization and impairment Net cost Net initial cost Additions Acquisition of subsidiary - Vial y Vives (Note 31) Acquisition of subsidiary - Stracon GyM (Note 31) Deductions Transfers from assets under construction (Note 16) Disposals - cost Amortization charge Disposals - amortization Net final cost At December 31, 2012 Cost Accumulated amortization and impairment Net cost Goodwill Trade- marks Concession rights Contractual relations with clients Internally generated software and development costs Costs of development of wells Development costs Land use right Other assets Total (21,995) 24,909 24,909) - 28,944 13,366 - - - - - 67,219 89,214 (21,995) 67,219 - - - - - 75,845 - - - - (410) - 75,435 75,845 (410) 75,435 390,039 (207,649) 182,390 182,390 28,406 - - (263) - (537) (31,413) - 178,612 417,645 (239,033) 178,612 17,518 ( 4,907) 12,611 12,611 - 23,024 9,976 - - - (7,147) 29 38,464 50,518 (12,054) 38,464 26,771 (12,240) 14,531 14,531 3,998 - - (20) - (7,654) (10,427) 6,307 6,735 23,095 (16,360) 6,735 114,327 (65,548) 48,779 48,779 4,897 - - - 59,686 - (21,828) - 91,534 178,910 (87,376) 91,534 3,623 (3,623) - - - - - - - - - - - 3,623 (3,623) - 13,288 - 13,288 13,288 - - - - - - - - 13,288 13,288 - 13,288 21,376 (87) 21,289 21,289 1,956 - - (13,962) 69 (38) (260) 57 9,111 9,401 (290) 9,111 633,846 (316,049) 317,797 317,797 39,257 127,813 23,342 (14,245) 59,755 (8,229) (71,485) 6,393 480,398 861,539 (381,141) 480,398 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 218 >> At January 1, 2013 Cost Accumulated amortization and impairment Net cost Net initial cost Additions Acquisition of subsidiary - DSD (Note 31) Desconsolidation SEC y LQS Transfers from assets under construction (Note 16) Disposals - cost Amortization charge Disposals - amortization Foreign currency translations effect Net final cost At December 31, 2013 Cost Accumulated amortization and impairment Net cost Goodwill Trade- marks Concession rights Contractual relations with clients Internally generated software and development costs Costs of development of wells Development costs Land use right Other assets Total 89,214 (21,995) 67,219 67,219 - 6,128 - - - - - - 73,347 95,342 (21,995) 73,347 75,845 (410) 75,435 75,435 - - - - (33) (2,458) - - 417,645 (239,033) 178,612 178,612 14,622 218 (1,203) 2,122 (1,965) 50,518 (12,054) 38,464 38,464 - 7,373 - - (100) 23,095 (16,360) 6,735 6,735 5,106 - (902) 290 (42) (18,816) (16,202) (7,084) (323) 6,728 - - (6) - 178,910 (87,376) 91,534 91,534 - - - 38,621 (317) (31,236) - - 72,944 179,995 29,535 4,097 98,602 3,623 (3,623) - - - - - - - - - - - 13,288 - 13,288 13,288 - - - - - - - - 9,401 (290) 9,111 9,111 4,976 - (5) (1,429) (1,307) (2,591) 322 - 861,539 (381,141) 480,398 480,398 24,704 13,719 (2,110) 39,604 (3,764) (78,387) (7) 6,728 13,288 9,077 480,885 75,812 (2,868) 72,944 438,167 (258,172) 179,995 57,791 (28,256) 29,535 27,547 (23,450) 4,097 217,214 (118,612) 98,602 3,623 (3,623) - 13,288 - 13,288 11,636 (2,559) 9,077 940,420 (459,535) 480,885 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 219 >> At January 1, 2014 Cost Accumulated amortization and impairment Net cost Net initial cost Additions Acquisition of subsidiary – Morelco (Note 31 a) Acquisition of subsidiary – Coasin (Note 31 b) Transfers from assets under construction (Note 16) Reclassifications Disposals - cost Amortization charge Disposals - amortization Amortization reversal (Vial y Vives) Foreign currency translations effect Net final cost At December 31, 2014 Cost Accumulated amortization and impairment Net cost Goodwill Trade- marks Concession rights Contractual relations with clients Internally generated software and development costs Costs of development of wells Development costs Land use right Other assets Total 95,342 (21,995) 73,347 73,347 - 105,764 5,743 - - - - - - (2,597) 182,257 204,252 (21,995) 182,257 75,812 (2,868) 72,944 72,944 - 33,326 - - - - - - 2,651 (6,370) 102,551 102,768 (217) 102,551 438,167 (258,172) 179,995 179,995 135,502 847 6 1,845 920 (16,016) (26,823) 15,491 - (88) 291,679 561,183 (269,504) 291,679 57,791 (28,256) 29,535 29,535 - 30,318 - - - - 27,547 (23,450) 4,097 4,097 2,804 - 1,371 1,677 180 (29) 217,214 (118,612) 98,602 98,602 - - - 64,759 (251) (14,987) (3,013) (31,780) - - (1,876) 42,990 86,233 (43,243) 42,990 1 - (1,319) 5,769 32,231 (26,462) 5,769 - - - 131,330 281,722 (150,392) 131,330 3,623 (3,623) - - - - - - - - - - - - - 13,288 - 13,288 13,288 - - - - - - - - - 11,636 (2,559) 9,077 9,077 5,238 - - (1,677) (849) (91) (778) - - - 13,288 10,920 3,623 (3,623) - 13,288 - 13,288 14,257 (3,337) 10,920 940,420 (459,535) 480,885 480,885 143,544 170,255 7,120 66,604 - (16,136) (77,381) 15,492 2,651 (12,250) 780,784 1,299,557 (518,773) 780,784 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 220 >> 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 and Telecommunications services. Goodwill from cash-generating units is allocated to the following segments: Construction - Engineering (Note 31 a, c y d) Construction - Mining services (Note 31-e) Construction - Electromechanical Information technology services Telecommunications services (Note 31-b) 2013 35,072 13,366 20,737 4,172 73,347 December 31, 2014 138,239 13,366 20,737 4,172 5,743 182,257 Goodwill from information technology services arose from the previous acquisition in prior years of subsidiary Gestión de Servicios Digitales S.A. Goodwill from the electromechanical engineering business corresponds to the previous acquisition in prior years of subsidiary GMA S.A., which was later merged with subsidiary GyM S.A. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 221 >> The main criteria used by the Group to determine the value in use are as follows: 2013 - Gross margin Growth rate Discount rate 2014 - Gross margin Growth rate Discount rate Mining construction services 17.00% 3.00% 12.00% 12.60% 2.00% 13.00% Engineering construction Electro- mechanical IT equipment and services Telecommunication services 12.99% 3.00% 9.80% 10.70% 3.00% 8.36% 10.80% 3.00% 9.80% 8.73% 2.00% 13.00% 31.89% 3.00% 22.40% 41.16% 0.00% 13.00% - - - 11.10% 5.00% 10.76% 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. b) Trademarks - The Group acquired trademarks in business combination processes of Vial y Vives S.A.C. (S/.75.4 million) in October 2012 and of Morelco (S/.33.32 million) in December 2014. The total carrying amount of these assets amount to S/.102.5 million at December 31, 2014 (S/.72.9 million in 2013). In 2014, the Group determined that trademarks arising from business combinations have an indefinite life; accordingly these assets are tested for impairment annually as explained in a) above. In this regard, the amortization previously recorded in 2013 and 2012 amounted to S/.2.5 million has been reverse against profit and loss in 2014. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu As a result of these assessments, no provision for impairment was considered necessary to be made. Major assumptions used by the Group to determine the value in use are as follows: 2014 - Gross margin Growth rate Discount rate 222 >> Construcción de ingeniería 10.70% 3.00% 8.36% c) Concessions - This intangible asset includes the value attributable to the concession for the Ancón-Huacho-Pativilca road section of the Panamericana Norte highway. Intangibles arising from this concession as of December 31, 2014 mainly comprise the EPC contract for S/.101.39 million; highway improvement for S/.21.5 million; and initial capitalized expenses for S/. 12.2 million (S/.109.2 million, S/.20.2 million and S/.12.2 million respectively in 2013. Under those contracts the Concessionaire has to construct, improve and rehabilitate the road infrastructure over the effective period of the concession. During 2014, the following transactions took place: i) subsidiary GMP S.A. acquired the right of subscription in Terminales del Perú for the operation of the northern freight platforms for a period of 20 years for an amount of S/.12.2 million and the acquisition of the rights to subscription in the renewal of the operational agreement of the Consorcio Terminales del Sur (1 year) for S/.1.2 million; ii) Subsidiary Norvial S.A. invested S/.82.70 million in the construction of the second tranche of the highway “Ancón - Huacho - Pativilca”; iii) Subsidiary GMD S.A. invested an amount of S/.15.2 million that comprises projects of technology for the Oficina de Normalización Previsional for S/. 9.5 million, in the project of Superintendencia Nacional de Registros Públicos (SUNARP) for S/.1.2 million, in the project of ISO Infraestructura for S/.1.1 million en el proyecto de ISO Infraestructura and S/.3.4 million in licenses and other tools; investments of the concession Vía expresa Sur for S/.15.85 related to the extension of vía expresa Sur in conection with San Juan de Miraflores district, which accounts for 53% of the non- guaranteed revenue by the concessionaire (bifurcated model) and othe minor projects for an amount of S/.7.6 million (That correspond to the subsidiaries GyM S.A., Concar S.A. y Viva GyM S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 223 >> d) Costs of development of wells - 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 oil fields are operated under long-term service agreements by which the Group provides hydrocarbon extraction services to Perupetro, the government-run 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 development and production of proved reserves 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 exploitations services, which are capitalized as part of the intangible asset with a carrying amount on December 31, 2014 of S/.128.2 million and S/.5 million, respectively (S/.91.8 million and S/.6.9 million at December 31, 2013, respectively). These blocks are amortized along the concession terms, which set maturity in 2021 for Block I and in 2023 for Block V. 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) 2012 60,517 10,968 71,485 2013 67,254 11,133 78,387 2014 68,089 6,641 74,730 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 224 >> On December 10, 2014, the subsidiary GMP S.A. was awarded by the Peruvian Government the right to exploit for 30 years Oil Blocks III and IV (owned by the estate company Perupetro) located within the Talara basin, in the city of Piura, in the northern region of Peru. GMP’s winning technical-economic bid engages it to drill 230 development wells in Block III and 330 development wells in Block IV for 10 years. The total expected investments in both wells amount to US$560 million. Operations are expected to start in April 2015 in both Blocks, with a production of 1,700bpd while the drilling obligation is engaged to become effective one year after the beginning of operations. 18 BORROWINGS This item comprises: Bank loans Finance leases Total debt a) Bank loans - Total As of December 31, 2014 1,419,428 332,151 1,751,579 2013 514,228 281,594 795,822 Current As of December 31, 2014 1,300,636 124,819 1,425,455 2013 381,005 105,114 486,119 Non- current As of December 31, 2014 118,792 207,332 326,124 2013 133,223 176,480 309,703 At December 31, 2014 and 2013 this item comprises bank borrowings contracted in local and foreign currency intended for working capital. These obligations are subject to fixed interest rates ranging between 1% and 9% in 2014 and between 2% and 9% in 2013. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 225 >> At December 2014, subsidiary GyM S.A. received loans for a total amount of S/.434 million from BBVA Continental, Scotiabank and Banco Santander; those borrowings mature between January and March 2015 and bear interest at an annual rate that range between 1% and 5.90%. In June 2014, the subsidiary GyM Ferrovías signed a short term loan with BBVA Continental of S/.200 million at an interest rate of 5.75%, due on December 2014. In December 2014, the short term loan with BBVA Continental was refinanced through a short term loan provided by BCP, due in February 2015. In August 2014, another short term loan with Banco de Crédito del Perú-BCP of S/.200 million at an interest rate of 5.90%, due on January 2015. Both loans will be cancelled with an international bond issuance under the Regulation S, to be placed in February 2015. This issuance will consist of 25-year corporate bonds, at inflation adjusted (VAC) interest rate, to be place mainly to insurance companies and pension funds. In January 2014, subsidiary Norvial S.A. signed a short-term loan agreement with Banco de Crédito del Perú (BCP) for a total S/.120 million and US$12 million. On the same date, under such credit facility, S/.50 million was disbursed at an annual effective rate of 6.32% and during 2014 a total of S/.85 million have been disbursed. This loan will be settled with the issuance of bonds to be placed in the Peruvian capital market to finance the construction of the second phase of “Ancón - Huacho Pativilca” highway. During 2014, Viva GyM S.A. maintained bank borrowings and promissory notes equivalent to S/.140.4 million (S/.109.3 million in December 2013) with local financial institutions at interest rates ranging between 3% and 8%. Proceeds were used to purchase land properties (Note 14) and working capital. During 2014, CAM Chile S.A., a subsidiary of CAM Holding Sp.A., maintained bank borrowings and promissory notes equivalent to S/.45.6 million, with local financial institutions at interest rates ranging between 4.02% and 7.92%, with maturity between January and October 2015, and in May 2018. The proceeds were used for working capital. During 2014, GMD S.A. maintained promissory notes equivalent to S/.13.6 million with local financial institutions at interest rates ranging between 4.9% and 5.76%, with maturity in March 2015; the proceeds were used for working capital. In April 2005, subsidiary Norvial S.A. signed two “Loan Agreements”; one with IFC and one with IDB; these multilateral financing organizations granted funding for the engineering, construction and acceptance of works relating to the first phase of the Concession Agreement totaling US$36 million (S/.123.5 million) with maturity in January 2014. Between November and December 2013, subsidiary Concar S.A. contracted local currency bank borrowings for S/.51.2 million at December 31, 2013 to be used as working capital. These loans earn fixed interest rates ranging between 5.6% and 6%. These borrowings expired and were cancelled in June 2014 and have no specific guarantees. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 226 >> In December 2013, the subsidiary GMI S.A. signed bank borrowings 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 collaterals. These loans borrowings expired and were cancelled in March 2014. In September 2013, 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 Block 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, 2014 the balance of this borrowing is S/.60.4 million (S/.66.4 million at December 31, 2013). At December 31, 2014, the Company has renewable lines of credit totaling S/.2,459 million (S/.2,626 million 2013). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 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 The present value of finance lease obligations is as follows: Up to 1 year From 1 to 5 years 227 >> December 31, 2014 138,988 225,844 364,832 (32,681) 332,151 December 31, 2014 124,819 207,332 332,151 2013 115,698 193,233 308,931 (27,337) 281,594 2013 115,114 166,480 281,594 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 228 >> c) Fair value of borrowings - The carrying amount and fair value of borrowings are broken down as follows: Loans from multilateral organizations Other loans Carrying amount current and non-current portion Fair value As of December 31, As of December 31, 2013 42,599 753,223 795,822 2014 - 1,751,579 1,751,579 2013 44,384 642,842 687,226 2014 - 1,705,843 1,705,843 Fair values are determined based on discounted cash flows using borrowing rates of 4.4% and 8.0% (4.1% and 8.1% in 2013) information that corresponds to level 2 of the fair value hierarchy. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 19 TRADE ACCOUNTS PAYABLE This item comprises: Invoices payable Notes payable Total Non-current Invoices payable Total current 229 >> December 31, 2014 1,182,607 21 1,182,628 (3,779) 1,178,849 2013 993,050 504 993,554 (2,157) 991,397 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 20 OTHER ACCOUNTS PAYABLE This item comprises: Advances received from customers Salaries and profit sharing payable Put option liability - acquisition of Morelco (*) Account payable - acquisition of Morelco (Note 31-a) Other taxes payable Loans from third-parties IVA payable Deposits in guarantee Post-retirement benefits Unbilled services Account payable for the purchase of fixed assets Deferred income Other accounts payables Less non-current portion: Put option liability – acquisition of Morelco Account payable - acquisition of Morelco Advances received from customers - GyM S.A. 230 >> December 31, 2014 684,256 220,212 113,829 45,684 71,876 56,025 45,043 14,599 9,850 6,743 6,546 4,249 23,717 1,302,629 (113,829) (45,684) (54,949) 2013 701,813 156,455 - - 63,802 29,771 28,787 17,342 8,995 3,807 5,159 4,356 22,792 1,043,079 - (124,344) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Advances received from customers - Concar S.A. Advances received from customers - GMD S.A. Advances received from customers – GyM Ferrovías S.A. Advances received from customers – Viva GyM S.A. Post-retirement benefits - CAM Holding S.p.A. Others Current portion (51,938) - - (9,723) (18,000) (1,371) (205,396) 837,683 (*) The balance of put option liability correspond to the agreement signed by the subsidiary GyM S.A. associated with the purchase of Morelco (Note 31 a). The amortized cost of the other short – term accounts payable is similar to their carrying amounts due the fact to the short maturity. 231 >> (30,869) (19,603) (4,820) (4,679) (16,272) (4,181) (294,886) 1,007,743 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Advances received from customers are discounted from billing, in accordance with the terms of the agreements. These advances mainly comprise: Projects: Consorcio Rio Mantaro Proyecto HidroÑuble - Chile Central Hidroeléctrica Machu Picchu Stracon GyM EPC Planta Minera Inmaculada Consorcio Vial La Quinua Proyecto Kelar - Chile Proyecto Navarrete Planta Concentradora Cerro Verde 2 Fase 1 Chilectra S.A. Consorcio Construcciones y Montajes – CCM Pad I Fase III - Sociedad Minera Cerro Verde Panorama Plaza Negocios 2 Proyecto Antucoya Túnel Santa Rosa II Cora Cora CER- Consorcio Menegua 2013 162,926 - 46,678 45,670 60,331 21,078 - 4,678 9,800 3,819 8,005 - 19,552 - 12,016 32,168 - 232 >> December 31, 2014 102,780 84,488 46,274 34,871 32,330 27,013 24,940 24,447 22,675 22,167 21,844 21,318 16,143 16,009 15,967 13,104 11,974 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Construcción Planta de Cal. G&M Construcciones y Montajes - Bolivia 6-SK Refineria Esmeraldas-Ecuador Chancadora Primaria CV2 K117 Montaje Eléctrico - Sociedad Minera Cerro Verde Nuevo Campus Universitario UTEC Oficinas Navarrete 2 Neo 10 y Real 8-9 Saga Centro Cívico Shougan Hierro Perú SAA Los Parques San Martín y Piura Parque Central Club Residencial Proyecto Barranco Centro Empresarial Leuro 2do Etapa Consorcio Peruano de Conservación Consorcio Vial Ipacal Los Parques de Comas Los Parques del Agustino GyM Chile SPA Consorcio Rio Urubamba Pezet 961 Consorcio GyM Conciviles 233 >> 11,710 11,474 11,376 9,806 7,989 7,614 7,381 7,259 6,685 5,172 4,397 2,897 2,892 1,954 1,756 558 146 173 - - - 7,228 - - - - - - 6,535 - 7,545 9,671 8,468 10,108 13,531 4,494 4,012 - - 51,387 8,166 16,323 6,882 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menuProyecto Especial de Transporte Nacional Consorcio Tren Eléctrico Lima Contrato Red Vial 1 Consorcio HV Edelnor Other projects 234 >> - - - - - 44,673 684,256 39,125 28,441 14,368 4,452 3,389 30,967 701,813 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu21 PROVISIONS This item comprises: Legal claims Contingent liabilities from the acquisition of DSD (Note 31-c) Contingent liabilities from the acquisition of Vial y Vives (Note 31-d) Contingent liabilities from the acquisition of Morelco (Note 31-a) Contingent liabilities from the acquisition of Coasin (Note 31-b) Contingent liabilities from CAM acquisition Provision for well closure 235 >> December 31, 2014 13,056 3,846 1,890 17,533 2,658 12,152 7,210 2013 12,217 3,846 6,006 21,546 4,852 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Provision for maintenance obligations in concession contracts Less: Non-current portion Current portion Legal claims 3,846 52,313 (43,418) 8,895 236 >> 58,345 (46,904) 11,441 Legal claims maintained at December 31, 2014 mainly comprise provisions for labor liabilities and tax claims recorded by subsidiaries GyM S.A., GMP S.A. and CAM Chile for S/.5 million, S/.6.8 million and S/.1.7 million, respectively (S/.5 million, S/.4 million and S/.3 million at December 31, 2013, respectively). 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 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. With respect to GMP, legal claims consists of court actions brought against the Company by the Peruvian energy regulator (OSINERGMIN) resulting from the storage of hydrocarbons and the applicable environmental laws and regulations. With respect to CAM Chile, provisions comprises 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 237 >> Contingent liabilities DSD Comprising the fair value of contingent fiscal obligations of S/.3,813 and employees’ contingent obligation of S/.33 of the DSD (Note 31-c). 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. Management had provisioned S/.6 million in 2013, as it expected such outflows to take place in 2014. However, during 2014, a total of S/.4.1 million expired, and were therefore offset against the balance of other accounts receivable (assets subject to indemnities, Note 31-d) Contingent liabilities CAM In 2014 the Company recognized a reversal of approximately S/.9.4 million (S/.13.6 million in 2013 and S/.68 million in 2012) in provisions that were accounted for in the acquisition of CAM Chile and affiliates in 2011 that related to labor and tax contingencies which related liabilities expired during the year. Contingent liabilities COASIN In 2014, the Group’s subsidiary CAM Chile S.A. acquired control of Coasin Instalaciones Ltda. by purchasing 100% of its capital shares. As a result of the acquisition, labor contingencies were recorded for S/.2.5 million and legal contingencies for S/.0.2 million. Contingent liabilities MORELCO At the end of December 2014, the Group’s subsidiary, GyM S.A. acquired control of Morelco S.A.S. by purchasing 70.00% of its equity shares. As a result of the acquisition, tax contingencies were recorded for S/.10.24 million, labor contingencies for S/.5.7 million and legal contingencies for S/.1.59 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 238 >> Provision for maintenance obligations in concession contracts These provisions relate to Norvial S.A., a subsidiary which has agreed to perform conservation and maintenance activities on the infrastructure during the effective period 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). At December 31, 2014, the Group used 100% of its provisions made for 2013 (S/.3.8 million at December 31, 2013). 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. As per a preliminary estimate, 70 wells of Block I and 15 wells of Block V should be closed. The closure process for both blocks started in 2013 and is expected to be completed in 2021 and 2023, respectively. In 2013, one well of each block has been fully closed. During the course of 2014, 4 wells in Block I and 1 well in Block V have been closed. At December 31, 2014 the amount discounted from the provision for plug-back costs relating to the remaining 78 wells (83 wells in 2013) amounts to S/.7.2 million (S/.4.85 million in 2013) at a discount rate of 2.17% (2.74% in 2013). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu The gross movement of other provisions is broken down as follows: Other provisions At January 1, 2013 Additions Transfer from intangibles Additions from business combinations Reversals Payments At December 31, 2013 At January 1, 2014 Additions Additions from business combinations Morelco (Note 31-a) Additions from business combinations Coasin (Note 31-b) Reversals Payments At December 31, 2014 Legal claims 11,380 2,039 - (882) (320) 12,217 12,217 1,376 - - - (537) 13,056 Contingent liabilities from acquisitions Provisions for the for the acquisition of CAM 6,006 - 3,846 - - 9,852 9,852 - 17,533 2,658 (4,116) - 25,927 35,220 - - (13,674) - 21,546 21,546 (9,394) 12,152 Provision for well closure 4,897 154 - (199) 4,852 4,852 2,696 (338) 7,210 Provisions for periodic maintenance - 12,868 6,728 - - (15,750) 3,846 3,846 2,487 - - - (6,333) - 239 >> Total 57,503 15,061 6,728 3,846 (14,556) (16,269) 52,313 52,313 6,559 17,533 2,658 (13,510) (7,208) 58,345 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 240 >> 22 EQUITY a) Capital - As of December 30, 2014 and 2013, the authorized, subscribed and paid-in capital, according to the Company’s bylaws, as amended, comprises 660,053,790 common shares 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 decision made at the General Shareholders’ 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 for 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 for 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). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu As of December 31, 2014 the Company’s capital structure is as follows: Percentage of individual interest in capital Up to 1.00 From 1.01 to 5.00 From 5.01 to 10.00 Over 10 Number of shareholders 1,841 10 1 2 1,854 241 >> Total percentage of interest 15.23 23.38 5.12 56.27 100.00 As of December 31, 2014 the year-end quoted price of the Company’s shares was S/.7.26 per share, with a trading frequency of 90.48% (quoted price of S/.11.90 per share and a trading frequency of 95.24% at December 31, 2013). 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 can be applied to offset losses but it has to be replenished with the profits to be obtained in subsequent years. This reserve can also be capitalized but its subsequent replenishment is equally mandatory. c) Share premium - 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 decided to issue common shares through a public offering of American Depositary Shares (ADS) registered with the Securities and Exchange Commission (SEC) and listed on the New York Stock Exchange (NYSE). In July and August 2013, the Company issued 101,769,600 new common shares, equivalent to 20,353,920 ADS in two tranches (note 22-a). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 242 >> The excess of the total proceeds obtained by this transaction in comparison with the nominal value of these shares was 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 shareholders’ equity. At December 31, 2013 a total of 265,877,310 shares were represented by ADS (equivalent to 53,175,462 ADS). At December 31, 2014, a total of 253,635,480 shares were represented by ADSs (equivalent to 50,727,096 ADSs at 5 shares per one ADS). In addition, in this account is recognized the difference between nominal and transaction value on additional acquisitions of shares from non-controlling interest. Detail of these transactions in 2012, 2013 and 2014 are disclosed in note 34. 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 (liability) asset, net December 31, 2013 87,635 47,886 135,521 (98,401) (40,152) (138,554) (3,033) 2014 116,699 19,107 135,807 (50,733) (28,422) (79,155) 56,652 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 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 28) Tax charged to other comprehensive income Tax charged to equity Acquisition of subsidiary (Morelco) Acquisition of subsidiary (Coasin) Acquisition of subsidiary (DSD) Acquisition of subsidiary (Stracon GyM) Acquisition of subsidiary (Vial y Vives) Recovery PPUA charged to account receivable Deconsolidation of SEC and LQS Other (decreases) increases Total as of December 31 243 >> 2014 (3,033) 66,373 (1,328) - 4,230 (178) - - - (5,938) 835 (3,452) 56,652 2012 19,908 (8,666) (1,158) - - - - (6,653) (20,458) - - (337) (17,364) 2013 (17,364) 5,704 (8,159) 9,840 - - (2,499) - - - 8,610 (3,033) The provisional payment on absorbed profits (hereinafter PPUA) comprises the recovery of the first-category income tax (Chilean corporate tax) on own profits and profits obtained from other entities in which the entity has an interest (third party attributable profits) and which have been partially or fully absorbed against tax losses. As a result of the reorganization of the Chilean entities, VyV-DSD S.A. has recognized PPUA on the tax losses absorbed from Ingeniería y Construcción Vial y Vives S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 244 >> VyV – DSD S.A. has a tax goodwill credit balance ( higher acquisition valued paid over the acquiree’s own tax capital) which arose from the reorganization of entities that took place in 2014, which, under Chilean applicable tax laws and regulations is not considered a loss in the period in which it is generated but has to be proportionally allocated to the non-monetary assets received from the acquiree up to the market price of those assets, increasing the tax cost of those assets; any reversals will affect profit or loss. The unallocated portion will be considered as deferred expenses and will be deducted as a tax expenses over a period of 10 years. The allocation performed was as follows: S/.8,560 investments, S/.2,114 fixed assets and S/.9,768 deferred expenses (non-attributable portion). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 245 >> 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 At January 1, 2012 Charge (credit) to results Charge (credit) to OCI Acquisition of Stracon GyM (Note 30-c) Acquisition of Vial y Vives (Note 30-b) Other increases At December 31, 2012 Charge (credit) to results Charge (credit) to OCI Acquisition of DSD (Note 30-a) Other increases At December 31, 2013 Charge (credit) to results Charge (credit) to OCI Reclassification of prior years Other increases At December 31, 2014 Non-taxable income Difference in depreciation rates - 4,236 - - - 4,236 9,954 - - - 14,190 - - - - 14,190 13,056 (2,054) - 2,181 236 - 13,419 (270) - 1,148 (1,176) 13,121 9,936 - 13,458 - 36,515 Fair value gains (357) - - - 17,152 - 16,795 34 8,169 4,269 (1,410) 27,857 (8,585) - (5,540) - 13,732 Outstanding work in progress 2,774 22,346 - 4,472 - - Difference in depreciation rates of assets leased 10,266 (1,221) - - - - 29,592 9,045 38,448 - - 18,734 86,774 (50) - - 1,505 10,500 (72,488) 219 - 82 - 14,368 (274) - 10,445 Others Total 3,397 7,120 (612) - 3,605 1,568 15,078 4,461 1,520 (834) (16,596) 3,629 5,754 1,328 7,777 3,049 21,537 29,136 30,427 (612) 6,653 20,993 1,568 88,165 52,577 9,689 4,583 1,057 156,071 (65,164) 1,328 15,503 3,049 110,787 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 246 >> Outstanding work in progress Provision for vacations unpaid Investments in subsidiaries Others Total Deferred income tax asset At January 1, 2012 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 Credit (charge) to results Acquisition of Coasin (Note 31-a) Acquisition of Morelco (Note 31-b) PPUA,charged to accounts receivable Other increases Reclassification of prior years At December 31, 2014 Provisions Accelerated tax depreciation 6,178 6,529 - - 299 13,006 (6,499) - - - 1,836 8,343 9,054 - - - - 22,714 (6,656) - 535 134 16,727 3,788 1,530 - - 1,842 23,887 1,579 (178) - - - 324 25,612 Tax losses 4,000 13,936 - - - 737 13,456 - - - 1,375 1,506 - - 55 17,936 14,193 2,936 23,544 - 9,840 - 1,560 52,880 33,242 1,984 - - 966 3,244 51,645 - - 684 1,690 7,294 2,492 (24,886) 4,083 - - - - - - - - - - - - 5,953 23,350 3,664 59,036 (2,818) 23,941 5,596 16,973 - - - - - - - - - - - - 5,613 - 4,230 - - - 9,843 14,040 (7,010) (1,768) - 741 6,003 2,115 - - 542 330 8,990 3,274 - - (5,938) (425) 2,783 8,684 49,044 21,761 (1,768) 535 1,229 70,801 58,174 1,530 9,840 2,192 10,502 153,039 1,209 (178) 4,230 (5,938) (425) 15,502 167,439 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu247 >> As of December 31, 2014, total tax losses amounted to S/.231 million which S/.36 million are expected to be applied in 2015, S/.92 million in 2016 and the remaining balance in the following periods (S/.213 million in 2013, of 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. 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 profit sharing is deductible for the purposes of income tax calculation. With respect to 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 2014, profit sharing plans amounted to S/.37 million (S/.16 million and S/.22.7 million in 2013 and 2012, 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 2012 18,633 4,088 22,721 2013 12,990 3,060 16,050 2014 27,396 9,541 36,937 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 25 EXPENSES BY NATURE For the years ending December 31, this item is made up of the following: 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 2013: Purchase of goods Personnel charges Services provided by third-parties Taxes Other management charges 248 >> Cost of services and goods Adminis- trative expenses 252,186 1,458,715 1,389,371 7,238 292,740 159,526 60,517 11,192 888,334 4,519,819 212,819 1,527,146 1,520,254 8,930 533,544 - 125,558 51,378 863 52,425 13,492 10,968 2,496 - 257,180 169,469 93,666 614 72,413 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Depreciation Amortization Impairment (inventories and accounts receivable) Variation of inventories 2014: Purchase of goods Personnel charges Services provided by third-parties Taxes Other management charges Depreciation Amortization Impairment (inventories and accounts receivable) variation of inventories 249 >> 13,389 11,133 764 344 361,792 836 210,028 120,714 6,212 63,124 14,525 6,641 71 (784) 421,367 168,090 67,254 2,349 922,992 4,963,378 1,218,522 1,864,053 2,105,226 11,356 686,593 170,784 68,089 2,477 (69,989) 6,057,111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu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, net Derivative financial instruments Other 250 >> 2014 8,010 62 377 969 837 - - 1,207 11,462 2012 3,005 2,007 14,644 968 290 350 21,126 12,745 2,711 57,846 2013 113 5,230 15,497 783 2,053 874 - 13,972 1,831 40,353 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Financial expenses: Interest expense: - Interests to related parties - Bank loans - Finance lease - Multilateral loans - Commissions and guarantees - Third party loans Derivative financial instruments Exchange difference losses, net Other financial expenses Less capitalized interest 251 >> 3,026 21,307 12,872 5,022 4,927 2,432 1,819 44,282 9,992) ( 2,863) 102,816 - 25,897 19,119 6,422 - 1,333 14,763 - 5,375 (4,780) 68,129 500 40,000 14,164 4,975 5,155 895 15,903 70,418 6,84 ( 6,048) 152,802 27 OTHER INCOME AND EXPENSES At the acquisition date of CAM in 2011, as part of the purchase price allocation process and based on external lawyers reports, the Company accounted for a provision amounting to 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. Most of the amount shown in this account corresponds to the reversal of this provision. The amount recognized as other income and expenses mainly corresponds to the reversal of such original registry amounted to S/.9.4 million in 2014(S/.13.6 million and S/.68 million in 2013 and 2012, respectively); and primarily reflects the liabilities that expired under the laws of each country during year 2012, 2013 and 2014. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 252 >> During 2014, this item amounted to S/.9.4 million relating to tax and labor-related contingencies of Brazil, Colombia and Peru for S/.8.6 million, S/.0.6 million and S/.0.2 million, respectively. In 2013 this item amounted to S/.13.6 million relating to tax and labor-related 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. During 2014 the Group received dividends from its investment in Transportadora de Gas del Perú S.A. (TGP) classified as available for sale financial assets for S/.9.35 million and recognised a commission fee for S/.7.5 million (Note 9). In addition, an impairment loss related to fixed asset was recorded for S/.10.34 million (Note 16). 28 INCOME TAX EXPENSES a) In accordance with current legislation in Perú, Chile, Brasil, Colombia, Panamá and Dominican Republic, each Company in the Group is individually subject to the applicable taxes. 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) Changes in the Peruvian Income Tax Law - By means of Law No.30296 enacted on December 31, 2014 amendments to Income Tax Law have been made, which are effective starting in fiscal year 2015 onwards. Among these amendments, it should be noted the progressive reduction in the corporate income tax rate (on the Peruvian third-category income earners) from 30% to 28% for fiscal years 2015 and 2016; then a reduction to 27% for fiscal years 2017 and 2018; and a final reduction to 26% from fiscal year 2019 onwards. Tax on dividends and other forms of profit distribution, agreed on by any legal entities to non-domiciled individuals and legal persons is to be progressively increased from 4.1% to 6.8% for distributions that are agreed on or made available in cash or in kind during fiscal years 2015 and 2016; then an increase to 8.8% for fiscal years 2017 and 2018 will be effective; and a final increase to 9.3% will be effective from fiscal year 2019 onwards. The distribution of retained earnings until December 31, 2014 will continue to be subject to a 4.1% tax even when the distribution is to be made in the subsequent years. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 253 >> c) On September 29, 2014, Law No 20780 was enacted by which certain changes are made to the Chilean tax system, such as: changes in the Income Tax Law, VAT Law and Tax Code. With respect to income tax, two systems have been established: i) ii) Attributable income system: the tax rate applicable on entities will be progressively increased, 21% in 2014, 22.5% in 2015, 24% in 2016, up to 25% in 2017. This system levies the shareholders of Chilean entities with taxes on an annual basis regardless of any effective distribution of profits from the local entity; and entitles them to use the total taxes paid as income tax fiscal credit. Partially integrated system. the tax rate applicable on entities will be progressively increased, 21% in 2014, 22.5% in 2015, 24% in 2016, 25.5% in 2017, up to 27% in 2018. This system levies the shareholders of Chilean entities that distribute dividends and entitle them to use such distribution as a fiscal credit at a 65% of the total taxes paid. This limit does not apply to investors with whom Chile had signed double taxation agreements, such as Peru. Companies will be able to choose the system they will apply in 2017 until June and December 2016. Based on the above, the Group has assessed the future realization of its temporary items underlying its deferred income tax based on the application of the new tax rates and is determining the required adjustments that will result from the expected changes in tax rates. d) 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 2012 145,909 8,666 154,575 2013 188,027 (5,704) 182,323 2014 212,570 (66,373) 146,196 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 254 >> e) 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 - Unrecognized deferred tax asset income - Adjustment for changes in rates of income tax - Tax goodwill - PPUA - Prior year adjustment - Others Income tax charge 2012 520,826 156,248 ( 11,550) - 19,756 - - - - ( 7,432) (2,447) 154,575 2013 594,467 211,234 ( 39,494) ( 9,348) 24,160 104 ( 4,333) 182,323 2014 507,429 236,114 (104,421) (1,790) 25,967 13,922 (2,746) (20,542) ( 5,938) 3,891 ( 1,841) 146,196 f) 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 2010 through 2014 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu255 >> 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 2011 to 2013 and those to be filed for fiscal year 2014 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. g) 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. h) 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. i) The weighted-average tax rate was 29.30% (30.70% in 2013). The decrease in the effective tax rate in relation with the prior year’s rate primarily resulted from the addition of tax credits arising from the reorganization of the Chilean entities. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 256 >> 29 ACCUMULATED OTHER COMPRENHENSIVE INCOME Accumulated other comprehensive income consisted of the fair value of the variable-fixed interest rate hedge signed by GMP S.A., a foreign currency translation adjustment related to foreign subsidiaries fair value of available for sale assets and the exchange difference resulting from permanent investment overseas. These movements are shown net of income tax, except for the translation adjustment. The analysis of the movement is as follows: At January 1, 2012 Additions (*) Tax effects (*) Other comprenhensive income of the year At December 31, 2012 Additions (*) Tax effects (*) Other comprenhensive income of the year At December 31, 2013 Cash flow hedge (3,448) (3,216) 965 (2,251) (5,699) 5,066 (1,520) 3,546 (2,153) Translation adjustment Increase in fair value of available-for sale assets Exchange difference from net investment in a foreign operation (a) (4,322) (1,155) - (1,155) (5,477) (467) - (467) (5,944) 7,460 - - - 7,460 27,229 (8,169) 19,060 26,520 - - - - - - - - - Total (310) (4,371) 965 (3,406) (3,716) 31,828 (9,689) 22,139 18,423 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 257 >> Additions (*) Tax effects (*) Adjustment for changes In rates of income tax Other comprenhensive income of the year At December 31, 2014 750 (210) - 540 (1,613) (13,086) - - (13,086) (19,030) 4,811 (1,251) 1,089 4,649 31,169 (17,030) 4,428 - (12,602) (12,602) (24,555) 2,967 1,089 (20,499) (2,076) (*) 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 2012 ( 3,406) ( 982) ( 3,678) (8,066) 2013 22,139 ( 1,947) (4,591) 15,601 2014 ( 20,499) ( 8,563) (1,332) (30,394) At December 31, 2014 the balance comprises the effect of exchange difference of S/.10.6 million resulting from a loan denominated in foreign currency granted by GyM S.A. to its subsidiary GyM Chile S.p.A for the acquisition of VyV – DSD S.A and an exchange difference of S/.1.9 million resulting from a loan granted by the Company to CAM Holding S.p.A. for a total effect of S/.10.9 million. The effect of the exchange difference is recognized initially in Other comprehensive income as required under International Financial Reporting Standards since this exchange difference meets the qualifying criteria to be considered a net investment in a foreign operation. GyM S.A. does not plan repay such borrowing in the foreseeable future since no payment schedule has been agreed at the date of the statement of financial position. The exchange difference recognized in Other comprehensive income will be reclassified to the statement of income upon sale of the foreign operation. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 258 >> 30 CONTINGENCIES, COMMITTMENTS AND GUARANTEES a) Tax contingencies - During the course of 2013 and 2014, Graña y Montero S.A.A. was audited by the Peruvian Tax Authorities (SUNAT) for fiscal years 2010, 2011 and 2012. Before the date of issue of the financial statements, SUNAT issued tax determination and tax penalties against the Company as a result of the 2010 tax audit; the Company filed a challenge against those resolutions. Also, decisions remain to be issued on claims filed against tax resolutions issued in 2012 and 2013 for fiscal 2007, 2008 and 2009. Management and its legal advisors considers that the outcome of these tax legal actions will be favorable to the Company. As a result of the tax audits of fiscal 1999, 2001 and 2010 on subsidiary GyM S.A., SUNAT issued tax determination and tax penalties resolutions amounting to approximately S/.16 million (S/.29 million as of December 31,2013). During the year 2014, Joint Operations where GyM SA participates as an investor and GMD S.A., were audited by the Peruvian Tax Authorities (SUNAT) for fiscal year 2012 and 2011 respectively and issued tax determination and tax penalties against these entities, the maximum amount of exposure is S/.2.2 million and S/.2.3 million respectively. Management expects the outcome of the other court actions will be favorable to the Company considering their nature and characteristics as well as the opinion of its legal advisor. b) Other contingencies - Year 2014 - i) Civil court actions mainly involving damages and contract terminations as well as work accidents amounting to S/.5.8 million (S/. 3.0 million for GyM S.A., S/.2.5 million for GMI SA. and S/.0.27 million for Viva GyM). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 259 >> ii) iii) iv) Arbitration processes amounting to S/.110.59 million related to an action brought by Contugas S.A.C. against the court action brought by GyM S.A. involving recognition of expenses and indemnification for costs and damages. Challenge administrative actions amounting to S/.1.1 million (S/. 0.8 million comprising an action brought by the Peruvian mining and energy regulator (OSINERMIN) for the alleged noncompliance of GMP S.A. and Consorcio Terminales and S/.0.2 million comprising an action brought by the Peruvian Labor Ministry.against GyM S.A. Administrative actions amounting to S/.1.8 million (S/.0.9 comprising an action brought by the Peruvian agency for the protection of the consumer ("Instituto Nacional de Defensa de la Competencia y de la Protección de la Propiedad Intelectual- INDECOPI) against Viva GyM S.A. for the alleged lack of adequate construction techniques and finishings implemented in housing developments). v) Labor-related processes amounting to S/.2.8 million (S/.2.5 million were actions against GMP S.A., S/. 0.12 million against Cam Peru S.A. and S/. 0.14 million against GyM S.A.). Management considers that the above-described actions brought against Group companies will be found baseless given their nature Year 2013 - i) ii) 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). iii) 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 260 >> 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. 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. c) Commitments and Guarantees As of December 31, 2014, the Group had guarantee commitments with different financial institutions securing transactions for a total US$21.6 million and S/.535.5 million (US$83 million and S/.3.8 million as of December 31, 2013). 31 BUSINESS COMBINATIONS a) Acquisition of Morelco S.A.S. In December 23, 2014, through subsidiary GyM S.A. the Company obtained control of Morelco S.A.S. (Morelco) by acquiring 70.00% of its capital shares. Morelco is an entity domiciled in Colombia that is mainly engaged in providing construction and assembly services. This acquisition is part of the Group’s plan to increase its presence in markets that present high growth potential as in Colombia, and in attractive industries, such as mining and energy. The acquisition value of the investment in Morelco amounted to US$93.7 million (equivalent to S/.277.1 million) which is comprised of cash payments of US$78.5 million (equivalent to S/.231.5 million), a balance payable of US$15.3 (equivalent to S/.45.7 million), and resulted in the recognition of goodwill for US$36.1 million (equivalent to S/.105.8 million) at the acquisition date. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 261 >> The following tables summarize the consideration paid for Morelco and the provisional determination of fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date: Cash and cash equivalents Trade receivables Outstanding work accounts in progress – receivables from clients Other receivables Inventories Prepaid expenses Investments held for sale Property, plant and equipment Intangibles Deferred income tax assets Short-term borrowings Long-term borrowings Trade accounts payables Other accounts payables Contingent liabilities Deferred income tax liability Fair value of net assets (provisional) Non-controlling interest (30.00%) Goodwill (Note 17) Initial purchase consideration Cash payment for acquisition Cash and cash equivalents of the acquired subsidiary Direct cash outflow during the year for the acquisition S/.000 69,930 92,138 101,533 63,949 18,037 2,133 7,291 70,756 64,491 8,031 ( 31,204) ( 9,315) ( 103,739) ( 87,863) ( 17,533) ( 3,801) 244,834 73,450 105,76 277,148 231,464 (69,930) 161,534 US$000 23,514 30,981 34,140 21,503 6,065 717 2,452 23,792 21,685 2,700 ( 10,492) ( 3,132) ( 34,882) ( 29,544) ( 5,895) ( 1,278) 82,326 24,697 36,118 93,747 78,462 (23,514) 54,948 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 262 >> At December 31, 2014, GyM S.A. has an estimated balance payable related to this purchase amounting to US$15.3 million (equivalent to S/.45.7 million), to be discussed and confirmed after the revision is completed by the buyer and the seller. This amount is presented in the item “Other accounts payables” and comprises the portion of consolidation that will be subject to a balance adjustment at the acquisition date, following the procedure below: a) On April 30, 2015, GyM S.A. will provide to the selling party with a certificate (“Closing Certificate”) that will include: i) audited balance sheet at December 31, 2014 and ii) determination of calculation of balance adjustment and adjustment for work contracted remaining to be completed (backlog) under the purchase-sale share agreement. b) On April 30, 2016, GyM S.A. will provide to the selling party with a certificate (“EBITDA 2015 Certificate”) which will include: i) audited balance sheet at December 31, 2015 and ii) EBITDA adjustment calculation determination. The amount referred above as balance adjustment, although has been considered in the financial statements, has not yet been accepted by the buyer and the seller as the final adjustment. Acquisition related costs of S/.4.5 million have been charged to administrative expenses in the income statement of 2014. If Morelco had been consolidated from January 1, 2014, the revenue and profit generated would have been S/.722.57 million and S/.80.75 million, respectively. Provided that the distribution of the consideration is divided between the fair values on a provisional basis for the 2014 financial statements, the Group will complete the distribution process in a period that should not exceed one year as of the acquisition date of Morelco. During such review period, additional assets and liabilities will be recognized that may arise from updated data that may be obtained regarding existing information at the acquisition date and that does not comprise to new incidents occurred after the acquisition date; that is, if the Group were to adjust initial amounts recognized at the business combination dates. Pursuant to the Shareholder Agreement associated with the purchase of Morelco, GyM S.A. also entered into a put and call option agreement in relation to the ordinary shares retained by the non-controlling interest, which provided sellers with the right to sell its retained interest to GyM S.A (put option). As per this agreement, GyM S.A. has the obligation to purchase shares owned by the sellers since the second anniversary of the initial purchase whenever the non-controlling shareholder requests it, for an amount based on a factor applied on an average measure of EBITDA of the last 12 months, limited to a floor equivalent to the price applied for the initial shares purchase. According to the contract the put option expires between month 51 and 63 as from the date of the agreement. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 263 >> On the other hand, GyM S.A. has the right to buy all the shares (call option) of the non-controlling interest at everytime during the validity period of the Shareholder Agreement (from the date of the contract until month 63) for an amount determined in the same way as applied for the put option. Under IFRS the put option represents an obligation (Note 20) to purchase shares from the non-controlling interest, and accordingly, the Group recognised a put option liability at its fair value with a corresponding reduction in equity decreasing other reserves. The option liability was estimated as the present value of the expected redemption amounts based on the Company's risk weighted estimates of Morelco's expected financial results and option execution dates. The Company expects the put options to be exercised on the day following the option's vesting date. The expected redemption of the non-controlling interest shares is as follows: 41.66% on the second anniversary, 41.66% on the fourth anniversary and the remaining shares will be sold on the fifth anniversary of the option's grant date. The discount rate used to calculate the present value of the expected redemption amounts reflects the risk free rate for market participants comparable to the Company. This reflects the Company's assumption that all risks have been incorporated into its risk-weighted estimates of future cash flows. As of December 31, 2014, the assumed discount rate is of 1.65%. b) Acquisition of Coasin Instalaciones Ltda. In March 2014, through the subsidiary CAM Chile S.A., the Group acquired control of Coasin Instalaciones Limited with the purchase of 100.00% of its capital shares. Coasin is an entity incorporated in Chile and is mainly engaged in providing installation and maintenance services for networks and equipment related to the telecommunications industry. 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 other attractive industries, such as utilities. The acquisition value of the investment in CAM Chile S.A. amounted to US$2.1 million (equivalent to S/.6.4 million) and resulted in the recognition of goodwill for US$ 1.9 million (equivalent to S/.5.7 million) at the acquisition date. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 264 >> The following tables summarize the consideration paid for Coasin and the provisional determination of fair value of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date: Cash and cash equivalents Trade accounts receivables Inventories Prepaid expenses Property, plant and equipment Intangibles Deferred income tax liability Trade accounts payables Contingent liabilities Fair value of net assets (provisional) Goodwill (Note 17) Consideration provided for the acquisition Payment for the acquisition settled in cash Cash and cash equivalents of the subsidiary acquired Direct outflow of cash for the acquisition S/.000 3 4,675 276 33 711 1,377 (178) (3,592) (2,658) 647 5,743 6,390 6,390 (3) 6,387 US$000 1 1,564 92 11 238 461 (60) (1,202) (889) 216 1,921 2,137 2,137 (1) 2,136 Revenue and profit resulting for the period between the date of acquisition and December 31, 2014 amounted to S/.66.3 million and S/.0.7 million, respectively. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 265 >> Provided that the distribution of the consideration is divided between the fair values on a provisional basis for the 2014 financial statements, the Group will complete the distribution process in a period that should not exceed one year as of the acquisition date of Coasin. During such review period, additional assets and liabilities would be recognized that may arise from updated data that may be obtained regarding existing information at the acquisition date and that does not comprise to new incidents occurred after the acquisition date; that is, if the Group were to adjust initial amounts recognized at the business combination dates. c) 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. During the twelve-month period after the acquisition date, the Group reviewed the allocation of the purchase price for the acquisition of DSD Construcciones y Montajes S.A. carried out in August 2013 and modified goodwill for a net decrease of S/.1.7 million (net of tax impact of S/.0.5 million and non-controlling interest of S/.0.3 million) adjusting the values of fixed assets, intangibles, trade receivables, other receivables and contingent liabilities for S/.0.4 million, S/.1.9 million, S/.0.2 million, S/.3.5 million and S/.3 million, respectively. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 266 >> The consideration provided by GyM to purchase DSD Construcciones y Montajes S.A. amounted to US$37.2 million (equivalent to S/.103.9 million). The final attribution of the price paid between fair values after the review period resulted in the recognition of goodwill for S/.6.1 million which is illustrated below: Cash and cash equivalents Trade accounts receivables Receivables from related parties Prepaid expenses Investments Property, plant and equipment Intangibles Deferred income tax assets Trade accounts payables Other accounts payables Contingent liabilities Deferred income tax liability Fair value of net assets Non-controlling interest (14.05%) Goodwill (Note 17) Total paid for the purchase Cash payment for acquisition Cash and cash equivalents of the acquired subsidiary Direct outflow of cash flows for the acquisition Previously stated S/.000 US$000 15,530 74,502 6,605 1,032 2,608 52,504 5,741 2,192 ( 5,328) ( 38,679) ( 815) ( 4,187) 111,705 ( 15,701) 7,868 103,872 103,872 ( 15,530) 88,342) 5,562 26,684 2,366 369 935 18,805 2,056 785 ( 1,908) ( 13,854) ( 292) ( 1,500) 40,008) ( 5,624) 2,802 37,186 37,186 ( 5,562) 31,624 S/.000 15,530 74,317 10,083 1,032 2,608 52,922 7,591 2,192 ( 5,328) ( 38,679) ( 3,846) ( 4,692) 113,730) ( 15,986) 6,128 103,872 103,872 ( 15,530) 88,342 Revised US$000 5,562 26,618 3,611 369 935 18,955 2,719 785 ( 1,908) ( 13,854) ( 1,378) ( 1,681) 40,733 ( 5,725) 2,178 37,186) 37,186 ( 5,562) 31,624 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 267 >> 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. d) 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 268 >> 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 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 S/.000 10,445 61,664 10,862 4,002 2,182 1,020 23,746 98,869 15,128 535 (9,550) (3,806) (17,115) (4,965) (47,085) (11,130) (14,730) Reported in 2012 US$000 4,094 24,172 4,258 1,569 855 400 9,309 38,757 5,930 210 (3,744) (1,492) (6,709) (1,946) (18,457) (4,363) (5,774) S/.000 10,445 61,664 10,862 20,765 2,182 1,020 39,184 98,869 15,128 535 (9,550) (3,806) (17,115) (4,965) (47,086) (6,006) (20,993) Revised US$000 4,094 24,173 4,258 8,140 855 400 15,360 38,757 5,930 210 (3,744) (1,492) (6,709) (1,946) (18,457) (2,355) (8,229) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu Fair value of net assets Non-controlling interest (26.42%) Goodwill (Note 17) Total paid for acquisition Cash payment for the acquisition Cash and cash equivalent of the acquired subsidiary Direct cash outflow from acquisition 120,072 (31,757) 53,654 141,969 141,969 (10,445) 131,524 47,069 (12,449) 21,033 55,653 55,653 (4,094) 51,559 151,133 (38,108) 28,944 141,969 141,969 10,445) 131,524 269 >> 59,245 (14,792) 11,200 55,653 55,653 (4,094) 51,559 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. e) Acquisition of Stracon GyM - On March 1, 2012 GyM obtained control over certain business which it had 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 270 >> 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 for a total 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) and resulting in the recognition of goodwill for S/.13.4 million at the acquisition date, is as follows: 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 S/.000 885 120,184 3,862 16,674 24 206,153 9,976 674 36 (64,058) (39,267) US$000 347 47,131 1,515 6,539 9 80,844 3,912 264 14 (25,121) (15,399) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 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 (Note 17) Consideration given for the acquisition) Net assets transferred Cash paid in 2011 Cash paid in 2012 Cash and cash equivalent of the acquired subsidiary Direct cash outflow from acquisition 271 >> (32,086) (516) (49,491) (2,873) 15,089 (3,901) 5,242 16,430 (9,802) 6,628 5,448 1,180 (347) 833 (81,820) (1,316) (126,202) (7,327) 38,478 (9,947) 13,366 41,897 (24,994) 16,903 13,894 3,009 (885) 2,124 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu The following table provides a breakdown of the book value of assets and liabilities transferred in connection with the acquisition of Stracon-GyM: Trade accounts receivable Accounts receivable from related parties Inventories Machinery and equipment Other accounts receivable Total assets Trade accounts payable Accounts payable to related parties Borrowings Other accounts payable Total liabilities Book value of net assets transferred 272 >> S/.000 55,545 27,880 12,318 139,248 19,155 254,146 28,564 56,063 141,430 3,095 229,152 24,994 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 273 >> 32 DIVIDENDS At the General Shareholders’ meeting held on March 28, 2014 the decision was made to distribute dividends for S/.112,127 (S/.0.169 per share), which correspond to 2013 earnings. At the General Shareholders’ meeting held on March 26, 2013, the decision was made to distribute dividends amounting to S/.86,986.2 (S/.0.156 per share), corresponding to 2012 earnings. At the General Shareholders’ meeting held on March 30, 2012, the decision was made to distribute dividends amounting to S/.86,722.4 (S/.0.156 per share), corresponding to 2011 earnings. A dividend of S/.0.159 per share, amounting to S/.104,910 will be proposed at the Annual General Shareholders’ meeting which will be held on March 28, 2015. The financial statements do not reflect these dividends payable. 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 Weighted average number of shares in issue at S/.1.00 each, at December 31, 2012, 2013 and 2014) Basic and diluted earnings per share (in S/.) 2012 289,954 558,284,190 0.519 2013 320,016 600,346,925 0.533 2014 299,744 660,053,790 0.454 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 274 >> 34 TRANSACTIONS WITH NON-CONTROLLING INTERESTS a) Additional acquisition of non-controlling interest i) ii) iii) iv) v) vi) In July 2014, GyM S.A. acquired 13.49% of additional shares in Stracon GyM at a price of US$24.96 million (equivalent to S/.72.82 million). The carrying amount of non-controlling interest at the acquisition date was S/.22.15 million. The Group eliminated the non-controlling interest and recognized a decrease in equity attributable to the parent owners of S/.50.67 million. In August, November and December 2014, the Company acquired 4.567% (2.25%, 1.95% and 0.367% respectively) additional shares in GyM S.A. at a total purchase price of S/.93.16 million. The carrying amount of the non-controlling interest at the acquisition date was S/.24.61. The Group eliminated non-controlling interest and recognized a decrease in equity attributable to the owners of the parent for S/.71.52 million. In August 2014, the Company acquired 1.37% additional shares in Viva GyM S.A. at a price of S/.9.38 million. The carrying amount of the non-controlling interest at the acquisition date was S/.3.35 million. The Group eliminated non-controlling interest and recorded a decrease in equity attributable to the parent owners of S/.6.03 million. 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. 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 the purchase consideration 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 275 >> The effect of these changes is broken down as follows: Carrying amount of non-controlling interest acquired Consideration provided for non-controlling interest Lower (higher) payment attributable to the Company’s controlling interest b) Disposal of interests in subsidiary without loss of control 2012 4,757 (4,393) 364 2013 29,257 (63,868) (34,611) 2014 50,109 (178,331) ( 128,222) i) ii) In November 2014, GyM Chile S.p.A sold 1.01% (S/.1.6 million) of its total interest of 82.04% in Vial y Vives – DSD for US$0.582 million (equivalent to S/.1.6 million). The carrying amount of the non-controlling interest in Vial y Vives – DSD at the disposal date was S/.1.6 million. 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/.25.6 million (that is, 6.16% interest). iii) 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). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu The effect of these changes at December 31 is summarized as follows: Carrying amount of non-controlling interest sold Consideration received for non-controlling interest Increase in equity of the Company’s controlling interest There were no transactions with non-controlling interest in 2013. c) Effects of transactions with non-controlling interests on equity attributable to Parent owners for the year ended December 31: Changes in equity attributable to the Company’s controlling interest arising from: Acquisition of additional interest in subsidiary Disposal of interest in subsidiary without losing control Decrease in equity of the Company’s controlling interest 2012 364 291 655 276 >> 2014 (1,627) 1,627 - 2014 128,222 - 128,222 2012 (902) 1,193 291 2013 (34,611) - (34,611) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 277 >> d) Contributions of non-controlling shareholders Mainly correspond to 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 from Viva GyM S.A. Contributions from GyM Ferrrovías S.A. Returns of contributions Increase in equity of non-controlling interest 2012 30,224 - (4,128) 26,096 2013 59,387 (24,613) 34,774 2014 48,793 2,823 (4,240) 47,376 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 2014 the Group assessed its interest in the joint venture “Red Vial 1 – Cusco”, which was considered and reported as a subsidiary at December 31, 2013. As a result of this assessment, the Group concluded that the rights entitled in such business do not grant control, joint control or significant influence. In addition Management´s conclusion is that Company´s interest in this business is that of a financial asset (receivable). Assets and liabilities of “Red Víal 1 – Cusco” previously consolidated and the non-controlling interest amounted to S/.2,284 which was eliminated in 2014. In 2013 the Group assessed its interests in Concessión La Chira S.A. and Logistica Quimica del Sur S.A.C (LQS). The interests in these concessions were accounted for as if they were under control of the Group (subsidiaries). Subsequent that assessment it was determined that the interests correspond to a joint operation and joint venture, respectively under the provisions of IFRS 11. The amounts, consolidated as of December 31, 2013 of assets and liabilities non-controlling interest amounted to S/.12,535 for La Chira and S/.6,842 for LQS. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 278 >> f) Debt capitalization - Corresponds to the capitalization of debt arising from obligations contracted 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, 2014, 2013 and 2012 dividends were distributed for S/.68.1 million, S/.51.8 million and S/.37.5 million, respectively. 35 EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION a) On October 3, 2014 we reported that the joint operation formed by our Company and our subsidiary GMD were awarded with the concession for the operation of road tolls called: “Operación de la Unidad de Recaudo del Sistema Integrado de Transporte de Lima – SIT”. We were waiting for the respective notice specifying the starting date of the agreement when a communication was served to us “Oficio 007-2015-MML/IMPL/GG” from the Metropolitan Lima Municipality dated January 20, 2015 stating the annulment of the concession that was previously awarded to us; as a result, the Public Bid process went back to the stage before the publication of the proforma agreement indicated in the original Bid time schedule; the reason for this was primarily the report issued by the Peruvian Ministry of Economy and Finance indicating that, as established by law, that Ministry has to issue an opinion on the concession agreement prior the award date; and the Lima Municipality failed to reach the respective agreement to the Ministry before the bid award date. It should be noted that the Group Backlog does not contain any amount related to the above-mentioned concession agreement. The Company is presently evaluating its legal situation as to the decision made by the Municipality and will decide what measures to take. b) On February 03, 2015 the Company placed S/.629 million in “Series A Senior Secured VAC – Indexed Notes due 2039”, corresponding to notes issued by GyM Ferrovías S.A. The Notes sale took place on February 3, 2015 and the issuance date was set at February 10, 2015. Notes will be redeemed on November 25, 2039. Interest rate is 4.75% annually plus inflation adjustment for a period of 24.8 years. Interest payments dates are February 25, May 25, August 25, and November 25, each year, starting May 25, 2015. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTCONSOLIDATED FINANCIAL STATEMENTS | GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES DECEMBER 31, 2012, 2013 AND 2014ANNUALREPORT 2014<< menu 279 >> REPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES (For the fiscal year 2014) NAME: GRAÑA Y MONTERO S.A.A. FISCAL YEAR: 2014 WEB PAGE: WWW.GRANAYMONTERO.COM.PE NAME OR CORPORATE NAME OF THE REVIEWING FIRM 1 1 Applicable only if the information contained in this Report has been reviewed by a specialized firm (for instance, an auditing firm or a consulting firm). << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014280 >> METHODOLOGY: Companies with securities listed on the Public Register of the Securities Market (Registro Público del Mercado de Valores) are required to disclose to the public their good corporate governance practices. In this connection, such companies report their adhesion contained in the Good Corporate Governance Code for Peruvian Companies2. The information to be submitted refers to the fiscal year ended on December 31 of the calendar year previous to the year of submission, whereby any reference to “the fiscal year” must be understood as made to the aforementioned period, and is submitted as an annex to the Annual Report of the Company in the electronic forms provided by the Securities Market Superintendence to facilitate submission of the information in this report through Yesstema MVnet. Section A includes the letter of introduction of the Company, setting out the major corporate governance advancements made in the period. Section B presents the level of compliance of the principles that make up the Code. For such purpose, the Report is structured in accordance with the five pillars of the Code: I. Rights of Shareholders; II. Regular Shareholders Meeting; III. Board of Directors and Senior Management3; IV. Risk and Compliance; and, V. Information Transparency. 2 3 The Good Corporate Governance Code for Peruvian Companies (2014) is available for reference at Orientación – Gobierno Corporativo del Portal del Mercado de Valores www.smv.gob.pe. (Guidance Section – Corporate Governance of the Securities Market Portal www.smv.gob.pe). The term “Senior Management” includes the general manager and other managers. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014281 >> Each principle is evaluated based on the following parameters: a) “Comply or Explain” Evaluation: compliance by the Company is marked with an “x”, based on the following criteria: Yes: Total compliance with the principle. No: Non-compliance with the principle. Explanation: In this field, if the Company checked option “No”, it should explain the reasons why it did not adopt the principle or the actions conducted that allow it to consider that progress is made towards compliance or partial adoption thereof, as applicable. Also, if deemed necessary, if the option “Yes” was checked, the Company may provide information on compliance with this principle. b) Supporting Information: provides information allowing further knowledge on how the Company has implemented the principle. Section C provides a list of documents of the Company that regulate the policies, procedures and other relevant matters that bear a relationship with the principles under evaluation. Section D includes additional information not developed in the previous sections or other relevant information that the Company freely decides to mention so the investors and the various stakeholders may gain further knowledge of the good corporate governance practices that it has implemented. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014282 >> SECTION A: LETTER OF INTRODUCTION4 In the year 2014, Graña y Montero S.A.A. participated in the Good Corporate Governance Index of the Lima Stock Exchange and was awarded the Key of the Stock Exchange for its good practices combined with the opinion of investors and analysts through la Voz del Mercado. Also, it continues to participate as an active member of the Companies Circle, a group of Latin American companies that stand out for their good corporate governance practices, having been elected Chairman of its steering committee. This group is endorsed by the IFC. Graña y Montero S.A.A. firmly believes that the process of implementing good corporate governance standards is an ongoing process and, as such, during 2014 it elected a new board of directors for the 2014-2017 period, which consists of nine members, five of which are independent directors. Also, it continued with the practice that both the Human Resources and Social Responsibility Committee and the Audit and Process Committee is consist of independent directors in their entirety; in addition that, in the latter, one of its members qualifies as financial expert under SOX standards, as it has previously served as an auditor. Additionally, during 2014 use of the Ethical Channel as a tool to channel concerns in connection with compliance with the Ethics Charter and the Code of Conduct continued to strengthen. 4 Describes the main actions implemented during the fiscal year in terms of good corporate governance practices that the Company deems relevant to highlight in line with the five pillars of the Good Corporate Governance Code for Peruvian Companies (2014): Rights of the Shareholders, Shareholders Regular Meeting, Board of Directors and Senior Management, Risk and Compliance and Information Transparency. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014283 >> In connection with the Regular Shareholders Meeting, the Company issued the agenda and the business to be transacted thereat in a timely manner, generating for the first time the proxy vote, allowing shareholders to deliver voting instructions and cast their vote individually for each director. Also, we made public the resumes of the nominees to the Board of Directors to enable a better informed election. Through the Investor Relations Office, the Company sought to become closer to its shareholders and potential investors, for which it held 10 meetings in New York, Europe, Chile and Lima during the year. Likewise, the Company held, after releasing the quarterly results, a telephone conference with investors and analysts, to explain the results of the quarter and answer their questions. Especially, during 2014, we undertook to raise our disclosure standards in accordance with applicable laws and provisions and the SOX regulations applicable to foreign investors, not only by disclosing relevant facts but also disclosing in document 20-F more detailed information, such as the explanation of the business areas, the disclosure of the main risk factors, transactions among related entities, the resumes of the directors and chief executives of the Group, among others. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014284 >> SECTION B: EVALUATION OF COMPLIANCE WITH THE PRINCIPLES OF THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES PILLAR I: RIGHTS OF SHAREHOLDERS PRINCIPLE 1: EQUITABLE TREATMENT QUESTION I.1 YES NO EXPLANATION: Does the Company recognize in its conduct of business an equitable treatment of shareholders of the same class and that they are afforded the same conditions?(*) X Article 6 of the Regulations of the Regular Shareholders Meeting provides that the relationship of the Company with its shareholders is to be consistent with the principles of equitable treatment between shareholders, transparency and the provision of broad and continued information. (*) The same conditions is to be understood as the particularities that distinguish the shareholders, or make them have a common characteristic, in their relationship with the Company (institutional investors, non-controlling investors, etc.). It should be noted that this shall not imply in any case that the use of privileged information is favored. QUESTION I.2 YES NO EXPLANATION: Does the Company promote the existence of classes of shares with voting rights only? X Article 8 of the by-laws provides that the Company shall have a single class of shares and all of them shall carry the same rights and obligations. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014285 >> a. In connection with the equity of the Company, specify: Subscribed capital as of closing of the fiscal year Paid-in capital as of closing of the fiscal year Total number of shares representing the capital stock Number of shares of voting stock s/. 660,053,790.00 S/. 660,053,790.00 660,053,790 660,053,790 b. If the Company has more than one class of shares, specify: Class Number of shares Par value Rights(*) Not Applicable (*) The specific rights of the class that distinguish it from the others shall be indicated in this field. QUESTION I.3 If the Company has investment shares, does the Company promote a policy of redemption or voluntary swap of investment shares for common shares? YES NO EXPLANATION: Not Applicable << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014286 >> PRINCIPLE 2: INTEREST OF SHAREHOLDERS QUESTION I.4 a. Does the Company provide in its corporate documents the form of representation of the shares and who is in charge of entry thereof in the share ledger? YES NO EXPLANATION: X Both the Company by-laws and the Regulations of the Regular Shareholders Meeting provide that representation by proxy is allowed provided it is communicated to the Company at least 24 hours prior to the Meeting and by a non-certified letter. The Company provides this free of charge The only restriction is that if the proxy letter is to a Director, it shall state the voting intent, as provided in Article 28 of the Regulations of the Regular Shareholders Meeting. On the other hand, CAVALI is in charge of entry in the share ledger. b. Is the share ledger kept permanently up to date? X CAVALI is in charge of keeping and updating the share ledger. Provide the timing of updates to the share ledger upon becoming apprised of any change. TIMING: Within 48 hours Weekly Others / Detail (in days) 1 day << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014287 >> PRINCIPLE 3: NO DILUTION OF INTEREST IN THE CAPITAL STOCK QUESTION I.5 YES NO EXPLANATION: a. Is it a policy of the Company that the proposals of the Board of Directors in connection with corporate operations that may affect the right to non- dilution of shareholders (i.e., mergers, spinoffs, capital increases, among others) be previously explained by the Board of Directors in a detailed report with the independent opinion of an external advisor of professional repute appointed by the Board of Directors? b. Is it a policy of the Company to make such reports available to the shareholders? X The Board of Directors is informed of and explains to the market the operations through the motions that it makes public with the notice of the Regular Shareholders Meeting. An external advisor is not hired to provide an independent opinion; the general manager hires an external advisor to be in charge of the operation. X However, Article 10 of our Regulations of the Board of Directors provides that any question or request for information is to be handled directly through the Investor Relations Office. If any corporate operations under the scope of item a) of question 1.5 have occurred during the fiscal year, and if he Company has Independent Directors(*), state if in all cases: << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014288 >> Was the appointment of the external advisor made with the affirmative vote of all Independent Directors? Not Applicable YES NO All of the Independent Directors clearly expressed their acceptance of the aforementioned report and, if applicable, state the reasons for non-acceptance? Not Applicable (*) Independent Directors are those selected based on their professional experience, honorability, financial sufficiency and independence and non-relationship with the Company, its shareholders or directors. PRINCIPLE 4: INFORMATION AND COMMUNICATION TO SHAREHOLDERS QUESTION I.6 YES NO EXPLANATION: Does the Company set who is in charge of or the means for shareholders to receive and require timely, reliable and truthful information? X Article 10 of the Regulations of the Board of Directors and Article 15 of the Regulations of the Regular Shareholders Meeting provide that the Investor Relations Office is responsible for the shareholders receiving and requiring timely, reliable and truthful information, and the means for such purpose. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014289 >> a. Indicate the means through which shareholders receive and/or request information from the Company. COMMUNICATION MEANS Electronic mail Telephone Corporate web page Postal mail Information meetings Others / Detail RECEIVE INFORMATION REQUEST INFORMATION X X X X X X X Quarterly telephone conferences b. Does the Company have a time limit to respond to information requests of shareholders? If answered in the affirmative, provide the time limit: Time limit (days) 7 business days << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014290 >> QUESTION I.7 YES NO EXPLANATION: Does the Company have mechanisms in place for the shareholders to express their opinion on the development thereof? X Section 1 of Article 7 del Regulations of the Regular Shareholders Meeting provide that shareholders may submit, through the information channels implemented by the Company, such matters, suggestions and comments of interest to the Company as they may deem appropriate at any time. If answered in the affirmative, detailed the mechanisms in place in the Company for shareholders to express their opinion on the conduct thereof. Article 7 of the Regulations of the Regular Shareholders Meeting provides that shareholders may express their opinion through the information channels in place in the Company at any time. It also provides that the response of the Company deemed of general interest shall be placed in the corporate web page. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014291 >> PRINCIPLE 5: SHARING IN DIVIDENDS OF THE COMPANY QUESTION I.7 YES NO EXPLANATION: a. Is compliance with the dividend policy subject to evaluations to be X conducted within a specific time frame? The Board of Directors is under the obligation to review and approve the Financial Statements and, as such, proposes the distribution of profits in accordance with the dividend policy approved at the Regular Shareholders Meeting. The Shareholders Meeting approves the dividends and verifies conformity thereof with its policy. b. Is the dividend policy made known to the shareholders by its corporate web X page, among other means? Our dividend policy is placed in our corporate web page, specifically in the ‘Corporate Governance’ section. a. Indicate the dividend policy of the Company applicable to the fiscal year Approval date Approved by the Regular Shareholders Meeting of March 26, 2013 Dividend policy (profit sharing criteria) Distribute, as dividends, between 30% and 40% of the profits generated in each fiscal year. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 292 >> b. Indicate the dividends in cash and in shares distributed by the Company in the fiscal year ended and in the previous fiscal year. PER SHARE FISCAL YEAR REPORTED FISCAL YEAR PREVIOUS TO THE REPORTED FISCAL YEAR IN CASH IN SHARES IN CASH IN SHARES Class Class Investment share S/. 112’126,907.68 0 0 0 0 0 S/. 86,986,243.79 0 0 0 0 0 DIVIDENDS PER SHARE PRINCIPLE 6: CHANGE OF CONTROL OR TAKEOVER QUESTION I.9 YES NO EXPLANATION: Does the Company have policies or agreements of non-adoption of anti-takeover mechanisms? X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014293 >> YES NO X X X Indicate if any of the following measures has been established in your company: Requirement of a minimum number of shares to be a Director Minimum number of years as a Director to be appointed Chairman of the Board Agreements for indemnification of executives / officers as a result of changes after a PAO. Others of a similar nature / Detail PRINCIPLE 7: ARBITRATION FOR SETTLEMENT OF DISPUTES QUESTION I.10 YES NO EXPLANATION: a. Do the by-laws of the Company contain an arbitration agreement providing X Article 76 of the by-laws contains the arbitration agreement. that any dispute between shareholders, or between shareholders and the Board of Directors; and any objection to resolutions of the Regular Shareholders Meeting or of the Board Directors by the shareholders of the Company be submitted to arbitration according law? b. Does such clause enable an independent third party to settle the disputes, except in case of an express legal reserve to be filed in the ordinary courts? X Article 76 of the by-laws contains the arbitration agreement << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014294 >> In the event of any objections to resolutions of the Regular Shareholders Meeting or of the Board Directors by the shareholders and others involving the company during the fiscal period, provide their number. Number of objections to resolutions of the Regular Shareholders Meeting Number of objections to resolutions of the Board of Directors 0 0 << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014295 >> PILLAR II: REGULAR SHAREHOLDERS MEETING PRINCIPLE 8: FUNCTION AND COMPETENCE QUESTION II.1 YES NO EXPLANATION: Is approval of the Board of Directors remuneration policy an exclusive and non- delegable function of the Regular Shareholders Meeting? X Article 23 of the by-laws state that it is a function of the Regular Shareholder Meeting to elect the members of the Board of Directors and set their remuneration. Also, Article 34 of the Directors remuneration policy is determined by the Regular Shareholder Meeting as provided in the by-laws. Indicate whether the following functions are exclusive of the Regular Shareholders Meeting. If answered in the negative, indicate the body that exercises them. Provide special investigations and audits Resolve the amendment of the by-laws Resolve a capital stock increase Resolve the distribution of dividends on account Appoint external auditors YES NO BODY X X X X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014296 >> PRINCIPLE 9: REGULATIONS OF THE REGULAR SHAREHOLDERS MEETING QUESTION II.2 YES NO EXPLANATION: Does the Company have binding Regulations of the Regular Shareholders Meeting, the non-compliance of which entails liability? X The Regulations of the Regular Shareholders Meeting were approved by the Regular Shareholders Meeting held on March 31, 2005. If the company has Regulations of the Regular Shareholders Meeting, state whether they set the procedures to: Give notice of Meetings Incorporate items in the agenda by the shareholders Provide additional information to the shareholders for the meetings Conduct of the meetings The appointment of members of the Board of Directors Relevant others / Details Publicize the resolutions passed at the Regular Shareholders Meeting YES NO X X X X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014297 >> PRINCIPLE 10: PROCEDURES FOR GIVING NOTICE OF MEETINGS QUESTION II.3 YES NO EXPLANATION: In addition to the procedures to give notice of meetings established by law, does the Company have notice procedures that allow establishing contact with shareholders, particularly those who have no participation in the control or management of the Company? X In addition to the notice procedures established by law, the Regulations of the Regular Shareholders Meeting provide that the meeting is to be announced through our web page. a. Complete the following information for each of the Meetings held during the fiscal year: Date of Notice Date of Meeting Place of Meeting February 28, 2014 March 28, 2014 Graña y Montero Office (*) Direct exercise includes voting by any means or procedure other than by proxy. l a i c e p S r a l u g e R X Type of Meeting Meeting by Unanimous Consent Yes No % m u r o u Q Interest (%) in the total shares of voting stock y x o r P y B ) * ( e s i c r e x E t c e r i D t o n t h g i r d e s i c r e x e g n i t o V g n i d n e t t A f o º N s r e d l o h e r a h S X 72.1358 476,135,288 3.05 69.09 27.86 << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 298 >> b. What other means, in addition to the one provided in Article 43 of the General Corporations Law and the provisions in the Relevant Facts and Reserved Information Regulations did the company use to give notice of the meetings during the fiscal year? Electronic mail Telephone Corporate web page X Postal mail Social media Others / Detail QUESTION II.4 YES NO EXPLANATION: Does the Company make available to the shareholders all information relative to the items in the agenda of the Regular Shareholders Meeting and the proposed resolutions intended to be passed (motions)? X Section 2 of Article 12 of the Regulations of the Regular Shareholders Meeting sets forth the proposed resolutions and the comprehensive documentation of the various reports and documents that should be previously made available to the shareholders. In the notices of meeting given by the company during the fiscal year: QUESTION II.4 Was the place where the information pertaining to the items in the agenda to be transacted at the meetings specified? Were “other business”, “various items” or similar included as items in the agenda? YES X NO X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014299 >> PRINCIPLE 11: PROPOSED AGENDA ITEMS QUESTION II.5 YES NO EXPLANATION: Do the Regulations of the Regular Shareholders Meeting include procedures allowing the shareholders to exercise the right to submit proposed agenda items to be discussed at the meeting and the procedures to accept or reject such proposals? X Article 13 of the Regulations of the Regular Shareholders Meeting provides that shareholders may submit suggestions on the matters included in the agenda through the Investor Relations Office. a. Indicate the number of proposals submitted by the shareholders during the fiscal year to include items in the agenda to be discussed at the Regular Shareholders Meeting and the outcome thereof: Received None NUMBER OF REQUESTS Accepted Not Applicable Rejected Not Applicable b. If any requests to include items in the agenda to be discussed at the Regular Shareholders Meeting were rejected in the fiscal year, state whether the company communicated the reasons for such rejection to the requesting shareholders. Not Applicable << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 300 >> PRINCIPLE 12: PROCEDURES TO EXERCISE VOTING QUESTION II.6 YES NO EXPLANATION: Does the Company have mechanisms in place that allow the shareholder to exercise remote voting by secure means, whether electronic or postal, that ensure that the person casting the vote is actually the shareholder? X The Company does not limit the right to proxy and therefore has not set mechanisms to allow remote exercise of voting. a. If applicable, indicate the mechanisms or means in place by which the Company may exercise remote voting. Vote by electronic means Not Applicable Vote by postal means Not Applicable b. If remote voting was exercised during the fiscal year, provide the following information: % REMOTE VOTING % REMOTE VOTING / TOTAL Date of Meeting Not Applicable c i n o r t c e l E l i a M e t a r o p r o C e g a P b e W l i a M l a t s o P s r e h t O << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 301 >> QUESTION II.7 YES NO EXPLANATION: Does the Company have corporate documents that clearly provide that shareholders may vote separately on substantially independent matters, so they may exercise their voting preferences separately? X However, in practice the Company provides, through its motions, the authority of every shareholder to exercise separately the voting preferences of its shares on substantially independent matters. Indicate whether the Company has corporate documents that clearly provide that shareholders may vote separately on: The appointment or ratification of Directors by an individual vote for each of them. The amendment of the by-laws, for each article or group of articles that are substantially independent. Others/ Detail In practice, shareholders may vote separately on substantially independent matters. YES X NO X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014302 >> QUESTION II.8 YES NO EXPLANATION: Does the Company allow those acting on behalf of several shareholders to cast differentiated votes for each shareholder, so they comply with the instructions of each shareholder that they represent? X In practice, the Company allows to cast differentiated votes for each shareholder, for purposes of complying with the instructions of each shareholder represented. Article 17 of the Regulations of the Regular Shareholders Meeting contain very broad provisions that do not restrict the possibility to represent more than one shareholder with different voting intent but, rather, promote the giving of voting instructions by proxy letters. PRINCIPLE 13: DELEGATION OF VOTES QUESTION II. 9 YES NO EXPLANATION: Do the by-laws of the company allow its shareholders to delegate their vote to any person? X Article 29 of the company by-laws states that any shareholder entitled to participate in regular meetings may be represented by another person. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014303 >> YES NO Not Applicable Not Applicable Not Applicable If answered in the negative, state whether your by-laws restrict the right to be represented by any of the following persons: Another shareholder A Director A Manager PREGUNTA II.10 a. Does the Company have procedures detailing the conditions, the means and the formalities to be performed in situations of voting delegation? b. Does the Company make available to shareholders a proxy form setting forth details of the proxies, the business for which the shareholder delegates its vote and, if applicable, its voting intent for each of the proposals? SI X X NO EXPLICACIÓN: Article 29 of the by-laws and Article 17 of the Regulations of the Regular Shareholders Meeting require representation by proxy to be set in writing and especially for each meeting, unless powers of attorney have been granted by a public instrument. Proxies must be filed with the Company at least 24 hours prior to the time set for the Regular Meeting and the Company shall not make any charge for such proxy. Under Section 5 of Article 17 of the Regulations of the Regular Shareholders Meeting, the Company makes available to shareholders a proxy form duly posted in advance in the web page. However, this is not the only form accepted by the Company. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014304 >> Set forth the requirements and formalities to be met for a shareholder to be represented by proxy at a meeting: Formality (indicate whether the Company requires a simple letter, a notarized letter, a public instrument or other). Notice period (number of days prior to the meeting that the proxy form must be submitted) Cost (indicate whether the Company requires any payment for this purpose and the amount thereof ). Simple letter 24 hours Free of charge QUESTION II.11 YES NO EXPLANATION: a. Is it a policy of the Company to set limitations to the percentage of delegation of votes to members of the Board of Directors or of the X Senior Management? b. In cases of delegation of votes to members of the Board of Directors or of the Senior Management, is it the policy of the Company that shareholders who delegate their votes clearly state the intent thereof? X Article 28 of the Regulations of the Regular Shareholders Meeting provides that the delegation of votes to a Director must necessarily state its voting intent. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014305 >> PRINCIPLE 14: FOLLOW-UP ON RESOLUTIONS OF THE REGULAR SHAREHOLDERS MEETING QUESTION II.12 YES NO EXPLANATION: a. Does the Company follow up on the resolutions passed at the Regular Shareholders Meeting? b. Does the Company issue periodic reports to the Board of Directors and are these made available to the shareholders? X X Article 9 of the Regulations of the Board of Directors sets forth the general supervisory function of the Board of Directors. Quarterly reports, which are made public through the SMV and the corporate web page, are issued. If applicable, indicate the area and/or person in charge of following up on the resolutions passed by the Regular Shareholders Meeting. If a person is in charge, include also the position and area where he/she works. Area in Charge Corporate Legal Management Full Name PERSON IN CHARGE Title Area Claudia Drago Morante Corporate Legal Manager Corporate Legal Management << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014306 >> PILLAR III: BOARD OF DIRECTORS AND SENIOR MANAGEMENT PRINCIPLE 15: MAKE-UP OF THE BOARD OF DIRECTORS QUESTION III.1 YES NO EXPLANATION: Is the Board of Directors made up of persons specializing in various areas and with different competences, with good reputation, ethical, financial independence and other qualities relevant to the Company, so that there is a plurality of approaches and opinions? X The Board of Directors is made up of nine persons of various professions, all of them reputed, ethical and with sufficient availability. Additionally, five of them are financially independent (Independent Directors). a. Provide the following information pertaining to the members of the Board of Directors of the Company during the fiscal year. FULL NAME PROFESSIONAL BACKGROUND (*) DATE EQUITY INTEREST (****) START (**) END (***) N° OF SHARES INTEREST (%) DIRECTORS (NOT INCLUDING INDEPENDENT DIRECTORS) José Graña Miró Quesada Carlos Montero Graña Mario Alvarado Pflucker -Architect -Director in two companies -Engineer - Director in two companies (both belonging to our economic group) - Engineer -Director in one company 1996 1996 2003 117,538,203 shares through GH Holding Group Corp. 33,785,285 shares through Bethel Enterprises Inc. 17.81% 5.12% << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014307 >> Hernando Graña Acuña - Engineer - Director in six companies (five belonging to our economic group) 1996 INDEPENDENT DIRECTORS José Chlimper Ackerman - Economist and Business Administrator - Director in six companies, in three of which he is a shareholder. Pedro Pablo Errázuriz Domínguez - Engineer. - Director of one company Federico Cúneo de la Piedra Mark Hoffmann Rosas Hugo Santa María Guzmán - Accountant - Director in nine companies, in five of which he is a shareholder. - Engineer - Director in four companies - Engineer - Director in four companies. 2006 2014 2014 2014 2011 In addition, detail whether the Director is concurrently a member of other boards of directors, their number and whether these are part of the economic group of the (*) reporting company. In this connection, the definition of economic group contained in the Regulations on Indirect Ownership, Related Companies and Economic Groups shall be considered. (**) (***) (****) Mandatory only for Directors holding an interest of 5% or more in the capital stock of the reporting company. Pertains to the first appointment in the reporting company. Complete only if ceased in the position of Director during the fiscal year. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014308 >> % of the total shares held by the Directors 28.62% Provide the number of Directors of the Company within the following age range. Less than 35 Between 35 and 55 Between 55 and 65 Older than 65 0 3 4 2 b. Indicate whether there are specific requirments to be appointed Chairman of the Board in addition to the requirements to be appointed a Director. Yes X No If answered in the affirmative, set forth such requirements. Section 35.2 of the Regulations of the Board of Directors provides that the Chairman of the Board may not be a chief executive of the Group. c. Does the Chairman of the Board have a casting vote? Yes X No << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 309 >> QUESTION III.2 YES NO EXPLANATION: Does the Company prevent the appointment of substitute or alternate Directors, especially for quorum reasons? X Yes, even though the Regulations allow it, the Company prevents –as it has been doing for years- the appointment of substitute or alternate Directors because these would not be focused on and connected with the dynamic of the Company if required to attend on an occasional basis. If the Company has alternate or substitute Directors, provide the following: Full Name of Substitute or Alternate Director Start (*) End (**) (*) (**) Pertains to the first appointment as alternate or substitute Director of the reporting Company. Complete only if ceased in the position of alternate or substitute Director during the fiscal year. Not Applicable Not Applicable << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014310 >> QUESTION III.3 YES NO EXPLANATION: Does the Company disclose the names of Directors, their independent status and their resumes? X The name, capacity and resumes of our Directors are provided in our corporate web page and the Annual Report and were made available to the shareholders prior to the election of the Board of Directors. Set forth the means by which the Company discloses the following information on the Directors: Name of Directors Independent Status or not Resumes L I A M L A T S O P G N I T R O P E R T O N C I N O R T C E L E L I A M E T A R O P R O C E G A P B E W X X X / S R E H T O L I A T E D Also provided in the Annual Report Also provided in the Annual Report Also provided in the Annual Report << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 311 >> PRINCIPLE 16: FUNCTIONS OF THE BOARD OF DIRECTORS QUESTION III.4 YES NO EXPLANATION: The Board of Directors performs the function of: a. Approving and directing the corporate strategy of the Company b. Setting objectives, goals and action plans include in the annual budgets and the business plans. c. Controlling and supervising the management and in charge of governance and administration of the Company. X X X Article 9 of the Regulations of the Board of Directors states its functions. Article 9 of the Regulations of the Board of Directors states its functions. Article 9 of the Regulations of the Board of Directors states its functions. d. Supervising the good corporate governance practices and setting the policies X Article 9 of the Regulations of the Board of Directors states its functions. and measures required for better application thereof. a. Detail any other relevant powers of the Board of Directors of the Company - Supervise strategically important commercial, industrial or financial agreements. - Approve acquisitions and disposals of substantial assets and equity interests in companies, and the financial operations of the Company that have a material impact on the equity situation or that, due to any circumstance, may be especially significant. - Approve investments that due to their amount or their nature significantly affect the equity situation or the strategy of the Company. - Propose and approve within the limits authorized by the Regular Shareholders Meeting, the issue of bonds, obligations or similar securities. - Approve the rules and procedures for appointments, control of the management activity, the identification of the main risks of the Company, the evaluation, removal and remunerations applicable to the Senior Management, especially of the Corporate General Manager and the efficiency of the good corporate governance practices. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014312 >> b. Does the Board of Directors delegate any of its functions? Yes X No Set forth, if applicable, the main functions of the Board of Directors that have been delegated, and the body that performs such delegated functions. FUNCTIONS BODY / AREA TO WHICH FUNCTIONS HAVE BEEN DELEGATED Hiring and substituting the General Manager Human Resources Management and Social Responsibility Committee Hiring and substituting the Management Staff Human Resources Management and Social Responsibility Committee in coordination with the General Manager Set the remuneration of chief executives Human Resources Management and Social Responsibility Committee Evaluate the remuneration of chief executives Human Resources Management and Social Responsibility Committee in coordination with the General Manager Follow up on the social responsibility policy Human Resources Management and Social Responsibility Committee Ongoing relationing with external auditors Audit and Process Committee Follow-up and supervision of the internal and external audit services Audit and Process Committee Review of the internal processes of the Group Procedures and investigations of claims filed with the Ethical Channel in connection with accounting and financial matters. Audit and Process Committee Audit and Process Committee Follow-up and approval of the annual investment plan Audit and Process Committee << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 313 >> PRINCIPLE 17: DUTIES AND RIGHTS OF THE MEMBERS OF THE BOARD OF DIRECTORS QUESTION III.5 YES NO EXPLANATION: Are the members of the Board of Directors entitled to?: a. Request the Board of Directors support or the contribution of experts. b. Participate in induction programs on their authority and duties and to be timely informed of the organizational structure of the Company. X X Article 32 of the Regulations of the Board of Directors states that Directors may gather the information and receive the advisory that they may require on any aspect of the Company. Section 19.3 of the Regulations of the Board of Directors provides that the Chairman of the Board and the General Manager shall provide induction to the new Director explaining the structure of the Graña y Montero Group. Also, as a practice, Directors are taken to visit major projects of the Group. c. Receive a remuneration for the work perfumed, which combines recognition X of the professional experience and dedication to the Company with a rationality criterion. Chapter IX of the Regulations of the Board of Directors regulating remuneration of the Director. Remuneration consists of a fixed amount per meeting and a variable amount per meeting. a. If specialized advisors were hired during the fiscal year, indicate whether the list of specialized advisors of the Board of Directors who provided services during the fiscal year for the decision making of the Company was provided to the shareholders. No If applicable, state whether any of the specialized advisors was related to any member of the Board of Directors and/or the Senior Management(*). Not Applicable (*) In connection with relatedness, the relationship criteria contained in the Regulations on Indirect Ownership, Related Companies and Economic Groups shall be applied. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 314 >> b. If applicable, indicate whether the Company conducted induction programs with the new members who joined the Company. Yes X No c. Indicate the ratio of the aggregate amount of remunerations and annual bonuses of Directors to gross income, according to the financial statements of the Company (*). REMUNERATION (%) GROSS INCOME BONUSES (%) GROSS INCOME Directors (not including Independent Directors) Independent Directors 0.0154% 0.0143% Delivery of Shares Delivery of Options Delivery of Cash Others (detail) Not Applicable Not Applicable 0.297 (*) Remuneration ratio set in relation to consolidated gross sales of the Graña y Montero Group. PRINCIPLE 18: REGULATIONS OF THE BOARD OF DIRECTORS QUESTION III.6 YES NO EXPLANATION: Does the Company have binding Regulations of the Board of Directors the non- compliance of which entails liability? X We have Regulations of the Board of Directors approved at the Board of Directors Meeting held on March 31, 2005. Indicate whether the Regulations of the Board of Director contain: << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 315 >> NO Operating policies and procedures Organizational structure of the Board of Directors Functions and responsibilities of the Chairman of the Board Procedures for identification, evaluation and nomination of candidates to members of the Board, who are proposed to the Regular Shareholders Meeting Procedures for cases of vacancy, termination and succession of Directors YES X X X X X Others / Detail PRINCIPLE 19: INDEPENDENT DIRECTORS Regulates cases of conflict of interest, the functions of the vice chairman and secretary of the Board of Directors, and of the General Manager QUESTION III.7 YES NO EXPLANATION: Is at least one-third of the Board of Directors made up of Independent Directors? X At present, five of the nine Directors of Graña y Montero are Independent Directors Indicate which of the following conditions is taken into account by the Company to qualify its Directors as Independent Directors. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014Not being a Director or employee of a company of its economic group, unless three (3) or five (5) years, respectively, since termination of such relationship have elapsed. Not being an employee of a shareholder with an interest of five percent (5%) or more in the company. Not having more than eight (8) continued years as an Independent Director of the Company. Not having, or having had in the last three (3) years a business, commercial or contractual relationship, whether direct or indirect, and significant, (*), with the Company or any other company of its group. Not being the spouse of, or have any first or second degree kinship relationship by blood, or in the first degree of affinity, with shareholders, members of the Board of Directors or of the Senior Management of the Company. Not being a director or a member of the Senior Management of another company in which any Director or member of the Senior Management of the Company is part of the Board of Directors. Not having been in the last eight (8) years a member of the Senior Management or an employee, whether in the Company, in companies of its group or in companies who are shareholders of the Company. Not having been in the last three (3) years, a partner or employee of the external auditor or of the auditor of any company of its group. YES X X X X X* Others / Detail -*Our regulations consider a period of five (5) years. -Additionally, to qualify as an Independent Director a professional and personal profile that inspires a presumption of trust in connection with its independence is required. • The business relationship shall be presumed significant when any of the parties has issued invoices or payments in an amount higher than 1% of its annual income. 316 >> NO X X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014317 >> QUESTION III.8 YES NO EXPLANATION: a. The Board of Directors declares that the proposed candidate is independent based on the enquiries conducted and the statement of the candidate? b. The candidates to Independent Director state their independent status to the Company, its shareholders and managers? X X The Board of Directors proposes to the Shareholders Meeting the appointment of the Directors stating whether they are Independent, External Non- Independent or Internal Directors. Candidates submit to the Company a Sworn Affidavit where they state their Independent status, among others. PRINCIPLE 20: OPERATIONAL EFFICIENCY OF THE BOARD OF DIRECTORS QUESTION III.9 YES NO EXPLANATION: Does the Board of Directors have a work plan that contributes to the efficiency of its functions? X The Board of Directors has a pre-established agenda. QUESTION III.10 YES NO EXPLANATION: Does the Company provide its Directors the channels and procedures necessary to participate efficiently in Board of Directors meetings, even if non-presential? X Section 12.4 of the Regulations of the Board of Directors and Article 59 of the by-laws provide that non-presential meetings may be held. a. Indicate the following in connection with the Board of Directors meetings held during the fiscal year: << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014Number of meetings held Number of meetings held without the giving of notice (*) Number of meetings which the Chairman of the Board did not attend Number of meetings at which one or more Directors were represented by substitute or alternate Directors Number of regular Directors who were represented at least once (*) The number of meetings held under the provisions in the last paragraph of Article 167 of the General Corporations Law shall be set in this field. 318 >> 9 0 0 0 0 << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014b. Indicate the attendance rate of Directors to Board of Directors meetings during the fiscal year. NAME José Graña Miró Quesada Carlos Montero Graña Mario Alvarado Pflucker Mark Hoffmann Rosas Federico Cúneo de la Piedra José Chlimper Ackerman Hernando Graña Acuña Pedro Pablo Errázuriz Domínguez Hugo Santa María Guzmán 319 >> % ATTENDANCE 100% 100% 100% 85.71% 85.71% 100% 100% 100% 100% c. Indicate the time prior to the Board of Directors meeting that all information of the business to be transacted at a meeting is made available to the Directors LESS THAN 3 DAYS 3 - 5 DAYS MORE THAN 5 DAYS Non-Confidential Information Confidential Information X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014320 >> QUESTION III.11 YES NO EXPLANATION: a. Does the Board of Directors evaluate at least once a year, objectively, its X Directors conduct a self-evaluation within the first quarter of the year. performance as governing body and that of its members? b. Is the self-evaluation methodology alternated with the evaluation conducted X The evaluation of the Board of Directors has been internal. by external advisors? a. Indicate if performance evaluations of the Board of Directors have been conducted during the fiscal year. As governing body Of its members (*) Members were not evaluated this year due to the change in the Board of Directors and many Directors were departing. If any of the fields in the previous question is answered in the affirmative, provide the following information for each evaluation: YES X NO X* << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014321 >> EVALUACIÓN SELF-EVALUATION EXTERNAL EVALUATION Date Communicated (*) Date Entity in Charge Communicated (*) BOARD OF DIRECTORS MEETING March 28, 2014 No Not Applicable (*) Indicate Yes or No, if the evaluation was communicated to the shareholders. PRINCIPLE 21: SPECIAL COMMITTEES QUESTION III.12 YES NO EXPLANATION: a. Does the Board of Directors of the Company form special committees focused on the analysis of the most relevant matters for performance of the Company? b. Does the Board of Directors approve the regulations governing each of the special committees formed? c. Are special committees chaired by Independent Directors? d. Are Special committees assigned a budget? X X X X The Regulations of the Board of Directors govern development of the three Committees formed in the Company: (i) Investment and Risk Committee (ii) Human Resources Management and Social Responsibility Committee; and; (iii) Audit and Process Committee. The Regulations of the Board of Directors, which govern the conduct of special committees, was approved by a Board of Directors meeting. The only one of the three committees not chaired by an Independent Director is the Investment and Risk Committee; however, it consists of a majority of Independent Directors. The other two special committees are made up of and chaired by Independent Directors only. The Investment and Risk Committee and the Human Resources Management and Social Responsibility Committee have an assigned budget. This is not provided to the Audit and Process Committee, which in accordance with item o) of Article 40.6 of the Regulations of the Board of Directors may determine its own budget to ensure independence in performance of its duties. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014322 >> QUESTION III.13 YES NO EXPLANATION: Does the Company have an Appointments and Remuneration Committee in charge of nominating the candidates to member of the Board, who are proposed to the Regular Shareholders Meeting by the Board of Directors, and of approving the remuneration and incentives system of the Senior Management? X The Human Resources Management and Social Responsibility Committee approves the remuneration and incentives system of the Senior Management, while the Senior Management is in charge of nominating the candidates to member of the Board. QUESTION III.14 YES NO EXPLANATION: Does the Company have an Audit Committee that oversees the efficiency and suitability of the internal and external control system of the Company, the work of the auditing firm or the independent auditor, and compliance with the legal and professional independence regulations? X The Audit and Process Committee. a. Indicate whether the Company has the following additional Special Committees: Risk Committee Corporate Governance Committee *The functions of the Corporate Governance Committee are performed by our Audit and Process Committee. YES X NO X* << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014323 >> b. If the Company has Special Committees, provide the following information for each committee: NAME OF THE COMMITTEE: Audit and Process Committee DATE OF CREATION: October 28, 2004 MAIN FUNCTIONS: Ensure good corporate governance, appropriate internal procedures and the transparency of all acts of the Company in the economic- financial, external audit and compliance and internal audit 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. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014324 >> • 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. • 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. MEMBERS OF THE COMMITTEE (*): FULL NAME DATE POSITION IN THE COMMITTEE José Chlimper Ackerman Hugo Santa María Guzmán Federico Cúneo de la Piedra % of Independent Directors in the Committee Number of meetings held during the fiscal year: End (***) Start (**) 31.03.08 29.04.14 29.04.14 Has been granted powers in accordance with Article 174 of the General Corporations Law. The committee or its chairman participates in the Regular Shareholders Meeting. Yes X Yes Chairman Member Member 100% 5 meetings No No X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014325 >> NAME OF THE COMMITTEE: Human Resources Management and Social Responsibility Committee DATE OF CREATION: MAIN FUNCTIONS: October 28, 2004 • 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 remuneration 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. • 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. • 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 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 remuneration or other matters as necessary for performance of its duties. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014326 >> MEMBERS OF THE COMMITTEE (*): FULL NAME DATE POSITION IN THE COMMITTEE José Chlimper Ackerman Federico Cúneo de la Piedra Mark Hoffmann Rosas % of Independent Directors in the total del Committee. Number of meetings held during the fiscal year: End (***) Start (**) 23.03.06 29.04.14 29.04.14 Has been granted powers in accordance with Article 174 of the General Corporations Law. The committee or its chairman participates in the Regular Shareholders Meeting. Yes X Yes Chairman Member Member 100% 6 meetings No No X NAME OF THE COMMITTEE: Investment and Risk Committee DATE OF CREATION: MAIN FUNCTIONS: October 28, 2004 • 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. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014327 >> MEMBERS OF THE COMMITTEE (*): FULL NAME DATE POSITION IN THE COMMITTEE José Graña Miró Quesada Hugo Santa María Guzmán Pedro Pablo Errázuriz Dominguez % of Independent Directors in the Committee Number of meetings held during the fiscal year: End (***) Start (**) 28.10.04 29.04.14 29.04.14 Has been granted powers in accordance with Article 174 of the General Corporations Law. The committee or its chairman participates in the Regular Shareholders Meeting. Yes X Yes (*) (**) (***) Information on persons who are or were members of the Committee during the reporting fiscal year. Pertains to the first appointment as a member of the Committee in the reporting company. Complete only if ceased to be part of the Committee during the fiscal year. Chairman Member Member 67% 3 meetings No No X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014328 >> PRINCIPLE 22: CODE OF ETHICS AND CONFLICTS OF INTEREST QUESTION III.15 YES NO EXPLANATION: Does the Company take measures to prevent, detect, handle and disclose conflicts of interests that may arise? X The Company has an Ethics Charter and a Code of Conduct available from our web page. If applicable, indicate the area and/or person in charge of follow-up and control of possible conflicts of interest. If a person is in charge, include also the position and area where he/ she works. Area in Charge Human Resources Management Full Name PERSON IN CHARGE Position Area << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014329 >> QUESTION III.16 / COMPLIANCE YES NO EXPLANATION: a. Does the Company have a Code of Ethics(*) enforceable on its Directors, X The Code of Conduct was approved in 2012 and the Ethics Charter in 1995. managers, officers and other collaborators (**) of the Company, which sets forth ethical and social responsibility criteria, including management of potential conflicts of interest? b. Does the Board of Directors or the General Manager approve training X programs for compliance with the Ethics Code? Every company of the group incorporates to the annual training plan courses on the Code of Conduct. Also, to conduct such training, we have on-line courses, incorporating them as induction for new directors and new collaborators. (*) The Code of Conduct may be a part of the Internal Conduct Regulations. (**) The term collaborates covers all persons who have any employment relationship with the Company, regardless of the labor system or procedure. If the Company has a Code of Ethics, indicate the following: a. Available to: Shareholders Other persons to whom it may apply The general public YES NO X X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014330 >> b. Indicate the area and/or person in charge of following up on and compliance with the Code of Ethics. If a person is in charge, include also the position and area where he/she works and who he/she reports to. Area in Charge Ethics Commission Full Name Position Area Reports to Claudia Drago Morante Gerente Legal Corporativa Corporate Legal Management Mario Alvarado Pflucker PERSON IN CHARGE c. Is a record of cases of non-compliance with such Code in place? Yes X No d. Indicate the number of events of non-compliance with the provisions in such Code, detected or reported during the fiscal year. TOTAL CASES FILED 2014 Pending Inadmissible Under investigation Closed 57 10 6 19 22 << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 331 >> • The Ethical Channel record includes reports received, classified as above; however, we cannot say whether the reports classified as ‘closed’ have been an event of non-compliance or were ruled inadmissible, information that the Ethics Commission handles as reserved. QUESTION III.17 YES NO EXPLANATION: a. Does the Company have mechanisms in place to report any illegal or unethical behavior, safeguarding the confidentiality of the reporting party? b. Reports are filed directly to the Audit Committee when related to accounting matters or when the General Management or the Financial Management are involved? X X We have an Ethical Channel that allows reporting illegal or unethical behaviors safeguarding the confidentiality of the reporting party. Item Q) of Section 40.6 of the Regulations of the Board of Directors requires that the Audit and Process Committee sets procedures for reception, retention and processing of the reports received by the Company in connection with accounting, internal control of accounts or audit matters. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014332 >> QUESTION III.18 YES NO EXPLANATION: a. Is the Board of Directors in charge of follow-up and control of any conflicts X of interest arising in the Board of Directors? b. If the Company is not a financial entity, has it established the policy that X members of the Board of Directors are prohibited from borrowing from the Company or from any company of their economic group, unless previously consented by the Board of Directors? c. If the Company is not a financial entity, has it established the policy that X members of the Senior Management are prohibited from borrowing from the Company or from any company of their economic group, unless previously consented by the Board of Directors? Article 29 of the Regulations of the Board of Directors provides that Directors communicate to the Board of Directors any conflict situation, whether direct or indirect, that they may have with the interest of the Company. This policy is in place since we listed in the New York Stock Exchange. It should be noted that no loans whatsoever are granted to members of the Board of Directors (not even with the approval thereof ). This policy is in place since we listed in the New York Stock Exchange. It should be noted that no loans whatsoever are granted to members of the Board of Directors (not even with the approval thereof ). a. Provide the following information on members of the Senior Management who are shareholders with an interest of 5% or more in the Company. FULL NAME POSITION NUMBER OF SHARES % OF TOTAL SHARES Not Applicable % of the total shares held by the Senior Management 9.19% << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014333 >> b. Indicate whether any of the members of the Board of Directors or the Senior Management of the Company is the spouse, is a first or second degree relative by blood, or first degree relative by affinity of: Full Name Vinculación con: ) * ( r e d l o h e r a h S t n e m e g a n a M r o i n e S r o t c e r i D Full Name of Shareholder / Director / Manager Relation Type (**) Additional Information (***) Not Applicable (*) Shareholders with an interest of 5% or more in the capital stock. (**) In connection with relatedness, the relationship criteria contained in the Regulations on Indirect Ownership, Related Companies and Economic Groups shall be applied. (***) If any relationship with a shareholder exists, include the equity interest thereof. If the relation is with any member of the management staff, include its position. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 334 >> c. If a member of the Board of Directors holds or has held a management position in the Company during the fiscal year reported herein, provide the following information: Full Name Management Position that he holds or has held Management Position Date Mario Alvarado Pflucker Corporate General Manager Hernando Graña Acuña Executive President of GyM S.A. (*) Pertains to the first appointment to a management position in the reporting company (**) Complete only if ceased in the management position during the fiscal year. Start (*) 12.08.1996 31.03.2011 End (**) d. If any member of the Board of Directors or the Senior Management of the Company has held during the fiscal year any significant business, commercial or contractual relationship with the Company due to the amount or subject thereof, provide the following information: FULL NAME José Graña Miró Quesada RELATIONSHIP TYPE Chairman of the Board BRIEF DESCRIPTION Purchased two (2) apartments at Proyecto Real 2 from our subsidiary Viva GyM S.A., in the total amount of USD 2,699,085.39 << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014335 >> PRINCIPLE 23: TRANSACTIONS WITH RELATED PARTIES QUESTION III.19 YES NO EXPLANATION: a. Does the Board of Directors have policies and procedures in place to assess, approve and disclose certain transactions between the Company and related parties, and to know the business or personal relationships, whether direct or indirect, that the Directors maintain with each other, with the Company, its suppliers or clients, and other stakeholders? X b. For operations of special relevance or complexity, is the participation of X independent external advisors for assessment thereof considered? The Human Resources Management Committee has policies and procedures in place to assess, approve and disclose certain transactions between the Company and related parties, disclosing them in form 20F submitted as Relevant Fact to the SMV. a. If item a) of question III.19 is the case, indicate the area(s) of the Company in charge of dealing with transactions with related parties in the following aspects: Aspects Assessment Approval Disclosure Area in Charge HR Management General Management or Board of Directors of each company General Management << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014336 >> b. Indicate the procedures to approve transactions between related parties: Article 30 of the Regulations of the Board of Directors provides that Human Resources Management and Social Responsibility Committee reserves the knowledge and authority over material transactions between related parties, a material transaction being any operation of the Company with material shareholders, Directors, Senior Mangers and Chief Executives or persons related to them, and with other companies of the Graña y Montero Group. Furthermore, for ordinary transactions, provided they are conducted at fair value, the generic authorization of the operations line shall suffice. c. Detail the transactions material due to their amount or subject performed between the Company and its related parties during the fiscal year . Name or Corporate Name of Related Party Nature of the Relationship(*) Type of Transaction Amount (S/.) GyM S.A. Concar S.A. GyM S.A. Viva GyM S.A. TGNCA S.A. GMD S.A. Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary General Management and Various Managements Contract S/. 20,556,930 Loan contract Loan contract Loan contract Loan contract Loan contract S/. 33,900,000.00 S/.295,800,000.00 S/. 66,631,516.72 S/. 16,530,000.00 S/. 30,450,000.00 (*) In connection with relatedness, the relationship criteria contained in the Regulations on Indirect Ownership, Related Companies and Economic Groups shall be applied. d. Indicate whether the Company sets limits to transitions performed with related companies. Yes No X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 337 >> PRINCIPLE 24: FUNCTIONS OF THE SENIOR MANAGEMENT QUESTION III.20 / COMPLIANCE YES NO EXPLANATION: a. Does the Company have a clear policy for the delimitation of administrative X or governance functions implemented by the Board of Directors, the ordinary conduct of business by the Senior Management and the leadership of the General Manager? b. The appointments of General Manager and Chairman of the Board of the Company are made by various persons? c. Does the Senior Management have sufficient autonomy to perform the duties assigned, within the framework of policies and guidelines defined by the Board of Directors and under the control thereof? d. Is the General Manager in charge of complying with and enforcing compliance with the policy of information delivery to the Board of Directors and its members? X X X Article 9 of the Regulations of the Board of Directors defines the overall management strategy and guidelines of the Company, the furtherance and oversight of the conduct of the Senior Management setting the foundations of the corporate organization with a view to ensuring the highest efficiency thereof, oversight in connection with transparency and truthfulness of the information of the Company in its relationships with shareholders. Additionally, Article 38 of such Regulations provide that the General Manager is responsible for the operations and administration of the Company in accordance with the criteria and guidelines set by the Board of Directors, who implements such resolutions and ensures that the Senior Management performs the resolutions of the Board of Directors, implements the strategy of the Board and keeps an appropriate planning, control and information system for the Board of Directors. Section 35.2 of the Regulations of the Board of Directors provides that the Chairman of the Board may not be a chief executive of the Group. Art. 9.5 provides that the Board of Directors respects the decision making authority of its governing and management bodies in consistency with the interests of the Company. Furthermore, the principle of responsible autonomy set in the Code of Ethics prevails in the Company. Article 38 of the Regulations of the Board of Directors provides that the General Manager shall be in charge of maintaining and appropriate planning, control and information system for the Board of Directors. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014338 >> e. Does the Board of Directors evaluate on an annual basis the performance of the General Management under well defined standards? f. Does remuneration of the Senior Management have a fixed and a variable component that take into account the results of the Company based on a sound and responsible assumption of risk, and accomplishment of the goals set in the respective plans? X X Yes, it is a part of the self-evaluation process of the Board of Directors. At present, the remuneration of Directors of the Company, regulated in Article 34 of the Regulations of the Board of Directors, consists of the following: Board of Directors meeting attendance fees, Committee meeting attendance fees, and profit sharing. a. Provide the following information on the remuneration of the General Manager and the management staff (including bonuses). POSITION General Manager Management Staff FIXED 0.015% 0.220% REMUNERATION (*)(**) VARIABLE 0.003% 0.057% (*) Indicate the ratio of the aggregate amount of remunerations and annual bonuses of members of the Senior Management to gross income, according to the financial statements of the Company. (**) The ratio is set in relation to consolidated gross sales of the Graña y Montero Group. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014339 >> b. If the Company pays the Senior Management bonuses or any compensation other that those required by law, indicate how these are paid. Delivery of Shares Delivery of Options Delivery of Cash Others / Detail GENERAL MANAGEMENT MANAGERS No No Shares delivered based on loyalty program X No No c. In case of existence of a variable component in the remuneration, specify the main aspects taken into account for determination thereof. - Compliance with Company budget taken into account - Rate of compliance with executive objectives - Pre-established financial index d. Indicate if the Board of Directors evaluated performance of the General Management during the fiscal year. Yes No X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 340 >> PILLAR IV: RISK AND COMPLIANCE PRINCIPLE 25: ENVIRONMENT OF RISK MANAGEMENT SYSTEM QUESTION IV.1 YES NO EXPLANATION: a. Does the Board of Directors approve a comprehensive risk management policy in consistency with its size and complexity, promoting a risk management culture within the Company, from the Board of Directors to the Senior Management and its own collaborators? X Under item J) of Article 9.3 of the Regulations of the Board of Directors, this is a function of the Board of Directors. However, as of this date the risk matrix of the Group it is under review to enhance it. b. The comprehensive risk management policy covers all companies that make X Will cover the entire Group. up the Group and allows a comprehensive view of critical risks? Does the Company have a risk management delegation policy setting the risk limits that can be managed for each company level? Yes No X QUESTION IV.2 YES NO EXPLANATION: a. The General Management manages the risks to which the Company is exposed and communicates them to the Board of Directors? b. Is the General Management responsible for the risk management system, if there is no Risk Committee or Risk Management? X X Through the management report of the business report and the Relevant Facts submitted at every meeting. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 341 >> Does the Company have a Risk Manager? Yes No X If answered in the affirmative, provide the following information: FULL NAME DATE OF POSITION HELD Start (*) End (**) Not Applicable AREA / BODY TO WHICH IT REPORTS (*) Pertains to the first appointment in the reporting Company. (**) Complete only if ceased in the position during the fiscal year. QUESTION IV.3 YES NO EXPLANATION: Does the Company have an internal and external control system the efficiency and suitability of which is overseen by the Board of Directors of the Company? X Through the Audit and Process Committee << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 342 >> PRINCIPLE 26: INTERNAL AUDIT QUESTION IV.4 YES NO EXPLANATION: a. The internal auditor performs auditing duties on an exclusive basis, is autonomous and has the experience and expertise in the subjects under his evaluation, and the independence to follow up on and evaluate efficiency of the risk management system? b. Are the ongoing evaluation of the validity and reliability of all the financial information generated or entered by the Company, and verifying the efficiency of regulatory compliance the functions of the internal auditor? c. Does the internal auditor report directly to the Audit Committee its plans, budget, activities, progress, results obtained and actions taken? X X X The internal auditor is autonomous to objectively evaluate and regulate the risks of the business, the internal control system and the operating and financial performance so that the information of the Company is accurate and consistent with the transparency principle. For the information of the Company to be accurate and consistent with the transparency principle. Likewise, under item c) of Article 40.6 of the Regulations of the Board of Directors, supervising the internal audit services is a function of the Audit and Process Committee. a. Indicate whether the Company has an independent area in charge of internal audit. Yes X No If answered in the affirmative, indicate, by rank, who the audit depends on within the organic structure of the Company. Depends on: THE AUDIT AND PROCESS COMMITTEE << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 343 >> b. Indicate if the Company has an Internal Corporate Auditor. Yes X No Indicate the main responsibilities of the internal auditor and if it performs functions other than the internal audit. The internal auditor does not perform functions other that the internal audit and its main functions are: - Assist the Board of Directors and the Management in performance of its Corporate Governance-related functions. - Objectively evaluate and regulate the risks of the business, the internal control system and operating and financial performance. - Provide assurance and consulting in the potential capacity of this activity to improve risk management, add value to the group and improve the operational level. QUESTION IV.5 YES NO EXPLANATION: Is the Board of Directors in charge of the appointment and termination of the Internal Auditor at the proposal of the Audit Committee? X The Regulations of the Board of Directors provide that the Audit and Process Committee shall ensure that selection of the Internal Auditor is made under objective criteria; and in general, that that the information of the Company be accurate and consistent with the transparency principle. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 344 >> PRINCIPLE 27: EXTERNAL AUDITORS QUESTION IV.6 YES NO EXPLANATION: Does the Regular Shareholders Meeting, at the proposal of the Board of Directors, appoint the auditing firm or the independent auditor, who maintain a clear independence from the Company? X The auditor appointed by the Regular Shareholders Meeting maintains a clear independence whereby it is a function of the Audit and Process Committee to relate with the external auditors to receive information on matters that may jeopardize their independence. a. Does the Company have a policy for appointment of the External Auditor? Yes X No If answered in the affirmative, describe the procedure to hire the auditing form in charge of reviewing the annual financial statements (including the identification of the corporate body in share of electing the auditing firm). The Corporate Financial Management proposes three candidates, then the Audit and Process Committee approves the appointment of one of them, who is presented by the Chairman of the Committee to the Board of Directors for approval and submission to the Regular Shareholders Meeting who ultimately approves such appointment. b. If the auditing firm has provided services other than accounts reviewing, indicate if such hiring was communicated to the Regular Shareholders Meeting, including the percentage of the total invoiced by the auditing firm to the Company that such services account for Yes X No << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 345 >> c. The persons or entities related to the auditing firm provide to the Company services other than the reviewing of accounts? Yes X No If answered in the affirmative, provide the following information on the additional services provided by persons or entities related to the auditing firm in the reported fiscal year. Name or Corporate Name PwC Additional Services Other services % of Remuneration (*) 22% (*) Invoicing of additional services to invoicing of auditing services. d. Indicate whether the auditing firm has used different equipment, if it has provided services additional to reviewing of accounts. Yes X No QUESTION IV.7 YES NO EXPLANATION: a. Does the Company maintain a policy of renewal of its independent auditor or auditing firm? b. If such policy requires longer periods for renewal of the auditing firm, the work team of the auditing firm rotates every five (5) years maximum? X X The Regulations of the Board of Directors set forth the independent auditor renewal policy. The Company keeps the firm, but the equipment must be changed at least every three (3) years. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 346 >> Provide the following information on the auditing firms that have provided services to the Company in the last five (5) years. CORPORATE NAME OF THE AUDITING FIRM SERVICE (*) PERIOD REMUNERATION (**) % OF THE INCOME OF THE AUDITING FIRM PwC PwC PwC PwC PwC PwC Audit before the deadline 2010- 2014 Transfer prices study Oversight advisory Sworn affidavit assistance Other service Other services 2013 2010-2013 2012-2013 2010-2013 2014 12% 14% 67% 16% 82% 22% (*) Include all service types, such as financial information reviews, accounting appraisals, operational audits, systems audits, tax audits and other services. (**) Of the aggregate amount paid to the auditing firm on all accounts, indicate the percentage pertaining to remuneration for financial auditing services. QUESTION IV.8 YES NO EXPLANATION: In economic groups, the external auditor is the same for the entire group, including off-shore affiliates? X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014347 >> Indicate whether the auditing firm hired to review the financial statements of the Company for the reported fiscal year also reviewed the financial statements for the same fiscal year of other companies of its economic group. Yes X No If answered in the affirmative, provide the following: NAME OR CORPORATE NAME OF COMPANY (COMPANIES) OF THE ECONOMIC GROUP GyM S.A. GMI S.A. GMP S.A. GMD S.A. CONCAR S.A. 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 << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 348 >> Concesionaria La Chira S.A. Stracon GyM S.A. CAM Holding SpA GyM Chile SPA GyM Construcciones y Montajes Limitada GyM Minería S.A. Vial y Vives-DSD S.A. Inmobiliaria Almonte S.A.C. Ecotec S.A.C. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014349 >> PILLAR V: INFORMATION TRANSPARENCY PRINCIPLE 28: INFORMATION POLICY QUESTION V.1 YES NO EXPLANATION: Does the Company have an information policy for shareholders, investors, other stakeholders and the market in general, with which it defines in a formal, orderly and comprehensive manner the guidelines, standards and criteria to be applied in handling, gathering, preparing, classifying, organizing and/or distributing the information generated or received by the Company? X The information policy for shareholders, investors and other stakeholders is covered by both our Investor Relations Office and by the communications made by our Stock Exchange Representative though the Relevant Facts. a. If applicable, indicate if, according to its information policy, the Company issues the following: Objectives of the Company List of members of the Board of Directors and the Senior Management Equity structure Description of the economic group to which it belongs Financial statements and annual report Others / Detail NO X YES X X X X Transactions between related parties Remuneration of the Board of Directors and the Senior Management << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014b. Does the Company have a corporate web page? Yes X No The corporate web page includes: A special section on corporate governance or relationships with shareholders and investors, which includes the Corporate Governance Report Relevant facts Financial information By-laws Regulations of the Shareholders Meeting and information on meetings (attendance, minutes, others) Make-up of the Board of Directors and its Regulations Code of Ethics Risk policy Corporate Social Responsibility (community, environment, others) Others / Detail 350 >> YES NO X X X X X X X X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 351 >> QUESTION V.2 YES NO EXPLANATION: Does the Company have an investor relations office? X It is our Investor Relations Office. If it has an investor relations office, who is the person in charge? Investor Relations Office Manager Dennis Gray Febres If no investor relations office is in place, indicate the unit (department/area) or person in charge of receiving and handling the information requests of shareholder of the Company and the general public. If a person is in charge, include also his/her position and the area where he/she works. Area in Charge Not Applicable Full Name PERSON IN CHARGE Position Not Applicable Area PRINCIPLE 29: FINANCIAL STATEMENTS AND ANNUAL REPORT If the external auditor’s report has been issued with qualifications, these have been explained and/or substantiated to the shareholders? Not Applicable << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014352 >> PRINCIPLE 30: INFORMATION ON EQUITY STRUCTURE AND SHAREHOLDER RESOLUTIONS QUESTION V.3 YES NO EXPLANATION: Does the Company disclose the ownership structure, considering the various classes of shares and, if applicable, the joint interest of a specific economic group? X The Company discloses such information through the SMV, where we report direct and indirect ownership. Indicate the make-up of the equity structure of the Company as of the year-end. SHARES OF VOTING STOCK HELD NUMBER OF HOLDERS (AS OF THE YEAR-END) % INTEREST Less than 1% 1% - 5% 5% - 10% More than 10% Total 1841 10 1 2 1854 15.23% 23.38% 5.12 56.27% 100% << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014353 >> SHARES OF NON-VOTING STOCK HELD (IF APPLICABLE) NUMBER OF HOLDERS (AS OF THE YEAR-END) % INTEREST Less than 1% 1% - 5% 5% - 10% More than 10% Total Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable INVESTMENT SHARES HELD (IF APPLICABLE) NUMBER OF HOLDERS (AS OF THE YEAR-END) % INTEREST Less than 1% 1% - 5% 5% - 10% More than 10% Total Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Treasury stock to capital stock ratio: Not Applicable QUESTION V.4 YES NO EXPLANATION: Does the Company report shareholder agreements? X However, we do not have a shareholders agreement. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014a. Does the Company have shareholder agreements in force? Yes No X b. If any shareholders agreement has been reported to the Company during the fiscal year, indicate the subject matter thereof. Election of members of the Board of Directors Exercise of voting rights at meetings Restriction to the free transfer of the shares Changes in internal or statutory regulations of the Company Others / Detail PRINCIPLE 31: CORPORATE GOVERNANCE REPORT 354 >> Not Applicable Not Applicable Not Applicable Not Applicable QUESTION V.5 YES NO EXPLANATION: Does the Company disclose the corporate governance standards adopted in an annual report, for the contents of which the Board of Directors is responsible, upon the report of the Audit Committee, the Corporate Governance Committee, or of an external consultant, if applicable? X These are communicated in the Annual Report and released to the SMV. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 355 >> a. The Company has mechanisms in place for internal and external disclosure of corporate governance practices. Yes X No If answered in the affirmative, specify the mechanisms used The Legal Management is in charge of internal and external disclosure of corporate governance practices and of proposing improvements to the General Management and the Board of Directors. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014356 >> SECTION C: CONTENT OF DOCUMENTS OF THE COMPANYD Indicate in which of the following document(s) of the Company these matters are regulated. 1. 2. 3. 4. Policy for redemption or swap of shares of non-voting stock Share ownership entry method and person in charge Procedures for selection of external advisor to issue an independent opinion on the corporate operations that may affect the right to non- dilution of shareholders Procedure to receive and handle request for information and opinion of the shareholders 5. Dividend policy T N E M U C O D F O E M A N ) * * ( CAVALI ) * ( S N O I T A L U G E R L A N R E T N I L A U N A M S W A L - Y B X X E L P I C N I R P 1 2 3 4 5 E L B A C I L P P A T O N X D E T A L U G E R T O N X S R E H T O X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014 357 >> 6. 7. 8. 9. Policies or agreement for non-adoption of anti-takeover mechanisms Arbitration agreement Policy for selection of Directors of the Company Policy to evaluate remuneration of the Directors of the Company 10. Mechanisms to make information relative to items contained in the agenda of the Regular Shareholders Meeting and resolution proposals available to shareholders. 11. 12. 13. Means additional to those provided by Law, used by the Company to give notice of meetings. Additional mechanisms for shareholders to submit proposals of items in the agenda to be discussed at a Regular Shareholder Meeting. Procedures to accept or reject shareholder proposals to include agenda items to be discussed at the Regular Shareholders Meeting 14. Mechanisms allowing non-presential participation of shareholders 15. Procedures to cast differentiated votes by the shareholders 16. 17. Procedures to perform in voting delegation situations Requirements and formalities for a shareholder to be represented by proxy at the meeting. 6 7 8 8 10 10 11 11 12 12 13 13 X X X X X X X X X X X X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014358 >> 18. Procedures for the delegation of votes to members of the Board of Directors or the Senior Management. 19. Procedure to follow up on Regular Shareholders Meeting resolutions 20. Minimum and maximum number of members to make up the Board of Directors of the Company 21. 22. 23. 24. 25. 26. 27. 28. Duties, rights and functions of the Directors of the Company Bonus types received by the Board of Directors for accomplishment of goals of the Company Policy for hiring advisory services for Directors Induction policy for new Directors Special requirements to be an Independent Director of the Company Criteria for performance evaluation of the Board of Directors and its members Policy for determining, follow-up and control of possible conflicts of interest Policy defining the procedure for assessment, approval and disclosure of transactions with related parties 13 14 15 17 17 17 17 19 20 22 23 X X X X X X X X X X X X X X << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014359 >> 29. Responsibilities and functions of the Chairman of the Board, Executive President, General Manager, and other Senior Management officers. 30. Criteria for performance evaluation of the Senior Management 31. 32. 33. 34. Policy to set and evaluate remuneration of the Senior Management Comprehensive risk management policy Responsibilities of person in charge of Internal Audit. Policy to appoint the External Auditor, term of the contract and renewal criteria. 24 24 24 25 26 27 35. Policy of disclosure and communication of information to shareholders 28 X X X X X X X X (*) Includes the Regulations of the Regular Shareholders Meeting, Regulations of the Board of Director and others issued by the company (**) Indicate name of the document, unless it is the by-laws << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014360 >> SECTION D: OTHER INFORMATION OF INTEREST5 On July 23, 2013, the Company made an initial public offering (IPO) of shares for approximately USD 413 million dollars in the New York Stock Exchange. It also gave the placing banks an option for up to an additional USD&& 62 million, which was exercised over a period of 30 days. In this connection, we have submitted Form 6K concurrently with the Relevant Facts submitted to the Securities Market Superintendence (SMV), Form 20F that is submitted annually and which we also submitted as a Relevant Fact to the SMV. Additionally, we have a financial expert in the Audit and Process Committee, as required by the , Sarbanes-Oxley Act of 2002 (SOX), applicable to foreign companies. In addition to the aforementioned Special Committees, we have the following governing bodies, the conduct of which is regulated in our Regulations of the Board of Directors: 5 We include other information of interest not discussed in the previous sections, to provide investors and the various stakeholders with a broader scope of other good corporate governance practices implemented by the Company, practices pertaining to corporate social reasonability, and relations with institutional investors, among others. Furthermore, the Company may indicate if it has voluntarily adhered to other codes of ethical principles or good practices, whether international, sectorial, or other, indicating the code and date of adhesion. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014361 >> - Executive Commission.- The governing body made up of the Executive Presidents, General Managers of the Subsidiaries and the Corporate Managers of the Company, the purpose of which is to discuss matters of strategic importance that affect the Company and Subsidiaries as a part of the Graña y Montero Group and be a coordination body. The main functions of the Executive Commission include: a) Discuss the Strategic Plan of the Company and Subsidiaries b) Discuss the Annual Budget of the Company and Subsidiaries c) Discuss the Annual Investment Plan of the Company and Subsidiaries d) Discuss Policies and Strategies applicable to the Company and Subsidiaries e) Other matters of interest and relevance to the Company and Subsidiaries - Ethics Commission.- A board in charge of promoting ethical behavior in the Group, and of evaluating and making decisions on any breach of the Ethics Charter and the Code of Conduct. The Ethics Commission provides a Manual setting the Ethical Channel Use Protocol. Lastly, we are part of the Companies Circle, an initiative launched in 2005, that brings together a group of Latin American companies who stand out for their good corporate governance practices and since last year we chair its Steering Committee. << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDREPORTSREPORT ON COMPLIANCE WITH THE GOOD CORPORATE GOVERNANCE CODE FOR PERUVIAN COMPANIES(For the fiscal year 2014)ANNUALREPORT2014362 >> SPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014 I II III Exhibit A - Exhibit B - Exhibit C - Exhibit D - Exhibit E - Exhibit F - Scope Previously agreed-upon procedures Report GyM S.A.: Schedule of works performed, completed and delivered during the year ended December 31, 2014. GMD S.A.: Schedule of services performed, completed and delivered during the year ended December 31, 2014. GMI S.A. Ingenieros Consultores: Schedule of projects performed, completed and delivered during the year ended December 31, 2014. Graña y Montero Petrolera S.A.: Schedule of services performed, completed and delivered during the year ended December 31, 2014. Viva GyM S.A.: Schedule of projects performed, completed and delivered during the year ended December 31, 2014. Summary by company of works, projects and services performed, completed and delivered during the year ended December 31, 2014. S/. US$ Nuevo sol United States Dollar << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014363 >> INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014364 >> INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014365 >> Performance Bonds US$ S/. - EXHIBIT A GyM S.A. SCHEDULE OF WORKS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 No. Project Customer Project Description Contractual Delivery Date Date of Delivery to Customer 1 2 3 4 5 Yanbal Chiclayo MAFER REAL ESTATE Development and compatibility of engineering in various specialties: Structures, August 30, August 30, - S. Electrical Installations, Sanitary Installations, Communications, Air Conditioning, 2014 2014 Compressed Air, LPG, Pavements. Real 8 VIVA GYM SA Construction of the structural shell, common areas finishings, electrical, sanitary November 14, November 14, - 4,937,874 Crosland offices CROSLAND REPUESTOS and equipment installations compounding common areas of sixteen (16) top floors 2014 2014 and five (5) basements of parking lots and stores and SUM (Multipurpose Room) Provisional and preliminary works, including demolition of perimeter fence and June 6, 2014 June 3, 2014 concrete structure on a building with 08 floors and 03 basements. Crusher of Caserones SCM MINERA Construction Contract B2CA-K-102A "Montaje Eléctromecánico Chancador primario March 31, 2014 March 31, 2014 Project - Chile LUMINA CO y Correa alimentadora Acopio Mineral Grueso" of the Caserones project. - - Electric train - Lima PROVIAS NACIONAL Preparation of technical dossier and execution of civil and electromechanical September 4, July 17, 2014 42,381,660 Tranch 2 works of the special project of local transportation infrastructure of the Ministry of 2014 - - - Transport and Communications - MTC To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 26, 2015. INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT B GMD S.A. SCHEDULE OF SERVICES PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 No. Project Customer Project Description Contractual Delivery Date Date of Delivery to Customer March 21, March 21, 2014 2014 1 2 3 4 5 6 101211 STE-CONTRALORIA- Acquisition of storage storewize discs DISCOS N° 058-2013 SUNARP/ STE-SUNARP- Acquisition of servers for Sunarp - Headquarters- Main provision June 30, 2014 May 7, 2014 GAF-LOG SERVIDORES  101367 (Adend) STE-ZRIX- Main service provision intended to update the Support and License of Hardware and November 21, October 20, RENOVACION Software Inventory Solution 2014 2014 SOPORTE Y LICENCIAS 101231 STE - MEF - BIENES E Delivery, setting up, starting-up of net switch equipment and training. April 30, 2014 April 22, 2014 IMPLEMENTACION 100000 TDP - Accenture Equipment rental, maintenance service and development of phone line app February 28, February 28, 2014 2014 Software maintenance AO-INNOVACCION- Provision of IT services comprising regulatory adequacy of the systems being March 31, 2014 March 14, and development SWF operated. 2014 366 >> Performance Bonds US$ - - - - - - S/. 37,500 38,456 - 233,481 - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 367 >> EXHIBIT B GMD S.A. SCHEDULE OF SERVICES PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 7 101231 ISO - ONP - CENTRO Delivery, seting up, testing, starting-up of net switch equipment and training, as per April 22, 2014 April 22, 2014 - - DE COMPUTO technicalspecifications. (EL CONTRATO COMPLEMENTARIO SE DIO EN EL MISMO CÓDIGO) 8 Service presentation of HD – RIMAC Leverl-based service (SLA), comprising implementing a single contact point to May 1, 2014 May 1, 2014 - - Help Desk receive, process and direct assistance requests from users. To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 26, 2015. INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT C GMI Ingenieros y consultores S.A. SCHEDULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014 No. Project Customer Project Description GMI N° 121294 project ALICORP Supervision of extension of the "Fideeria" plant Contractual Delivery Date Date of Delivery to Customer December 31, December 31, 2014 2014 Airside pavement in AEROPUERTOS DEL Functional and structural assessment of the airside pavement at the Cajamarca January 31, January 31, 10,000 Cajamarca Airport PERU S.A. Airport 2014 2014 Airside pavement in AEROPUERTOS DEL Preparation of the Periodic Maintenance report on the airside pavement at the April 23, 2014 April 23, 2014 12,484 Pucallpa Airport PERU S.A. Pucallpa Airport Airside pavement in AEROPUERTOS DEL Functional and structural assessment of the airside pavement at the Chiclayo January 31, January 31, 10,000 Chiclayo Airport PERU S.A. Airport 2014 2014 Airside pavement in AEROPUERTOS DEL Functional and structural assessment of the airside pavement at the Trujillo Airport January 31, January 31, 10,000 Trujillo Airport PERU S.A. 2014 2014 Consultancy service MELIA HOTELES Supervision of work comprising civil works, instalation and finishings for Nuevo December 20, December 20, - Restaurante Naos, Gabi and Family Concierge Hotel Pardisus Palma Real and Nuevo 2014 2014 Restaurante Playa and remodeling for Restaurante Agora at the Hotel Melia Caribe Tropical in Bavaro, Punta Cana, Domenican Republic 1 2 3 4 5 6 368 >> Performance Bonds US$ - S/. - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 369 >> EXHIBIT C GMI Ingenieros y consultores S.A. SCHEDULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014 PETROPERU FEED basic extended ingeenering to measure two condensers del "EDP Sistema de Tope" March 13, 2014 January 8, 2014 - - 7 8 9 FEED basic extended ingeenering to measure two condensers del Sistema de Tope de la UDP Engeeniering professional services Construction of five parts of the Truck Shop PETROPERU LAS BAMBAS Basic engineering for the acquisition and instalation project related to a 60/70 PEN electric pump for asphalt at the Conchán Refinery. April 28, 2014 4/28/14 Supervision of the EPC agreement to build 5 parts of the Truck Shop and validating engineering November 4, 2014 November 4, 2014 - - 10 MTE 3913 ANTAMINA Supervision of the Debottlenecking 130 ktpd project August 30, 2014 August 15, 2014 100,000 ANTAMINA Supervision of work construction for Engineering Management projects and other April 31, 2014 April 31, 2014 - 11 Supervision of work construction for Engineering Management projects and other - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT C GMI Ingenieros y consultores S.A. SCHEDULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014 12 13 14 15 16 17 18 2012 - 2013 investment projects CONSORCIO TERMINALES Consultancy, Management, Supervision and Engineering service agreement for "Proyectos de Inversión 2012-2013" project April 11, 2014 April 11, 2014 EPCM service of segregation of Diesel in Mollendo and Eten terminals. Acquisition and instalation of an electric pump for asphalt CONSORCIO TERMINALES EPCM service of segregation of Diesel at the Mollendo and Eten terminals. February 7, 2014 February 7, 2014 PETROPERU Aerial process consultancy to start-up thedistillation column for Conchan Refinery February 12, 2014 February 12, 2014 - - - Engeeniering professional services PETROPERU Technical specifications, terms of reference and engineering required to acquire a fire truck for the Conchán Refinery April 28, 2014 April 28, 2014 4,250 Oquendo fuel terminal PRIMAX Conceptual engineering for Oquendo fuel terminal May 31, 2014 May 31, 2014 GMI N°111323 project TEVA PERU Reinforcement of the production building and offices located at the Ate Plant. July 21, 2014 July 21, 2014 GMI N°121294 project ALICORP Assessment and detail engineering and "mechanical tie line"/Piping Project 1294 August 29, 2014 August 29, 2014 - - - 370 >> - - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT C GMI Ingenieros y consultores S.A. SCHEDULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014 19 20 21 22 GMI N°121230 project GMI N°121243 project GMI N°121294 project GMI N°111324-002 project 23 GMI N°111324-004 project ALICORP Detail engineering for pasta long line L-23 Phase 1 Stage 3 of Manufacturing network design project 1230 January 31, 2014 January 31, 2014 ALICORP Detail engineering of building for "Pasta line feeding system" - Project 1243 June 31, 2014 June 31, 2014 ALICORP Assessment and detail engineering of facilities and "mechanical tie line"/ Piping Project 1294 May 30, 2014 May 30, 2014 UNION CERVECERIAS PERUANAS BACKUS Y JOHNSTON S.A.A. UNION CERVECERIAS PERUANAS BACKUS Y JOHNSTON S.A.A. Professional services of Detail engineering to extend APT-AQP at the plant located in the district of Schaca - Arequipa (GMI N° 111324-002 project) August 31, 2014 August 31, 2014 Professional services of Detail engineering to remodel CD-Chincha at the Distribution Center located in the province of Chincha - ICA (GMI N° 111324-004 project) September 12, 2014 September 12, 2014 371 >> - - - - - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT C GMI Ingenieros y consultores S.A. SCHEDULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014 24 GMI N°111324-003 project 25 GMI N°111324-001 project 26 27 2013 - 2015 Coga agreement GMI N°121220 project Professional services of Detail engineering to elevate the roof of the existing warehouse of PAT-Tacna to be performed in the Distribution center of Pocollay industrial park - Tacna (GMI N° 111324-003 project) December 6, 2014 December 6, 2014 Professional services of Detail engineering to re-build the cement floor in APT at the plant located in Ate Vitarte - Lima (GMI N° 111324-001 project) June 19, 2014 June 19, 2014 UNION CERVECERIAS PERUANAS BACKUS Y JOHNSTON S.A.A. UNION CERVECERIAS PERUANAS BACKUS Y JOHNSTON S.A.A. COGA Consulting services - Coga agreement 2013 - 2015 TRUPAL Professional services of Detail engineering of the MP1 and OCC plant to be performed at the Trupal Evitamiento Plant, located in El Agustino - Lima (GMI N° 121220 project) December 31, 2014 August 31, 2014 December 31, 2014 August 31, 2014 372 >> - - - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 373 >> EXHIBIT C GMI Ingenieros y consultores S.A. SCHEDULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014 28 Ayacucho gas pipeline COGA 29 LOM 23 KV" Project ANTAMINA Consulting service to perform the Basic Engineering of "Ayacucho gas pipeline" project , together with specialized professionals which reviewed the information delivered by COGA. Professional services to "Supervise the building of two Sub-transmission lines in 23kv mixed (aerial and subterraneal) from 1405 project "Power system for LOM 23 KV project" December 16, 2013 December 16, 2013 December 31, 2014 December 31, 2014 - - - - To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 26, 2015. INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 374 >> EXHIBIT D Graña y Montero Petrolera S.A. SCHEDULE OF SERVICES PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 No. Project Customer Project Description Contractual Delivery Date Date of Delivery to Customer 1 Drilling service Vetra Perú S.A.C. GMP will provide drilling services to two (2) oil and/or gas wells in Block XXV and Valeria(1X) Valeria(1X) Performance Bonds US$ - S/. - performed in Block XXV, VALERIA 1X well other additional services To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 26, 2015. well - January well - January 22, 2014 Valeria(1X) well - January 22, 2014 22, 2014 Vicente (1X) well - February 27, 2014 INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 375 >> EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 No. Project Customer Project Description Contractual Delivery Date Ref Date of Delivery to Customer Performance Bonds US$ S/. 1 2 3 Los Parques de San HUAMANYAURI Two residential multi-familiar building complexes comprising a total of October 31, [B] November 7, Martín Project DE LA CRUZ SMITH 1,056 Appts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. 2014 2014 ALIPIO Buildings range from 5,10 to 12 floors Los Parques de San ANDRES VICTOR Two residential multi-familiar building complex comprising a total of 1,056 February 19, [B] February 14, Martín Project GUTIERREZ MORENO Apts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. 2014 2014 Buildings range from 5,10 to 12 floors Los Parques de San SALAZAR TRILLO Two residential multi-familiar building complex comprising a total of 1,056 January 8, [B] December 18, Martín Project JENNY MARLENI Apts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. 2015 2014 Buildings range from 5,10 to 12 floors 4 Los Parques de San POMA OLIVARES Two residential multi-familiar building complex comprising a total of 1,056 January 30, [A] November 28, Martín Project JENNIFER ELENA Apts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. 2015 2014 Buildings range from 5,10 to 12 floors 5 Los Parques de San SIHUI CALLA YANET Two residential multi-familiar building complex comprising a total of 1,056 December 15, [B] November 28, Martín Project Apts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. 2014 2014 Buildings range from 5,10 to 12 floors - - - - - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 6 7 8 9 Los Parques de San Martín Project Los Parques de San Martín Project ROJAS DE LA CRUZ MOISES JHONATHAN RUBEN AVENDAÑO PAREDES Two residential multi-familiar building complex comprising a total of 1,056 Apts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. Buildings range from 5,10 to 12 floors Two residential multi-familiar building complex comprising a total of 1,056 Apts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. Buildings range from 5,10 to 12 floors May 26, 2014 April 30, 2014 Los Parques de San Martín Project FERNANDEZ INGA GLEDY PAMELA Two residential multi-familiar building complex comprising a total of 1,056 Apts. They offer 02 and 03 rooms and areas of 41m2,48m2 and 59m2. Buildings range from 5,10 to 12 floors August 29, 2014 [B] [A] [D] May 22, 2014 April 28, 2014 August 29, 2014 - - - Los Parques de Carabayllo II Project CHUQUIHUANGA VERA PATRICIA 1,200 apartments in 100 three-floor buildings, 4 apartments per floor. First-floor apartments with backyards. 4 stages comprising 300 apartments each one, 760 parking lots. Trade areas, green areas, SUM and sports areas. May 10, 2014 [A] May 10, 2014 - 10 Pezet 961 Project SESKUS SALCEDO DE GALARRETA DORA MARIA Fifteen-floor multi-familiar building, 21 apartments. It has 71 parking lost and stores. Flats of 173.8 m2,235 m2 . Duplex from 310m2. March 15, 2014 [A] February 28, 2014 - 376 >> - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 11 Pezet 961 Project 12 13 Pezet 961 Project Pezet 961 Project DAVILA QUIROZ JOSE VALENTIN Fifteen-floor multi-familiar building, 21 apartments. It has 71 parking lost and stores. Flats of 173.8 m2,235 m2 . Duplex from 310m2. June 30, 2014 DIAZ IMIELA- GENTIMUR LUIS Fifteen-floor multi-familiar building, 21 apartments. It has 71 parking lost and stores. Flats of 173.8 m2,235 m2 . Duplex from 310m2. March 15, 2014 JEAN PIERRE DEWERPE DULONG Fifteen-floor multi-familiar building, 21 apartments. It has 71 parking lost and stores. Flats of 173.8 m2,235 m2 . Duplex from 310m2. February 24, 2014 14 Pezet 961 Project MARIATEGUI BOSSE RENZO Fifteen-floor multi-familiar building, 21 apartments. It has 71 parking lost and stores. Flats of 173.8 m2,235 m2 . Duplex from 310m2. January 30, 2014 [A] [A] [A] [A] Fifteen-floor multi-familiar building, 21 apartments. It has 71 parking lost and stores. Flats of 173.8 m2,235 m2 . Duplex from 310m2. May 15, 2014 [A] April 28, 2014 February 3, 2014 February 24, 2014 January 16, 2014 January 31, 2014 15 Pezet 961 Project 16 Pezet 961 Project 17 Piura Project PENDAVIS PFLUCKER JUAN ENRIQUE M. RODRIGUES DE CARVALHO RODNEY WONG NORIEGA WALTER Fifteen-floor multi-familiar building, 21 apartments. It has 71 parking lost and stores. Flats of 173.8 m2,235 m2 . Duplex from 310m2. March 15, 2014 [A] January 31, 2014 Eitght residential multi-familiar building complexes comprising a total of 2,274 apartments of 03 rooms of approximately 60m2. Buildings range from 4 to 5 floors. April 7, 2014 [C] April 7, 2014 - 377 >> - - - - - - - - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 18 Piura Project 19 Piura Project 20 Piura Project 21 Piura Project NUREÑA NORIEGA ELIZABETH MARIA Eitght residential multi-familiar building complexes comprising a total of 2,274 apartments of 03 rooms of approximately 60m2. Buildings range from 4 to 5 floors. SEMINARIO INFANTE LILIANA JULITZA DEL PILAR Eitght residential multi-familiar building complexes comprising a total of 2,274 apartments of 03 rooms of approximately 60m2. Buildings range from 4 to 5 floors. ADRIANO PEÑA ROYER GENARO Eitght residential multi-familiar building complexes comprising a total of 2,274 apartments of 03 rooms of approximately 60m2. Buildings range from 4 to 5 floors. AGUILAR ATOCHE LAURA Eitght residential multi-familiar building complexes comprising a total of 2,274 apartments of 03 rooms of approximately 60m2. Buildings range from 4 to 5 floors. 22 Real 8 Project 23 Real 8 Project SEGUROS SURA - 401 SEGUROS SURA - 402 Office building Office building July 10, 2014 [A] July 7, 2014 - August 25, 2014 June 30, 2014 [B] [A] August 5, 2014 May 28, 2014 - - July 30, 2014 [A] June 23, 2014 - September 15, 2014 September 15, 2014 [A] [A] June 13, 2014 - June 13, 2014 - 378 >> - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 24 Real 8 Project 25 Real 8 Project 26 Real 8 Project 27 Real 8 Project 28 Real 8 Project 29 Real 8 Project 30 Real 8 Project 31 Real 8 Project SEGUROS SURA - 403 SEGUROS SURA - 501 SEGUROS SURA - 502 SEGUROS SURA - 503 SEGUROS SURA - 601 SEGUROS SURA - 602 SEGUROS SURA - 603 SEGUROS SURA - 701 Office building Office building Office building Office building Office building Office building Office building Office building September 15, 2014 [A] June 13, 2014 - October 10, 2014 [D] October 10, 2014 October 10, 2014 [D] October 10, 2014 October 10, 2014 [D] October 10, 2014 - - - September 15, 2014 September 15, 2014 September 15, 2014 September 15, 2014 [A] [A] [A] [A] July 22, 2014 - July 22, 2014 - July 22, 2014 - June 13, 2014 - 379 >> - - - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 32 Barranco Project 33 Barranco Project 34 Barranco Project 35 Barranco Project 36 Barranco Project 37 Barranco Project CLAUDIA MARIANA CASAPIA CHARUN NORA RAQUEL PORTAL LA MADRID RICARDO ENRIQUE FERNANDEZ RIBBECK HANNY GLADYS CUEVA BETETA JUAN PABLO NOZIGLIA MONTJOY LUCIA ASTRID DUHALDE ZELADA Eighteen-floor multi-familiar building flats type June 30, 2015 [A] Eighteen-floor multi-familiar building flats type June 30, 2015 [A] December 23, 2014 December 10, 2014 Eighteen-floor multi-familiar building flats type January 30, 2015 [A] December 22, 2014 Eighteen-floor multi-familiar building flats type Eighteen-floor multi-familiar building flats type January 30, 2015 [A] June 20, 2015 [A] Eighteen-floor multi-familiar building flats type June 20, 2015 [A] December 19, 2014 December 22, 2014 December 20, 2014 - - - - - - 380 >> - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 38 Barranco Project 39 Barranco Project 40 Barranco Project 41 42 GMBVS(Parque Central) Project GMBVS(Parque Central) Project JUAN MANUEL LAMBARRI HIERRO GUISSELLE KAREN MERCEDES MONTOYA HERRERA EDUARDO DANIEL CARREÑO CARPIO Eighteen-floor multi-familiar building flats type June 20, 2015 [A] Eighteen-floor multi-familiar building flats type June 20, 2015 [A] Eighteen-floor multi-familiar building flats type June 20, 2015 [A] PAZCE ZUÑIGA DANITZA KAROLY A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" DUEÑAS CALERO DE BERROSPI LIBERATA A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" December 24, 2013 February 15, 2014 [B] [A] December 22, 2014 December 22, 2014 December 23, 2014 January 10, 2014 February 10, 2014 - - - - - 381 >> - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 43 GMBVS(Parque Central) Project 44 45 46 47 GMBVS(Parque Central) Project GMBVS(Parque Central) Project GMBVS(Parque Central) Project GMBVS(Parque Central) Project MONDRAGON PALOMINO VIVIANA VERONICA PINTO CONTRERAS ELVA LUISA HONG . XIAOLI A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" March 5, 2014 [A] March 3, 2014 - A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" August 15, 2014 [A] May 13, 2014 - A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" May 29, 2014 [A] May 29, 2014 - GIL CHANG KARIN EDITH A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" VENTURO ALVARADO LINDER ESTEBAN A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" June 14, 2014 [A] July 25, 2014 [A] June 14, 2014 - July 22, 2014 - 382 >> - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 48 49 50 51 52 53 54 GMBVS(Parque Central) Project GMBVS(Parque Central) Project GMBVS(Parque Central) Project GMBVS(Parque Central) Project GMBVS(Parque Central) Project GMBVS(Parque Central) Project GMBVS(Parque Central) Project MOLINA HUAMANI VDA DE SOTO RENEE VASQUEZ ATALAYA ROGGER IVAN A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" July 25, 2014 [A] July 22, 2014 - A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" August 27, 2014 October 9, 2014 [A] [A] August 15, 2014 september 30, 2014 GRANDEZ VASQUEZ KELLY A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" GAVINO ALVES JUNIOR GAMELIN A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" November 3, 2014 [A] October 24, 2014 MO WEN CARLOS A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" October 21, 2014 [A] October 20, 2014 VILLARREAL ORE IVONNE A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" MARCIAL RAMOS ROXANA KARINA A project comprising 22 twelve-floor multi-familiar buildings located at "Cercado de Lima" November 28, 2014 January 1, 2015 [A] [A] November 15, 2014 December 26, 2014 - - - - - - 383 >> - - - - - - - INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 384 >> EXHIBIT E Viva GyM S.A. DULE OF PROJECTS PERFORMED, COMPLETED AND DELIVERED FOR THE YEAR ENDED DECEMBER 31, 2014 55 Almonte Project ARIS INDUSTRIAL S.A. Comprising land property of 819 hectares located in the Lurin district, province of Lima, intended to industrial lands and social housing projects. December 18, 2014 [A] December 18, 2014 - - Key: [A] Delivery date under contract. [B] Fifteen (15) business days from the last date of payment made by customer. [C] Client's request to change delivery date from contractual date. [D] Delivery document supporting delivery date other than contractual date (“Delivery before due date” ) stating that Viva GyM “… has completed construction of property before the due date set under contract and that delivery on such date due to causes beyond its responsibility…”. To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 26, 2015. INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 385 >> EXHIBIT F Viva GyM S.A. SUMMARY OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED, BY COMPANY FOR THE YEAR ENDED DECEMBER 31, 2014 GyM S.A. GMD S.A. GMI S.A. GMP S.A. Viva GyM S.A. TOTAL On the contractual date or before After contractual date TOTAL 5 0 5 8 0 8 29 0 29 1 0 1 53 2 55 96 2 98 % 98% 2% 100% To be read together with the report issued by Gaveglio, Aparicio y Asociados on March 26, 2015. INFORMESSPECIAL REPORT ON PREVIOUSLY AGREED UPON PROCEDURES APPLIED TO THE SCHEDULE OF WORKS, PROJECTS AND SERVICES PERFORMED, COMPLETED AND DELIVERED DURING THE YEAR ENDED DECEMBER 31, 2014<< menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 386 >> 1 GyM S.A. Av. Paseo de la República 4675, Surquillo, Lima 34, Perú T. 213-0444 F. 213-0400 Legal representative: Renato Rojas Balta 2 STRACON GyM S.A. Av. República de Panamá 3531, of. 1101 Lima 27, Perú. 6 Survial S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú 11 Viva GyM S.A. Av. Petit Thouars 4957, Miraflores, Lima 18, Perú T. 203-5180 Legal representative: Carlos Pimentel Barrio de Mendoza T. 206-7206 F.206-7205 Legal representative: Rolando Ponce Vergara 7 Concesión Canchaque S.A.C Av. Paseo de la República 4667, Surquillo, Lima 34, Perú 12 Inmobiliaria Almonte S.A.C. Av. Petit Thouars 4957, Miraflores, Lima 18, Perú T. 208-0230 F. 421-6045 anexo 103 Legal representative: Octavio Cabrera García T. 203-5175 Legal representative: Carlos Pimentel Barrio de Mendoza T. 206-7206 F. 206-7205 Legal representative: Aurelio Rospigliosi González-Vigil 3 Vial y Vives-DSD S.A. Av. Santamaría 2810, Santiago de Chile, Chile T. (52-2) 23688000 Legal representative: Eduardo Guzmán 4 GMI S.A. Ingenieros Consultores Av. Paseo de la República 4667, Surquillo, Lima 34, Perú Ferrovias GyM S.A. 8 Jr. Solidaridad cdra. 8 s/n, Parque Industrial, Villa El Salvador, 13 Concar S.A. Av. Petit Thouars 4957, Miraflores, Lima 42, Perú T. 207-2900 Legal representative: Manuel Wu Rocha 9 Concesionaria La Chira S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú Lima 18, Perú T. 213-6535 F. 213-6538 Legal representative: Jaime Targarona Arata 14 GMD S.A. Av. Petit Thouars 4957, Miraflores, Lima 18, Perú T. 213-5600 F. 444-0373 Legal representative: Eduardo Villa Corta Lucchesi T. 203-6830 Legal representative: Daniel Lezama Diago T. 213-6300 F. 446-9667 Legal representative: Hugo Gonzales Castañeda 5 Norvial S.A. Av. Paseo de la República 4667, Surquillo, Lima 34, Perú 10 GMP S.A. Av. Petit Thouars 4957, Miraflores, Lima 18, Perú T. 203-5160 Legal representative: Jorge Bustamante Rodríguez T. 215-1500 F. 241-3030 Legal representative: Reynaldo Llosa Martinto 15 Cam GYM Tarapacá 934, P.3, Santiago de Chile, Chile T. 56-2-23897437 F. 56-2-23897342 Legal representative: Klaus Winkler Speringer << menu GRAÑA Y MONTERO WORK STYLEINSPIRES USDISTINGUISHES US ALLOWS US TO TRANSCENDANNUALREPORT2014 CONCEPT AND DESIGN 

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