UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 6-K
 
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15b-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the month of February 2019

  Commission File Number 001-35991

GRAÑA Y MONTERO S.A.A.
(Exact name of registrant as specified in its charter)
 
N/A
(Translation of registrant’s name into English)
 
Republic of Peru
(Jurisdiction of incorporation or organization)
 
Avenida Paseo de la República 4667, Lima 34,
Surquillo, Lima
Peru
( Address of principal executive offices)
 


Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
 
Form 20-F ___X____ Form 40-F _______
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
 
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes _______ No ___ X ____
 
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable.

Sincerely yours,



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GRAÑA Y MONTERO S.A.A.

By: /s/ LUIS FRANCISCO DIAZ OLIVERO
Name: Luis Francisco Diaz Olivero
Title: Chief Executive Officer
Date: February 1, 2019








GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES


CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 2017 (AUDITED) AND DECEMBER 31, 2018 (UNAUDITED)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2017 (AUDITED) AND DECEMBER 31, 2018 (UNAUDITED)

CONTENTS Page
   
   
   
Condensed Interim Consolidated Statement of Financial Position
7
   
Condensed Interim Consolidated Income Statement
8
   
Condensed Interim Consolidated Statement of Comprehensive Income
9
   
Condensed Interim Consolidated Statement of changes in Equity
10
   
Condensed Interim Consolidated Statement of Cash Flows
11
   
Notes to the Condensed Interim Consolidated Financial Statements 12 - 39


















S/      =   Peruvian Sol
US$  =   United States dollar













-6-
Condensed Interim Consolidated Statement of Financial Position

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                             
                                         
                                         
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                             
(All amounts are expressed in thousands of S/ unless otherwise stated)
                             
                                         
ASSETS
                   
LIABILITIES AND EQUITY
                 
         
As at
   
As at
             
As at
   
As at
 
         
December 31,
   
December 31,
             
December 31,
   
December 31,
 
   
Note
   
2017
   
2018
       
Note
   
2017
   
2018
 
                                         
Current assets
                   
Current liabilities
                 
Cash and cash equivalents
 
8
     
626,180
     
797,864
   
Borrowings
 
12
     
1,056,764
     
759,803
 
Financial asset at fair value through profit or loss
         
181
     
-
   
Bonds
 
13
     
36,655
     
39,167
 
Trade accounts receivables, net
         
992,724
     
752,976
   
Trade accounts payable
         
1,453,046
     
1,184,697
 
Unbilled work in progress, net
         
584,753
     
387,766
   
Accounts payable to related parties
 
9
     
55,174
     
56,898
 
Accounts receivable from related parties
 
9
     
100,752
     
36,386
   
Current income tax
         
85,543
     
26,192
 
Other accounts receivable
         
765,445
     
627,201
   
Other accounts payable
         
848,500
     
656,268
 
Inventories, net
         
770,711
     
518,046
   
Provisions
 
14
     
13,503
     
7,290
 
Prepaid expenses
         
33,478
     
16,562
   
Total current liabilities
         
3,549,185
     
2,730,315
 
           
3,874,224
     
3,136,801
                           
                         
Non-current liabilities
                     
Non-current assets classified as held for sale
         
17,722
     
-
   
Borrowings
 
12
     
633,299
     
514,679
 
                         
Long-term bonds
 
13
     
910,912
     
897,875
 
Total current assets
         
3,891,946
     
3,136,801
   
Other long-term accounts payable
         
852,473
     
626,154
 
                         
Long-term accounts payable to related parties
 
9
     
25,954
     
22,375
 
Non-current assets
                       
Provisions
 
14
     
33,914
     
106,347
 
Long-term trade accounts receivable, net
         
848,590
     
1,080,796
   
Derivative financial instruments
         
383
     
61
 
Long-term unbilled work in progress, net
         
87,410
     
32,212
   
Deferred income tax liability
         
72,472
     
77,997
 
Long-term accounts receivable from related parties
 
9
     
773,930
     
778,662
   
Total non-current liabilities
         
2,529,407
     
2,245,488
 
Prepaid expenses
         
38,082
     
33,696
   
Total liabilities
         
6,078,592
     
4,975,803
 
Other long-term accounts receivable
         
470,852
     
305,428
                           
Investments in associates and joint ventures
 
10
     
268,671
     
258,644
   
Equity
                     
Investment property
         
45,687
     
29,133
   
Capital
 
15
     
660,054
     
729,434
 
Property, plant and equipment, net
 
11
     
865,735
     
503,584
   
Legal reserve
         
132,011
     
132,011
 
Intangible assets, net
 
11
     
940,070
     
866,900
   
Optional reserve
         
29,974
     
29,974
 
Deferred income tax asset
         
436,697
     
447,452
   
Share Premium
         
881,795
     
940,435
 
Total non-current assets
         
4,775,724
     
4,336,507
   
Other reserves
         
(169,671
)
   
(167,716
)
                         
Retained earnings
         
589,167
     
438,352
 
                         
Equity attributable to controlling interest in the Company
         
2,123,330
     
2,102,490
 
                         
Non-controlling interest
         
465,748
     
395,015
 
                         
Total equity
         
2,589,078
     
2,497,505
 
Total assets
         
8,667,670
     
7,473,308
   
Total liabilities and equity
         
8,667,670
     
7,473,308
 

-7-
Condensed Interim Consolidated Income Statement

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                 
                   
                   
CONSOLIDATED INCOME STATEMENT
                 
(All amounts are expressed in thousands of S/ unless otherwise stated)
                 
                   
          For the period
 
          ended December 31,  
   
Note
   
2017
   
2018
 
                   
                   
Revenues from construction activities
         
2,213,529
     
1,960,784
 
Revenues from services provided
         
1,144,979
     
1,088,142
 
Revenue from real estate and sale of goods
         
938,951
     
1,151,983
 
           
4,297,459
     
4,200,909
 
                       
Cost of construction activities
         
(2,105,714
)
   
(1,922,574
)
Cost of services provided
         
(926,595
)
   
(911,849
)
Cost of real estate and goods sold
         
(717,441
)
   
(660,363
)
   
16
     
(3,749,750
)
   
(3,494,786
)
Gross profit
         
547,709
     
706,123
 
                       
Administrative expenses
 
16
     
(349,263
)
   
(307,530
)
Other income and expenses
         
(33,704
)
   
(58,972
)
Gain from the sale of investments
         
34,545
     
(7
)
Operating profit
         
199,287
     
339,614
 
                       
Financial expenses
         
(161,532
)
   
(250,461
)
Financial income
         
14,007
     
43,157
 
Share of the profit or loss in associates and joint
                     
ventures under the equity method of accounting
         
124
     
(3,709
)
Profit before income tax
         
51,886
     
128,601
 
Income tax
         
(46,159
)
   
(107,281
)
Profit (loss) for the year from continuing operations
 
17
     
5,727
     
21,320
 
                       
Profit for the year from discontinued operations
         
203,511
     
44,404
 
Profit (loss) for the period
         
209,238
     
65,724
 
                       
Profit (loss) attributable to:
                     
Owners of the Company
         
148,738
     
(74,222
)
Non-controlling interest
         
60,500
     
139,946
 
           
209,238
     
65,724
 
                       
Earnings (loss) per share from continuing operations
                     
attributable to owners of the Company during
                     
the period
         
0.225
     
(0.111
)

The accompanying notes on pages 6 to 26 are an integral part of the consolidated financial statements.
-8-
Condensed Interim Consolidated Statement of Comprehensive Income

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                 
                   
                   
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                 
(All amounts are expressed in thousands of S/ unless otherwise stated)
                 
                   
          For the period
 
          ended December 31,  
   
Note
   
2017
   
2018
 
                   
                   
Profit (Loss) for the period
 
     
209,238
     
65,724
 
Other comprehensive income:
                     
Items that will not be reclassified to profit or loss
                     
Remeasurement of actuarial gains and losses, net of tax
         
(4,031
)
   
20,995
 
                       
Items that may be subsequently  reclassified to profit or loss
                     
Cash flow hedge, net of tax
         
482
     
119
 
Foreign currency translation adjustment, net of tax
         
(11,341
)
   
10,693
 
Exchange difference from net investment in a foreign operation, net of tax
         
6,610
     
(8,100
)
           
(4,249
)
   
2,712
 
Other comprenhensive income for the period, net of tax
         
(8,280
)
   
23,707
 
Total comprehensive income for the period
         
200,958
     
89,431
 
                       
Comprehensive income attributable to:
                     
Owners of  the Company
         
143,575
     
(55,678
)
Non-controlling interest
         
57,383
     
145,109
 
           
200,958
     
89,431
 
                       
Comprehensive income attributable to owners of the Company:
                     
Continuing operations
         
140,279
     
(87,072
)
Discontinued operations
         
(1,036
)
   
31,394
 
           
143,575
     
(55,678
)

The accompanying notes on pages 6 to 26 are an integral part of the consolidated financial statements.
-9-
Condensed Interim Consolidated Statement of changes in Equity

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                                                       
                                                             
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                                 
FOR THE PERIOD ENDED DECEMBER 31, 2017 (AUDITED) AND 2018 (UNAUDITED)
                                                 
(All amounts are expressed in thousands of S/ unless otherwise stated)
                                                   
    Attributable to the controlling interests of the Company
           
   
Number
                     
Premium
                               
   
of shares
         
Legal
   
Optional
   
for issuance
   
Other
   
Retained
         
Non-controlling
       
   
In thousands
   
Capital
   
reserve
   
reserve
   
of shares
   
reserves
   
earnings
   
Total
   
interest
   
Total
 
                                                             
                                                             
Balances as of January 1, 2017
 
660,054
   
660,054
   
132,011
   
29,974
   
882,464
     
(167,456
)
   
443,377
     
1,980,424
   
509,313
   
2,489,737
 
                                                                   
Profit for the period
 
-
   
-
   
-
   
-
   
-
     
-
     
148,738
     
148,738
   
60,500
   
209,238
 
Cash flow hedge
 
-
   
-
   
-
   
-
   
-
     
458
     
-
     
458
   
24
   
482
 
Adjustment for actuarial gains and losses
 
-
   
-
   
-
   
-
   
-
     
-
     
(2,948
)
   
(2,948
)
 
(1,083
)
 
(4,031
)
Foreign currency translation adjustment
 
-
   
-
   
-
   
-
   
-
     
(9,166
)
   
-
     
(9,166
)
 
(2,175
)
 
(11,341
)
Exchange difference from net investment in a foreign operation
 
-
   
-
   
-
   
-
   
-
     
6,493
     
-
     
6,493
   
117
   
6,610
 
Comprehensive income of the period
 
-
   
-
   
-
   
-
   
-
     
(2,215
)
   
145,790
     
143,575
   
57,383
   
200,958
 
Transactions with shareholders:
                                                                 
- Dividend distribution
 
-
   
-
   
-
   
-
   
-
     
-
     
-
     
-
   
(59,677
)
 
(59,677
)
- Contributions (devolution) of non-controlling shareholders, net
 
-
   
-
   
-
   
-
   
-
     
-
     
-
     
-
   
(33,197
)
 
(33,197
)
- Additional acquisition of non-controlling
 
-
   
-
   
-
   
-
   
(669
)
   
-
     
-
     
(669
)
 
(273
)
 
(942
)
- Deconsolidation of former subsidiary
 
-
   
-
   
-
   
-
   
-
     
-
     
-
     
-
   
(7,801
)
 
(7,801
)
Total transactions with shareholders
 
-
   
-
   
-
   
-
   
(669
)
   
-
     
-
     
(669
)
 
(100,948
)
 
(101,617
)
Balances as of December 31, 2017
 
660,054
   
660,054
   
132,011
   
29,974
   
881,795
     
(169,671
)
   
589,167
     
2,123,330
   
465,748
   
2,589,078
 
                                                                   
Balances as of January 1, 2018
 
660,054
   
660,054
   
132,011
   
29,974
   
881,795
     
(169,671
)
   
589,167
     
2,123,330
   
465,748
   
2,589,078
 
Profit (loss) for the period
 
-
   
-
   
-
   
-
   
-
     
-
     
(74,222
)
   
(74,222
)
 
139,946
   
65,724
 
Cash flow hedge
 
-
   
-
   
-
   
-
   
-
     
113
     
-
     
113
   
6
   
119
 
Adjustment for actuarial gains and losses
 
-
   
-
   
-
   
-
   
-
     
-
     
16,589
     
16,589
   
4,406
   
20,995
 
Foreign currency translation adjustment
 
-
   
-
   
-
   
-
   
-
     
9,787
     
-
     
9,787
   
906
   
10,693
 
Exchange difference from net investment in a foreign operation
 
-
   
-
   
-
   
-
   
-
     
(7,945
)
   
-
     
(7,945
)
 
(155
)
 
(8,100
)
Comprehensive income of the period
 
-
   
-
   
-
   
-
   
-
     
1,955
     
(57,633
)
   
(55,678
)
 
145,109
   
89,431
 
Transactions with shareholders:
                                                                 
- Dividend distribution
 
-
   
-
   
-
   
-
   
-
     
-
     
-
     
-
   
(102,773
)
 
(102,773
)
- Contributions (devolution) of non-controlling shareholders, net
 
-
   
-
   
-
   
-
   
-
     
-
     
-
     
-
   
(84,457
)
 
(84,457
)
- Additional acquisition of non-controlling
 
-
   
-
   
-
   
-
   
(9,583
)
   
-
     
-
     
(9,583
)
 
(4,050
)
 
(13,633
)
- IFRS adoption
 
-
   
-
   
-
   
-
   
-
     
-
     
(52,974
)
   
(52,974
)
 
(959
)
 
(53,933
)
- Capital Increase
 
69,380
   
69,380
   
-
   
-
   
68,223
     
-
     
-
     
137,603
   
-
   
137,603
 
- Deconsolidation CAM Holding S.p.A.
 
-
   
-
   
-
   
-
   
-
     
-
     
(42,878
)
   
(42,878
)
 
5,614
   
(37,264
)
- Deconsolidation CAM Servicios del Perú
 
-
   
-
   
-
   
-
   
-
     
-
     
-
     
-
   
181
   
181
 
- Deconsolidation Stracon GyM
 
-
   
-
   
-
   
-
   
-
     
-
     
-
     
-
   
(29,412
)
 
(29,412
)
- Others
 
-
   
-
   
-
   
-
   
-
     
-
     
2,670
     
2,670
   
14
   
2,684
 
Total transactions with shareholders
 
69,380
   
69,380
   
-
   
-
   
58,640
     
-
     
(93,182
)
   
34,838
   
(215,842
)
 
(181,004
)
Balances as of December 31, 2018
 
729,434
   
729,434
   
132,011
   
29,974
   
940,435
     
(167,716
)
   
438,352
     
2,102,490
   
395,015
   
2,497,505
 

The accompanying notes on pages 6 to 26 are an integral part of the consolidated financial statements.
-10-
Condensed Interim Consolidated Statement of Cash Flows

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
                 
(All amounts are expressed in thousands of S/ unless otherwise stated)
       
                   
CONSOLIDATED STATEMENT OF CASH FLOWS
                 
                   
                   
         
For the year
 
         
ended December 31,
 
   
Note
   
2017
   
2018
 
                   
OPERATING ACTIVITIES
                 
Loss before income tax
         
332,275
     
173,005
 
Adjustments to  profit not affecting cash flows from
                     
operating activities:
                     
Depreciation
         
199,794
     
125,419
 
Amortization of other assets
         
86,557
     
111,075
 
Impairment of inventories
         
40,908
     
-
 
Impairment of accounts receivable and other accounts receivable
     
19,109
     
52,430
 
Reversal of impairment of inventories
         
-
     
(26,865
)
Impairment of property, plant and equipment
         
14,680
     
5,664
 
Impairment of intangible assets
         
49,609
     
-
 
Indemnification
         
3,220
     
-
 
Profit on fair value of financial asset at fair value through profit or loss
     
(34
)
   
-
 
Change in the fair value of the liability for put option
         
(1,400
)
   
-
 
Other Provisions
   
14
     
9,510
     
75,369
 
Financial expense,net
           
138,016
     
183,767
 
Share of the profit and loss in associates and joint ventures
                       
under the equity method of accounting
   
10
     
(1,327
)
   
3,709
 
Reversal of provisions
   
14
     
(1,044
)
   
(3,282
)
Disposal of assets
           
5,438
     
22,390
 
Disposal of investments at fair value through profit or loss
           
106
     
-
 
(Profit) loss on sale of property, plant and equipment
           
(26,883
)
   
7,062
 
Loss on sale of non-current asset held for sale
           
45
     
-
 
(Profit) loss on sale from available-for-sale financial assets
           
(25,768
)
   
1,529
 
Profit on sale of investments in subsidiaries
           
(244,313
)
   
(73,642
)
Loss on remeasurement of accounts receivable
           
15,807
     
17,825
 
Net variations in assets and liabilities:
                       
Trade accounts receivable and unbilled working in progress
           
(178,259
)
   
(289,789
)
Other accounts receivable
           
33,196
     
215,921
 
Other accounts receivable from related parties
           
(245,688
)
   
26,679
 
Inventories
           
279,867
     
200,447
 
Pre-paid expenses and other assets
           
(6,494
)
   
16,208
 
Trade accounts payable
           
463,401
     
11,331
 
Other accounts payable
           
(62,280
)
   
(284,835
)
Other accounts payable to related parties
           
(66,819
)
   
92,293
 
Other provisions
           
(1,680
)
   
(6,644
)
Interest payment
           
(173,662
)
   
(198,878
)
Payments for purchases of intangibles - Concessions
           
(20,178
)
   
(6,944
)
Payment of income tax
           
(144,545
)
   
(175,864
)
Net cash provided by operating activities
           
491,164
     
275,380
 
                         
INVESTING ACTIVITIES
                       
Sale of available-for-sale investment
           
391,786
     
229,045
 
Sale of property, plant and equipment
           
127,221
     
31,895
 
Sale of financial asset at fair value through profit or loss
           
98
     
-
 
Sale of non-current assets held for sale
           
43,367
     
16,244
 
Interest received
           
6,992
     
38,020
 
Dividends received
           
3,758
     
1,823
 
Payment for purchase of investments properties
           
(1,183
)
   
(209
)
Payments for intangible purchase
           
(97,112
)
   
(93,737
)
Payments for purchase and contributions on investment in associate and joint ventures
     
(2,116
)
   
(3,770
)
Payments for property, plant and equipment purchase
           
(123,941
)
   
(80,822
)
Net cash provided by investing activities
           
348,870
     
138,489
 
                         
FINANCING ACTIVITIES
                       
Loans received
           
1,406,717
     
1,018,623
 
Amortization of loans received
           
(2,044,256
)
   
(1,265,920
)
Amortization of bonds issued
           
(39,151
)
   
(28,914
)
Payment for transaction costs for debt
           
(31,286
)
   
-
 
Dividends paid to non-controlling interest
           
(43,942
)
   
(102,773
)
Cash received (return of contributions )from non-controlling shareholders
     
(33,197
)
   
(59,068
)
Capital increase
           
-
     
137,603
 
Acquisition or sale of interest in a subsidiary of non-controlling shareholders
     
(942
)
   
389
 
Net cash applied to financing activities
           
(786,057
)
   
(300,060
)
Net increase (net decrease) in cash
           
53,977
     
113,809
 
Exchange difference
           
(34,867
)
   
57,756
 
Cash and cash equivalents at the beginning of the period
           
606,950
     
626,180
 
Cash and cash equivalents at the end of the period
   
8
     
626,060
     
797,745
 
                         
NON-CASH TRANSACTIONS:
                       
Debt capitalization
           
26,015
     
3,361
 
Acquisition of assets through finance leases
           
48,507
     
2,365
 
Accounts payable to the non-controlling interest for purchase of investments
     
-
     
14,022
 
Contribution in inventories
           
-
     
25,389
 
Dividends declared to non-controlling interest
           
15,735
     
-
 

The accompanying notes on pages 6 to 26 are an integral part of the consolidated financial statements.
-11-
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31 2017 (AUDITED) AND DECEMBER 31, 2018 (UNAUDITED)

1.       GENERAL INFORMATION

a)   
Incorporation and operations

Graña y Montero S.A.A. (hereinafter “the Company”) is the parent of the Graña y Montero Group (hereinafter “the Group”) and it is mainly engaged in holding investments in different Group companies. Additionally, the Company provides services of general management, financial management, commercial management, legal advisory and human resources management and office operating leasing to the Group’s companies.

The Group is a conglomerate of companies with operations including different business activities, the most significant are engineering and construction, infrastructure (public concession ownership and operation), real estate businesses and services.

b)  
Authorization for issue of the financial statements

These condensed interim consolidated financial statements for the year ended December 31, 2018 were authorized preliminary by the Chief Financial Officer on February 1, 2019.

c)  
Current situation of the Company

1)
Projects conducted in association with companies of the Odebrecht Group

Our company and one of its subsidiaries participated as minority partners in certain entities that developed six infrastructure projects in Peru with companies belonging to the group Odebrecht (from now on Odebrecht). In 2016, Odebrecht entered into a Plea Agreement with the authorities of the United States Department of Justice and the Office of the District Attorney for the Eastern District of New York by which it admitted the commission of corrupt acts in connection with two of these projects (tranches 2 and 3 of the Interoceánica Sur highway (“IIRSA Sur”) and the project to construct the Lima metro (Electric Train). As a consequence of this agreement, the Peruvian authorities opened investigations.

i)
IIRSA Sur

With respect to the investigations conducted in relation to IIRSA Sur, the Public Prosecutor's Office included the former Chairman of the Board of Directors, for collusion; a former Director, and a former executive of the Company, for money laundering. Subsequently, Graña y Montero S.A.A. and GyM S.A. were incorporated as subjects investigated in the case described above. The companies appealed this decision and later the Superior Court ruled in favor of the companies.

In addition, Graña y Montero S.A.A. and GyM S.A. have been incorporated as civilly liable third parties in this case which means that in the course of the process the court will assess whether these entities are obligated to compensate the Peruvian government for damages suffered as a result of the facts under investigation.
-12-
ii)
Electric Train

GyM S.A. has been incorporated as a civilly liable third party in the case related to the project to construct the electric train.

2)
The Constructor´s Club

On July 11, 2017, the Commission for Free Competition (“Indecopi”) initiated an investigation against several construction companies, including GyM S.A., about the existence of an alleged cartel called the Constructor´s Club, Throughout the investigation, GyM S.A., has provided to the Indecopi with all the information requested.

The Company’s former commercial manager is under a criminal investigation, as well as other individuals related to other construction companies. GyM S.A. has been incorporated in the criminal proceedings as civilly liable third party.

3)
Anticorruption Law - effects on the Group

Law 30737 and its regulation issued by Supreme Decree 096-2018-EF have mitigated the Company and subsidiaries exposure to the cases described in sub sections 1) and 2) above. These rules set clear guidelines to estimate the potential compensation reducing the uncertainty derived from the legal proceedings, by among other things, preventing the imposition of liens or attachments of assets that would impair its ability to operate.

The benefits of the mentioned rules are subject to the fulfillment of the following obligations:

 
•
The obligation to set up a trust that will guarantee any eventual payment obligation of an eventual civil compensation in favor of the Peruvian State;
 
•
The obligation not to transfer funds abroad without the prior consent of the Ministry of Justice;
 
•
The implementation of a compliance program; and
 
•
The obligation to disclose information to the authorities and to collaborate in the investigation.

The Group has designed a compliance program which is currently under implementation. In addition, it fully cooperates with the authorities in its investigations and has reached an agreement in principal with the Government with respect to the terms and conditions that will govern the trust that will secure its contingent obligations for an amount confirmed by authorities of approximately US$ 24 million.

On the other hand, based on the standards indicated and their guidelines, management has estimated that the value of the contingency for the cases described above should not exceed US $ 45.8 million..

In case the Club case is deemed incorporated within the scope of the referenced law, then the value of the assets assigned to the trust would need to be increased by approximately US$ 3 million and the potential contingency would increase by approximately US$ 3.1 million.
-13-
4)
Independent Investigation related to businesses with Odebrecht Group.

On January 9, 2017, the Board of Directors approved a plan to conduct an internal investigation related to six projects executed in association with Odebrecht.

On March 30, 2017, the Board of Directors created a Risk, Compliance and Sustainability Committee who was in charge of the oversight of the investigation independent from management. The investigation was conducted by outside counselor reported to the Risk, Compliance and Sustainability Committee.

The independent investigation concluded on November 2, 2017 and found no evidence for determining that the Group or any of its former  or current directors or executives had intentionally or knowingly participated in acts of corruption related to the six projects developed in association with Odebrecht.

2.        BASIS OF PREPARATION

These interim condensed consolidated unaudited financial statements for the period ended December 31, 2018 have been prepared in accordance with IAS 34 "Consolidated interim financial information" (IAS 34). The interim condensed consolidated financial statements provide comparative information regarding prior periods; however, they do not include all the information and disclosures required in the annual consolidated financial statements, so they must be read together with the audited consolidated financial statements for the year ended December 31, 2017, which have been prepared in accordance with International Standards. of Financial Information (hereinafter "IFRS").

The condensed interim consolidated financial statements are presented in thousands of Peruvian Soles, unless otherwise stated.

3.        SIGNIFICANT ACCOUNTING POLICIES

The accounting policies used in the preparation of these condensed interim consolidated financial statements are consistent with those applied in the preparation of the consolidated financial statements at December 31, 2017, except for the new international financial information regulations (IFRS) adopted as of January 1, 2018 described below:
-14-
IFRS 15 "Revenue from Ordinary Activities Resulting from Contracts with Customers" –

IFRS 15 replaces IAS 11 Construction Contracts, IAS 18 Income and related interpretations and applies to all income arising from contracts with customers, unless such contracts are within the scope of other standards. The new standard establishes a five-step model for accounting for the income derived from contracts with customers. Under IFRS 15, income is recognized for an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.

The standard requires entities to judge, taking into account all relevant facts and circumstances when applying each step of the model to contracts with their clients. The standard also specifies the accounting for incremental costs related to obtaining a contract and costs directly related to the fulfillment of a contract.

The Group adopted IFRS 15 using the modified retroactive application method, according to which the cumulative effect resulting from applying this new standard is presented by adjusting the initial balance of accumulated results (January 1). 2018, and has modified its accounting policy in relation to: 1) Engineering and Construction Segment.- in the case of contracts with customers, has incorporated controls to identify different performance obligations, if applicable, in the percentage of completion and margin of contract, as well as additional services; 2) Real Estate Segment.- In the case of real estate sales contracts, the processes were reviewed in relation to the identification of the different agreed performance obligations, mainly in the contracts that include the sale of common areas.

IFRS 9 “Financial Instruments”

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after January 1, 2018, which brings together the three aspects of accounting for financial instruments: classification and measurement; deterioration; and hedge accounting.

The Company has applied IFRS 9 prospectively, with the initial application date of January 1, 2018. There has been no impact on cash flows or earnings per share as a result of the adoption of IFRS

a)  
Classification and measurement of financial assets

Except for certain commercial accounts receivable, according to IFRS 9, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset that is not at fair value through profit or loss, transaction costs. According to IFRS 9, financial debt instruments are subsequently measured at fair value through profit or loss, amortized cost or fair value through other comprehensive income. The classification is based on two criteria: the Group's business model for managing the assets; and if the contractual cash flows of the instruments represent "only capital and interest payments" on the outstanding principal amount.

The loans, as well as the commercial debtors, are maintained to receive the contractual cash flows and are expected to represent cash flows that represent only principal and interest payments. The Group analyzed the cash flow characteristics of these instruments and concluded that they meet the criteria to be valued at amortized cost in accordance with IFRS 9. Consequently, the reclassification of these instruments was not required.
-15-
b)  
Deterioration

IFRS 9 replaces the model of incurred losses presented in IAS 39 to an expected credit loss model (PCE). This model requires that the Group record the expected credit losses of all its debt securities, loans and other debtors, applying an approach ("general approach") by which it must recognize, initially and subsequently, the PCE estimated only by the following twelve months, unless there is a significant deterioration in the credit risk of the counterparty, in which case recognition of the PCE will be required for the entire life of the instrument.

c)   
Hedge accounting treatment

The Group has determined that all hedge transactions that are currently designated as effective hedges will continue to qualify as such under IFRS 9. The Group has decided that it will not retrospectively apply IFRS 9 for hedge transactions so designated under the scope of the NIC. 39. IFRS 9 does not modify the essential principles of the recognition of effective hedges.

Standards and interpretations published, but not yet valid

IFRS 16 "Leases"

IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosures regarding leases. It requires that all leases be recognized under a model similar to the one applied in the recognition of financial leases contained in IAS 17. The rule excludes from its application the tenants that are part of short-term leases and those in which the value of the underlying asset is insignificant. Its adoption is required for those annual periods beginning on or after January 1, 2019. Early adoption is permitted only in conjunction with the adoption of IFRS 15. The Group has begun its assessment of the impact of adopting the IFRS 16 in its consolidated financial statements with the identification, collection and analysis of the current lease agreements .

4.        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.

4.1       Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures in one of its subsidiaries and considers the use of other derivatives in the event that it identifies risks that may generate an adverse effect for the Group in the short and medium-term.
-16-
a)
Market risks

i.     Foreign Exchange risk

The Group is exposed to exchange rate risk as a result of the transactions carried out locally in foreign currency and due to its operations abroad. As of September 30, 2018, and December 31, 2017, this exposure is mainly concentrated in fluctuations of U.S. dollar, the Chilean and Colombian Pesos.

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 condensed interim 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.

b)
Credit risk

Credit risk arises from cash and cash equivalent 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.

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.

c)
Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. Historically, the Group cash flows enabled it to maintain sufficient cash to meet its obligations. However, as of December 31, 2016, the Group started to experienced liquidity risk due to the early termination of the GSP concession agreement and the obligations assumed. As a consequence, the Group started a disinvestment plan to be able to meet the obligations resulting from this scenario. That has been fulfilled, managing to reduce these obligations in an important way.

Group Corporate Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs, so that the Group does not breach borrowing limits or covenants, where applicable, on any of its borrowing facilities. Less significant financing transactions are controlled by the Finance Management of each subsidiary.
-17-
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, foreign 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 table below 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.

   
Less than
     
1-2
     
2-5
   
More than
       
   
1 year
   
years
   
years
   
5 years
   
Total
 
                                   
                                   
At December 31, 2017
                                 
Other financial liabilities (except for finance leases)
   
1,003,500
     
336,913
     
290,253
     
-
     
1,630,666
 
Finance leases
   
72,864
     
41,877
     
24,022
     
638
     
139,401
 
Bonds
   
109,746
     
148,986
     
353,349
     
1,272,647
     
1,884,728
 
                                         
Trade accounts payable
   
1,453,046
     
-
     
-
     
-
     
1,453,046
 
Accounts payable to related parties
   
55,174
     
25,954
     
-
     
-
     
81,128
 
Other accounts payable
   
153,498
     
34,527
     
371,976
     
-
     
560,001
 
Other non-financial liabilities
   
-
     
383
     
-
     
-
     
383
 
     
2,847,828
     
588,640
     
1,039,600
     
1,273,285
     
5,749,353
 

At December 31, 2018
                             
Other financial liabilities (except for finance leases)
   
746,306
     
411,203
     
129,233
     
41,577
     
1,328,319
 
Finance leases
   
19,141
     
7,783
     
14,162
     
-
     
41,086
 
Bonds
   
111,080
     
153,287
     
355,667
     
1,174,404
     
1,794,438
 
Trade accounts payable
   
1,184,697
     
-
     
-
     
-
     
1,184,697
 
Accounts payable to related parties
   
56,898
     
22,375
     
-
     
-
     
79,273
 
Other accounts payable
   
215,469
     
4,261
     
340,323
     
-
     
560,053
 
Other non-financial liabilities
   
-
     
61
     
-
     
-
     
61
 
     
2,333,591
     
598,970
     
839,385
     
1,215,981
     
4,987,927
 


4.2      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 tomaintain an optimal capital structure to reduce the cost of capital. From 2017 the situation of the Group, has lead Management to monitor deviations that might cause the non-compliance of covenants and may hinder renegotiation of liabilities (Note12).

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.
-18-
As of December 31, 2017 and 2018 , the gearing ratio is presented below indicating the Company’s strategy to keep it in a range from 0.10 to 0.70.

   
At December 31,
2017
   
At December 31,
2018
 
Total borrowings and bonds    
2,637,630
     
2,211,524
 
Less: Cash and cash equivalents    
(626,180
)
   
(797,864
)
Net debt    
2,011,450
     
1,413,660
 
Total equity     2,589,078       2,497,505  
Total capital     4,600,528       3,911,165  
                 
Gearing ratio     0.44       0.36  


4.3      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 financial assets classified as at fair value through profit or loss has been determined with observable information of Level 1.

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). 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 12, 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).

5.        CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
-19-
In preparing these condensed interim consolidated financial statements, the significant judgements made by management in applying the Group’s accounting policies and the key sources of uncertainty were the same as those that applied to the consolidated financial statements for the year ended December 31, 2017.

6.        SEASONALITY OF OPERATIONS

The Group shows no seasonality in the operations of any of its subsidiaries; operations are carried out regularly during the course of the period.

7.        SEGMENT INFORMATION

Operating segments are reported consistently with the internal reports that are reviewed by the Group’ chief decision-maker; that is, the Executive Committee, which is led by the Chief Executive Officer. This Committee is responsible for allocating resources and evaluating the performance of each operating segment.

The Group's operating segments are assessed by the activities 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 ‘infraestructure’. However, the Group has voluntarily decided to report on all its operating segments as detailed in this Note.

Inter-segmental sales transactions are entered into at prices that are similar to those that would have been agreed to with unrelated third parties. Revenues from external customers reported are measured in a manner consistent with the basis of preparation of the financial statements.

Group sales and receivables are not concentrated on a few customers. There is no external customer that represents 10% or more of the Goup’s revenue.

The table below shows the Group’s financial statements by operating segments:
-20-
(All the amounts are expressed in thousand of S/. unless otherwise stated)

Operating segments financial position
                                                           
Segment reporting
                                                           
         
Infrastructure
                               
   
Engineering
and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real estate
   
Technical services
   
Parent Company Operations
   
Eliminations
   
Consolidated
 
As of December 31, 2017
                                                           
Assets.-
                                                           
Cash and cash equivalent
   
184,401
     
43,878
     
121,901
     
161,073
     
4,204
     
85,187
     
21,904
     
3,632
     
-
     
626,180
 
Financial asset at fair value through profit or loss
   
181
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
181
 
Trade accounts receivables
   
368,303
     
64,364
     
128,124
     
108,706
     
604
     
45,897
     
274,103
     
419
     
2,204
     
992,724
 
Work in progress
   
578,723
     
-
     
-
     
-
     
-
     
-
     
-
     
6,030
     
-
     
584,753
 
Accounts receivable from related parties
   
230,607
     
2,746
     
62,525
     
3,072
     
8,852
     
69,382
     
9,947
     
66,059
     
(352,438
)
   
100,752
 
Other accounts receivable
   
518,123
     
55,959
     
66,765
     
31,381
     
1,922
     
40,026
     
38,527
     
12,742
     
-
     
765,445
 
Inventories
   
46,499
     
15,093
     
8,685
     
19,457
     
-
     
643,882
     
45,512
     
190
     
(8,607
)
   
770,711
 
Prepaid expenses
   
4,470
     
1,168
     
2,354
     
10,312
     
164
     
216
     
14,037
     
757
     
-
     
33,478
 
Non-current assets classified as held for sale
   
17,722
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
17,722
 
Total current assets
   
1,949,029
     
183,208
     
390,354
     
334,001
     
15,746
     
884,590
     
404,030
     
89,829
     
(358,841
)
   
3,891,946
 
                                                                                 
Long-term trade accounts receivable
   
-
     
-
     
14,747
     
793,991
     
-
     
-
     
39,852
     
-
     
-
     
848,590
 
Long-term work in progress
   
58,997
     
-
     
28,413
     
-
     
-
     
-
     
-
     
-
     
-
     
87,410
 
Long-term accounts receivable from related parties
   
258,479
     
-
     
27,660
     
-
     
-
     
-
     
474
     
636,941
     
(149,624
)
   
773,930
 
Prepaid expenses
   
-
     
-
     
24,585
     
13,115
     
892
     
-
     
-
     
-
     
(510
)
   
38,082
 
Other long-term accounts receivable
   
75,030
     
53,917
     
11,159
     
255,179
     
7,348
     
9,811
     
1,712
     
56,696
     
-
     
470,852
 
Investments in associates and joint ventures
   
111,513
     
7,344
     
-
     
-
     
-
     
1
     
10,113
     
2,206,230
     
(2,066,530
)
   
268,671
 
Investment property
   
-
     
-
     
-
     
-
     
-
     
45,687
     
-
     
-
     
-
     
45,687
 
Property, plant and equipment
   
509,700
     
171,226
     
18,572
     
580
     
60
     
11,621
     
100,936
     
70,627
     
(17,587
)
   
865,735
 
Intangible assets
   
203,390
     
160,288
     
492,424
     
323
     
-
     
1,022
     
47,332
     
24,031
     
11,260
     
940,070
 
Deferred income tax asset
   
165,227
     
5,507
     
11,057
     
-
     
-
     
10,316
     
46,470
     
192,088
     
6,032
     
436,697
 
Total non-current assets
   
1,382,336
     
398,282
     
628,617
     
1,063,188
     
8,300
     
78,458
     
246,889
     
3,186,613
     
(2,216,959
)
   
4,775,724
 
Total assets
   
3,331,365
     
581,490
     
1,018,971
     
1,397,189
     
24,046
     
963,048
     
650,919
     
3,276,442
     
(2,575,800
)
   
8,667,670
 
Liabilities.-
                                                                               
Borrowings
   
591,987
     
46,924
     
2,589
     
-
     
-
     
162,031
     
139,821
     
113,412
     
-
     
1,056,764
 
Bonds
   
-
     
-
     
24,361
     
12,294
     
-
     
-
     
-
     
-
     
-
     
36,655
 
Trade accounts payable
   
955,015
     
62,659
     
85,329
     
81,161
     
132
     
43,724
     
189,553
     
36,412
     
(939
)
   
1,453,046
 
Accounts payable to related parties
   
114,198
     
3,664
     
60,857
     
83,841
     
14
     
37,396
     
14,428
     
88,546
     
(347,770
)
   
55,174
 
Current income tax
   
29,379
     
1,282
     
1,122
     
-
     
161
     
45,299
     
8,300
     
-
     
-
     
85,543
 
Other accounts payable
   
492,362
     
12,487
     
68,994
     
27,058
     
49
     
63,654
     
109,904
     
73,992
     
-
     
848,500
 
Provisions
   
6,682
     
5,204
     
-
     
-
     
-
     
20
     
1,597
     
-
     
-
     
13,503
 
Total current liabilities
   
2,189,623
     
132,220
     
243,252
     
204,354
     
356
     
352,124
     
463,603
     
312,362
     
(348,709
)
   
3,549,185
 
                                                                                 
Borrowings
   
127,773
     
101,549
     
1,945
     
-
     
-
     
12,010
     
26,458
     
363,564
     
-
     
633,299
 
Long-term bonds
   
-
     
-
     
319,549
     
591,363
     
-
     
-
     
-
     
-
     
-
     
910,912
 
Other long-term accounts payable
   
379,043
     
-
     
52,349
     
349,987
     
158
     
32,058
     
36,409
     
2,469
     
-
     
852,473
 
Long-term accounts payable to related parties
   
4,306
     
-
     
836
     
89,023
     
23,445
     
-
     
30,739
     
32,102
     
(154,497
)
   
25,954
 
Provisions
   
8,587
     
16,707
     
-
     
-
     
-
     
-
     
3,365
     
5,255
     
-
     
33,914
 
Derivative financial instruments
   
-
     
383
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
383
 
Deferred income tax liability
   
26,633
     
8,957
     
8,606
     
20,789
     
210
     
-
     
7,277
     
-
     
-
     
72,472
 
Total non-current liabilities
   
546,342
     
127,596
     
383,285
     
1,051,162
     
23,813
     
44,068
     
104,248
     
403,390
     
(154,497
)
   
2,529,407
 
Total liabilities
   
2,735,965
     
259,816
     
626,537
     
1,255,516
     
24,169
     
396,192
     
567,851
     
715,752
     
(503,206
)
   
6,078,592
 
Equity attributable to controlling interest in the Company
   
487,923
     
299,411
     
323,987
     
106,256
     
(123
)
   
217,290
     
82,100
     
2,547,328
     
(1,940,842
)
   
2,123,330
 
Non-controlling interest
   
107,477
     
22,263
     
68,447
     
35,417
     
-
     
349,566
     
968
     
13,362
     
(131,752
)
   
465,748
 
Total liabilities and equity
   
3,331,365
     
581,490
     
1,018,971
     
1,397,189
     
24,046
     
963,048
     
650,919
     
3,276,442
     
(2,575,800
)
   
8,667,670
 

-21-
(All the amounts are expressed in thousand of S/. unless otherwise stated)

Operating segments financial position
                                                           
Segment reporting
                                                           
         
Infrastructure
                               
   
Engineering
and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real estate
   
Technical services
   
Parent Company Operations
   
Eliminations
   
Consolidated
 
As of December 31, 2018
                                                           
Assets.-
                                                           
Cash and cash equivalent
   
172,527
     
34,816
     
164,038
     
191,178
     
6,700
     
93,262
     
7,487
     
127,856
     
-
     
797,864
 
Trade accounts receivables
   
218,226
     
54,350
     
78,013
     
226,919
     
598
     
69,068
     
104,734
     
1,068
     
-
     
752,976
 
Work in progress
   
385,626
     
-
     
-
     
-
     
-
     
-
     
-
     
2,140
     
-
     
387,766
 
Accounts receivable from related parties
   
208,535
     
492
     
40,820
     
758
     
9,930
     
60,759
     
20,529
     
77,779
     
(383,216
)
   
36,386
 
Other accounts receivable
   
404,625
     
39,954
     
32,914
     
31,012
     
199
     
55,508
     
21,662
     
41,325
     
2
     
627,201
 
Inventories
   
27,852
     
18,823
     
9,206
     
25,282
     
-
     
448,328
     
3,999
     
-
     
(15,444
)
   
518,046
 
Prepaid expenses
   
3,824
     
1,345
     
3,068
     
874
     
135
     
81
     
6,014
     
1,221
     
-
     
16,562
 
Total current assets
   
1,421,215
     
149,780
     
328,059
     
476,023
     
17,562
     
727,006
     
164,425
     
251,389
     
(398,658
)
   
3,136,801
 
                                                                                 
Long-term trade accounts receivable
   
14,455
     
-
     
33,380
     
994,815
     
-
     
-
     
38,146
     
-
     
-
     
1,080,796
 
Long-term work in progress
   
-
     
-
     
32,212
     
-
     
-
     
-
     
-
     
-
     
-
     
32,212
 
Long-term accounts receivable from related parties
   
254,660
     
-
     
39,341
     
-
     
-
     
-
     
436
     
744,655
     
(260,430
)
   
778,662
 
Prepaid expenses
   
-
     
-
     
28,216
     
5,152
     
840
     
-
     
-
     
-
     
(512
)
   
33,696
 
Other long-term accounts receivable
   
81,005
     
61,868
     
7,056
     
64,817
     
7,346
     
30,268
     
12,664
     
40,404
     
-
     
305,428
 
Investments in associates and joint ventures
   
115,554
     
7,231
     
-
     
-
     
-
     
5,604
     
-
     
2,231,252
     
(2,100,997
)
   
258,644
 
Investment property
   
-
     
-
     
-
     
-
     
-
     
29,133
     
-
     
-
     
-
     
29,133
 
Property, plant and equipment
   
205,678
     
171,430
     
14,585
     
1,586
     
109
     
9,237
     
33,030
     
69,088
     
(1,159
)
   
503,584
 
Intangible assets
   
160,088
     
183,614
     
466,153
     
749
     
-
     
1,105
     
20,955
     
23,514
     
10,722
     
866,900
 
Deferred income tax asset
   
168,151
     
5,025
     
11,876
     
-
     
621
     
17,127
     
21,502
     
216,856
     
6,294
     
447,452
 
Total non-current assets
   
999,591
     
429,168
     
632,819
     
1,067,119
     
8,916
     
92,474
     
126,733
     
3,325,769
     
(2,346,082
)
   
4,336,507
 
Total assets
   
2,420,806
     
578,948
     
960,878
     
1,543,142
     
26,478
     
819,480
     
291,158
     
3,577,158
     
(2,744,740
)
   
7,473,308
 
Liabilities.-
                                                                               
Borrowings
   
232,409
     
26,621
     
15,384
     
209,463
     
-
     
133,105
     
71,453
     
71,368
     
-
     
759,803
 
Bonds
   
-
     
-
     
25,745
     
13,422
     
-
     
-
     
-
     
-
     
-
     
39,167
 
Trade accounts payable
   
777,130
     
49,668
     
61,233
     
104,652
     
121
     
31,173
     
105,585
     
55,135
     
-
     
1,184,697
 
Accounts payable to related parties
   
179,351
     
1,933
     
46,099
     
65,256
     
58
     
35,085
     
-
     
96,706
     
(367,590
)
   
56,898
 
Current income tax
   
5,898
     
2,797
     
1,398
     
10,273
     
226
     
4,219
     
1,381
     
-
     
-
     
26,192
 
Other accounts payable
   
390,840
     
13,147
     
72,823
     
11,676
     
631
     
106,286
     
25,200
     
35,665
     
-
     
656,268
 
Provisions
   
521
     
5,412
     
-
     
-
     
-
     
264
     
1,093
     
-
     
-
     
7,290
 
Total current liabilities
   
1,586,149
     
99,578
     
222,682
     
414,742
     
1,036
     
310,132
     
204,712
     
258,874
     
(367,590
)
   
2,730,315
 
                                                                                 
Borrowings
   
9,314
     
87,166
     
556
     
-
     
-
     
10,684
     
357
     
406,602
     
-
     
514,679
 
Long-term bonds
   
-
     
-
     
299,637
     
598,238
     
-
     
-
     
-
     
-
     
-
     
897,875
 
Other long-term accounts payable
   
357,146
     
-
     
31,477
     
189,007
     
1,656
     
26,470
     
17,793
     
2,605
     
-
     
626,154
 
Long-term accounts payable to related parties
   
8,880
     
-
     
1,167
     
81,207
     
23,446
     
-
     
597
     
183,227
     
(276,149
)
   
22,375
 
Provisions
   
32,122
     
20,234
     
-
     
-
     
-
     
-
     
-
     
53,991
     
-
     
106,347
 
Derivative financial instruments
   
-
     
61
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
61
 
Deferred income tax liability
   
5,565
     
24,541
     
7,010
     
35,101
     
-
     
-
     
5,200
     
580
     
-
     
77,997
 
Total non-current liabilities
   
413,027
     
132,002
     
339,847
     
903,553
     
25,102
     
37,154
     
23,947
     
647,005
     
(276,149
)
   
2,245,488
 
Total liabilities
   
1,999,176
     
231,580
     
562,529
     
1,318,295
     
26,138
     
347,286
     
228,659
     
905,879
     
(643,739
)
   
4,975,803
 
Equity attributable to controlling interest in the Company
   
349,515
     
323,944
     
332,406
     
168,635
     
340
     
193,483
     
62,497
     
2,658,209
     
(1,986,539
)
   
2,102,490
 
Non-controlling interest
   
72,115
     
23,424
     
65,943
     
56,212
     
-
     
278,711
     
2
     
13,070
     
(114,462
)
   
395,015
 
Total liabilities and equity
   
2,420,806
     
578,948
     
960,878
     
1,543,142
     
26,478
     
819,480
     
291,158
     
3,577,158
     
(2,744,740
)
   
7,473,308
 

-22-
(All amounts are expressed in thousands of S/. unless otherwise stated)

Operating segment performance
                                                           
Segment Reporting
                                                           
         
Infrastructure
                               
   
Engineering and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real
estate
   
Technical
services
   
Parent Company
operations
   
Eliminations
   
Consolidated
 
Year 2017 -
                                                           
                                                             
                                                             
Revenue
   
2,331,328
     
436,876
     
642,127
     
365,771
     
3,152
     
647,535
     
284,154
     
70,049
     
(483,533
)
   
4,297,459
 
Gross profit (loss)
   
177,386
     
71,825
     
139,196
     
48,696
     
445
     
147,384
     
44,364
     
(37,772
)
   
(43,815
)
   
547,709
 
Administrative expenses
   
(182,207
)
   
(15,854
)
   
(32,453
)
   
(15,279
)
   
(317
)
   
(21,189
)
   
(33,525
)
   
(100,687
)
   
52,248
     
(349,263
)
Other income and expenses
   
(46,446
)
   
5,138
     
1,061
     
5
     
-
     
(3,700
)
   
(834
)
   
10,512
     
560
     
(33,704
)
Gain from the sale of investments
   
-
     
-
     
-
     
-
     
-
     
49,002
     
-
     
(18,672
)
   
4,215
     
34,545
 
Operating profit (loss)
   
(51,267
)
   
61,109
     
107,804
     
33,422
     
128
     
171,497
     
10,005
     
(146,619
)
   
13,208
     
199,287
 
Financial expenses
   
(46,655
)
   
(13,423
)
   
(6,892
)
   
(8,000
)
   
(50
)
   
(21,918
)
   
(11,726
)
   
(80,339
)
   
27,471
     
(161,532
)
Financial income
   
8,490
     
1,965
     
3,257
     
3,606
     
26
     
3,570
     
2,772
     
32,924
     
(42,603
)
   
14,007
 
Share of the profit or loss
                                                                               
in associates and joint ventures under the equity
                                                                               
method of accounting
   
30,633
     
1,584
     
-
     
-
     
-
     
455
     
-
     
142,594
     
(175,142
)
   
124
 
Profit (loss) before income tax
   
(58,799
)
   
51,235
     
104,169
     
29,028
     
104
     
153,604
     
1,051
     
(51,440
)
   
(177,066
)
   
51,886
 
Income tax
   
877
     
(13,151
)
   
(32,290
)
   
(9,544
)
   
(228
)
   
(35,899
)
   
(269
)
   
44,446
     
(101
)
   
(46,159
)
Profit (loss) from continuing operations
   
(57,922
)
   
38,084
     
71,879
     
19,484
     
(124
)
   
117,705
     
782
     
(6,994
)
   
(177,167
)
   
5,727
 
Profit from discontinued operations
   
70,318
     
-
     
-
     
-
     
-
     
-
     
(26,447
)
   
150,111
     
9,529
     
203,511
 
Profit (loss) for the period
   
12,396
     
38,084
     
71,879
     
19,484
     
(124
)
   
117,705
     
(25,665
)
   
143,117
     
(167,638
)
   
209,238
 
                                                                                 
                                                                                 
                                                                                 
Profit (loss) attributable to:
                                                                               
                                                                                 
Owners of the Company
   
12,076
     
33,714
     
55,620
     
14,613
     
(124
)
   
48,649
     
(18,094
)
   
143,278
     
(140,994
)
   
148,738
 
Non-controlling interest
   
320
     
4,370
     
16,259
     
4,871
     
-
     
69,056
     
(7,571
)
   
(161
)
   
(26,644
)
   
60,500
 
     
12,396
     
38,084
     
71,879
     
19,484
     
(124
)
   
117,705
     
(25,665
)
   
143,117
     
(167,638
)
   
209,238
 

-23-
(All amounts are expressed in thousands of S/. unless otherwise stated)

Operating segment performance
                                                           
Segment Reporting
                                                           
         
Infrastructure
                               
   
Engineering and
construction
   
Energy
   
Toll roads
   
Transportation
   
Water
treatment
   
Real
estate
   
Technical
services
   
Parent Company
operations
   
Eliminations
   
Consolidated
 
Year 2018 -
                                                           
                                                             
                                                             
Revenue
   
1,960,863
     
560,506
     
733,149
     
586,012
     
3,270
     
630,130
     
305,502
     
62,098
     
(640,621
)
   
4,200,909
 
Gross profit (loss)
   
74,374
     
120,360
     
107,092
     
122,250
     
592
     
287,959
     
39,815
     
(27,853
)
   
(18,466
)
   
706,123
 
Administrative expenses
   
(136,066
)
   
(20,898
)
   
(35,626
)
   
(12,007
)
   
(296
)
   
(50,730
)
   
(35,043
)
   
(59,804
)
   
42,940
     
(307,530
)
Other income and expenses
   
(12,630
)
   
1,243
     
(11
)
   
31
     
-
     
(1,971
)
   
(4,093
)
   
(40,902
)
   
(639
)
   
(58,972
)
Gain from the sale of investments
   
-7
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(7
)
Operating profit (loss)
   
(74,329
)
   
100,705
     
71,455
     
110,274
     
296
     
235,258
     
679
     
(128,559
)
   
23,835
     
339,614
 
Financial expenses
   
(78,879
)
   
(15,631
)
   
(28,762
)
   
(19,000
)
   
-
     
(14,700
)
   
(18,719
)
   
(113,674
)
   
38,904
     
(250,461
)
Financial income
   
15,122
     
4,593
     
4,631
     
28,222
     
559
     
6,397
     
1,064
     
38,160
     
(55,591
)
   
43,157
 
Dividends
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
8,344
     
(8,344
)
   
-
 
Share of the profit or loss
                                                                               
in associates and joint ventures under the equity
                                                                               
method of accounting
   
11,366
     
1,608
     
-
     
-
     
-
     
(10
)
   
-
     
99,516
     
(116,189
)
   
(3,709
)
(Loss)/profit before income tax
   
(126,720
)
   
91,275
     
47,324
     
119,496
     
855
     
226,945
     
(16,976
)
   
(96,213
)
   
(117,385
)
   
128,601
 
Income tax
   
15,888
     
(26,275
)
   
(15,737
)
   
(36,326
)
   
(517
)
   
(69,165
)
   
6,577
     
19,092
     
(818
)
   
(107,281
)
(Loss)/Profit from continuing operations
   
(110,832
)
   
65,000
     
31,587
     
83,170
     
338
     
157,780
     
(10,399
)
   
(77,121
)
   
(118,203
)
   
21,320
 
Profit from discontinued operations
   
44,096
     
-
     
-
     
-
     
-
     
-
     
4,693
     
(1,085
)
   
(3,300
)
   
44,404
 
(Loss)/profit for the period
   
(66,736
)
   
65,000
     
31,587
     
83,170
     
338
     
157,780
     
(5,706
)
   
(78,206
)
   
(121,503
)
   
65,724
 
                                                                                 
                                                                                 
                                                                                 
Profit (loss) attributable to:
                                                                               
                                                                                 
Owners of the Company
   
(68,520
)
   
59,866
     
26,732
     
62,378
     
338
     
28,921
     
1,169
     
(77,879
)
   
(107,227
)
   
(74,222
)
Non-controlling interest
   
1,784
     
5,134
     
4,855
     
20,792
     
-
     
128,859
     
(6,875
)
   
(327
)
   
(14,276
)
   
139,946
 
     
(66,736
)
   
65,000
     
31,587
     
83,170
     
338
     
157,780
     
(5,706
)
   
(78,206
)
   
(121,503
)
   
65,724
 

-24-
No major changes occurred in total assets as compared to the amount stated in previous year-end financial statements.

There are no differences as compared to previous year-end financial statements based on segmentation or measurement of financial performance by segment.

8.        CASH AND CASH EQUIVALENTS

   
At
   
At
 
   
December 31,
   
December 31,
 
   
2017
   
2018
 
Cash on hand     16,468       1,180  
In-transit remittances     2,798       3,566  
Bank accounts     493,666       754,705  
Time deposits     113,248       38,413  
      626,180       797,864  

Reconciliation to the cash flow statement
The above figures reconcile to the amount of cash shown in the statement of cash flows.

   
At
December 31,
2017
   
At
December 31,
2018
 
Cash and cash equivalent    
626,180
     
797,864
 
Bank overdrafts (Note 12)    
(120
)
   
(119
)
Balances of the statement of cash flows     626,060       797,745  

9.       TRANSACTIONS WITH RELATED PARTIES

a)   
Transactions with related parties -

Major transactions between the Company and its related parties are summarized as follows:

   
At
   
At
 
   
December 31,
   
December 31,
 
Revenue from sales of goods and services:
 
2017
   
2018
 
- Associates
   
3,367
     
1,704
 
- Joint operations
   
18,138
     
56,560
 
     
21,505
     
58,264
 

Inter-company services were agreed based on market terms as if they had been agreed to third parties.

b)   
Balances of transactions with related parties

-25-
    At December 31, 2017
    At December 31, 2018
 
   
Receivable
   
Payable
   
Receivable
   
Payable
 
Current portion:
                       
Joint operations:
                       
Consorcio GyM Conciviles
   
43,435
     
-
     
1,855
     
-
 
Consorcio Rio Urubamba
   
8,964
     
-
     
9,122
     
-
 
Consorcio Peruano de Conservación
   
7,417
     
-
     
6,417
     
-
 
Consorcio Vial Quinua
   
-
     
2,162
     
-
     
1,970
 
Consorcio Italo Peruano
   
14,536
     
18,849
     
3,322
     
4,996
 
Consorcio La Gloria
   
1,688
     
1,358
     
1,369
     
1,006
 
Terminales del Perú
   
3,290
     
-
     
459
     
-
 
Consorcio Rio Mantaro
   
1,134
     
763
     
-
     
6,655
 
Consorcio Vial Sierra
   
2,355
     
1,854
     
-
     
-
 
Consorcio Constructor Chavimochic
   
1,959
     
5,817
     
2,138
     
6,199
 
Consorcio Energía y Vapor
   
-
     
72
     
-
     
-
 
Consorcio Ermitaño
   
1,067
     
6
     
781
     
624
 
Consorcio Menegua
   
39
     
-
     
38
     
-
 
Consorcio para la Atención y Mant. de Ductos
   
-
     
12,074
     
-
     
-
 
Consorcio Huacho Pativilca
   
-
     
2,377
     
-
     
475
 
Consorcio TNT Vial y Vives - DSD Chile Ltda
   
-
     
-
     
-
     
11,804
 
Other minors
   
12,182
     
6,973
     
10,660
     
8,810
 
     
98,066
     
52,305
     
36,161
     
42,539
 
                                 
Other related parties:
                               
Gaseoducto Sur Peruano S.A
   
2,407
     
-
     
-
     
-
 
Perú Piping Spools S.A.C.
   
279
     
185
     
225
     
-
 
Ferrovías Argentina
   
-
     
2,684
     
-
     
10,242
 
Other minors
   
-
     
-
     
-
     
4,117
 
     
2,686
     
2,869
     
225
     
14,359
 
Current portion
   
100,752
     
55,174
     
36,386
     
56,898
 
                                 
Non-current portion:
                               
Gasoducto Sur Peruano S.A
   
773,930
     
-
     
773,927
     
-
 
Ferrovías Participaciones
   
-
     
21,648
     
-
     
22,375
 
Other minors
   
-
     
4,306
     
4,735
     
-
 
Non-current portion
   
773,930
     
25,954
     
778,662
     
22,375
 

Receivables and payables are mainly of current maturity and do not have specific guarantees, except for the receivable account from GSP. Accounts receivable from related parties have maturity periods of 60 days and arise from sales of goods and services. These balances are non-interest-bearing, and during 2018 do not require a provision for impairment.

Current accounts payable to related parties mainly arise from transactions to provide services of engineering, construction, maintenance and others and have a maturity period of 60 days. Such accounts are not interest bearing because they are short-term.
-26-
10.      INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The movement of our investments in associates for the period ended December 31, 2017 and 2018 is as follows:

   
At
   
At
 
   
December 31,
   
December 31,
 
   
2017
   
2018
 
             
Opening balance
   
389,759
     
268,671
 
Contributions received
   
2,116
     
5,616
 
Dividends received
   
(4,017
)
   
(1,823
)
Equity interest in results
   
1,327
     
(3,709
)
Decrease in capital
   
(111
)
   
(30
)
Sale of Investment )
   
(120,779
)
   
-
 
Investment disposals
   
-
     
(10,112
)
Translation adjustment in foreign currency
   
376
     
31
 
Closing balance
   
268,671
     
258,644
 

-     
In February 2017 subsidiary Viva GyM S.A. signed a purchase-sales agreement comprising its equity interest (representing 22.5%) held in associate Promoción Inmobiliaria del Sur S.A. The agreed selling price was US$25 million (equivalent to S/81 million), which was fully paid.

-     
On April 24, 2017 the Company signed a purchase-sale agreement for their total capital stock (representing 51%) held in their joint venture with Compañía Operadora de Gas del Amazonas S.A.C. (COGA). The selling price was agreed at US$21.5 million (equivalent to S/69.8 million), which was fully paid.

-     
In June 2018, the subsidiary Viva GyM S.A. signed a partnership agreement with the company OBRATRES S.A.C, percentage of interest 37.5%, to develop a real estate project located at Calle Tacna 544 in Barranco, the project will consist of 31 departments, 52 parking lots and 24 warehouses.

-     
The decline in Investments is due to the joint venture Sistemas SEC S.A. from our indirect subsidiary CAM Chile SA that was sold to the ENGIE group, a French international company that operates in the fields of energy and services of various types.

11.      PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

For the period ended December 31, 2017 and 2018, the movement in property, plant and equipment and intangible assets accounts was as follows:
-27-
   
Property,
       
   
plant and
   
Intangibles
 
   
equipment
   
assets
 
             
Net cost at January 1, 2017
   
1,113,599
     
960,286
 
                 
Additions
   
172,448
     
143,305
 
Subsidiary deconsolidation
   
(83,441
)
   
(23,666
)
Transfers, disposals and adjustments
   
(39,049
)
   
(53,298
)
Deductions for sale of assets
   
(100,338
)
   
-
 
Depreciation, amortization
   
(197,484
)
   
(86,557
)
Net cost at December 31, 2017
   
865,735
     
940,070
 
                 
Net cost at January 1, 2018
   
865,735
     
940,070
 
                 
Additions
   
83,187
     
100,681
 
Subsidiary deconsolidation
   
(259,127
)
   
(51,180
)
Transfers, disposals and adjustments
   
(24,154
)
   
(14,957
)
Deductions for sale of assets
   
(38,957
)
   
-
 
Depreciation, amortization
   
(123,100
)
   
(111,075
)
Net cost at December 31, 2018
   
503,584
     
866,900
 

a)       
Property, plant and equipment

As of December 31, 2017 and 2018, additions to property, plant and equipment comprise acquisition of machinery and equipment intended for the Group’s operations.

Depreciation of fixed assets and investment properties for the period is broken down in the statement of income as follows:
Depreciation of fixed assets and investment properties for the year is broken down

   
2017
   
2018
 
             
Cost of services and goods
   
115,210
     
91,249
 
Administrative expenses
   
7,464
     
6,600
 
(+) Depreciation discontinued operation
   
77,120
     
27,570
 
Total depreciation of property, plant and equipment and investment property
   
199,794
     
125,419
 
(-) Depreciation of investment property
   
(2,310
)
   
(2,319
)
Total depreciation of property, plant and equipment
   
197,484
     
123,100
 

b)       
Intangible assets

As of December 31, 2017 and 2018, additions registered in intangible assets mainly comprise of investments in preparation of wells located in Lots I, III, IV and V to provide oil and hydrocarbon explotation services and in building the second Ancón-Huacho-Pativilca road section of the Panamericana Norte highway (concession under intangible model).
-28-
i)       
Goodwill

Management reviews the results of its businesses based on the type of economic activity carried out. Goodwill allocated to cash-generating units are:

 
At
    At  
 
December 31,
    December 31,
 
 
2017
    2018  
           
Engineering and construction    
75,051
     
71,621
 
Electromechanical    
20,737
     
20,737
 
Telecommunications services    
6,720
     
-
 
IT equipment and services    
930
     
930
 
Mining and construction services    
13,366
     
-
 
     
116,804
     
93,288
 

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 the higher of its value in use and fair value less cost of disposal. Value in use is determined based on the future cash flows expected to be generated by the assessed CGU.

As of December 31, 2018 same criteria used  as those applied in the impairment test at December 31, 2017 that concluded there was no impairment in the CGU .

12.      BORROWINGS

This item comprises:

   
Total
   
Total
   
Current
   
Current
   
Non-current
   
Non-current
 
   
At
   
At
   
At
   
At
   
At
   
At
 
   
December 31,
   
December 31,
   
December 31,
   
December 31,
   
December 31,
   
December 31,
 
   
2017
   
2018
   
2017
   
2018
   
2017
   
2018
 
                                     
Bank overdrafts (Note 8)
   
120
     
119
     
120
     
119
     
-
     
-
 
Bank loans
   
1,561,634
     
1,091,127
     
990,467
     
739,710
     
571,167
     
351,417
 
Finance leases
   
128,309
     
37,652
     
66,177
     
17,321
     
62,132
     
20,331
 
Other financial entities
   
-
     
145,584
     
-
     
2,653
     
-
     
142,931
 
     
1,690,063
     
1,274,482
     
1,056,764
     
759,803
     
633,299
     
514,679
 

a)       
Bank loans

As of December 31, 2017 and 2018, this item comprises bank loans in local and foreign currencies for working capital purposes. These obligations bear interest at fixed rates which fluctuated between 3.30% and 13.9% in 2017 and between 1.6% and 15.8% in 2018.
-29-
               
Current
   
Current
   
Non-current
   
Non-current
 
               
At
   
At
   
At
   
At
 
   
Interest
   
Date of
   
December 31,
   
December 31,
   
December 31,
   
December 31,
 
   
rate
   
maturity
   
2017
   
2018
   
2017
   
2018
 
                                     
Graña y Montero S.A.A.
 
Libor USD 3M + de 4.9% a 5.5
%    
2018 / 2020
     
113,412
     
68,712
     
363,564
     
263,671
 
GyM S.A.
   
1.60% / 8.73
%
   
2018 / 2019
     
551,413
     
227,770
     
95,376
     
-
 
GyM Ferrovías
 
Libor USD 1M + de 2
%    
2019
     
-
     
209,463
     
-
     
-
 
Viva GyM S.A.
   
7.00% / 12.00
%
   
2018 / 2020
     
157,592
     
129,617
     
-
     
2,102
 
CAM Holding S.A.
   
4.68% / 13.76
%
   
2018
     
77,775
     
-
     
12,807
     
-
 
Adexus S.A.
   
5.90
%
   
2018 / 2019
     
46,552
     
67,646
     
3,175
     
-
 
GMP S.A.
   
4.55% / 6.04
%
   
2018 / 2020
     
42,911
     
22,587
     
96,245
     
85,644
 
CONCAR S.A.
   
6.50% / 17.75
%
   
2019
     
812
     
13,915
     
-
     
-
 
                     
990,467
     
739,710
     
571,167
     
351,417
 

i)    
Credit Suisse Syndicated Loan

In December 2015, the Group entered into a medium term loan credit agreement for up to US$200 million (equivalent to S/672 million), with Credit Suisse AG, Cayman Islands Branch and Credit Suisse Securities (USA) LLC. The initial term of the loan was set at five years, with quarterly installments starting to be paid on the 18th month. The loan accrued interest at a rate of three months Libor plus 3.9% per year. The proceeds were used to finance the equity interest in GSP. On June 27, 2017, the Group renegotiated the terms of this loan to clear breaches related to the termination of the GSP concession.

As of December 31, 2018,   the outstanding balance of the loan capital is US$37.5 million ( equivalent to S/126.7 million, approx.).

As of the date of this report, the Company is in compliance with the covenants of the credit agreement.

ii)   
GSP Bridge Loan

At December 31, 2016, the current balance includes US$129 million (equivalent to S/433.3 million) of the corporate guarantee issued by the Company to secure the bridge loan given to GSP, which was enforceable at that date. On June, 2017, the Company has reached a new term loan with Natixis, BBVA, SMBC and MUFJ for US$78.7 million (equivalent to S/264.8 million), the proceeds of which were used to repay the GSP bridge loan. The maturity is June, 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year.

As of December 31, 2018, the outstanding balance of the loan capital is US$63.5 million ( equivalent to S/214.5 million, approx.).

Although as of December 31, 2018, the company had breached some of its obligations under the credit agreement, it has requested a waiver. As of the date of this report, the waiver was granted.

b)   
Other financial entities
-30-
Securitization of Norvial flows

At May 29, 2018 the Company subscribes an agreement between the Company and Inversiones Concesiones Vial S.A.C. ("BCI Perú") - whith the intervention of Fondo de Inversiones BCI NV (“Fondo BCI”) and BCI Management Administradora General de Fondos S.A. (“BCI” Asset Management”) - to monetize future dividends from Norvial S.A. to the Company. This operation has as a finality to reduce the indebtness of the Company.The amount of the transaction was US$42.3 millions and ended on June 11, 2018.

Likewise, it has been agreed that our company will have purchase options on 48.8% of Norvial's economic rights that BCI Peru will maintain through its participation in Inversiones en Autopistas S.A.. These options will be subject to certain conditions such as the expiration of different terms, recovery of the investment made with the funds of the BCI Fund (according to different economic calculations) and/or that a change of control occurs.

c)   
Fair value of borrowings

The carrying amount and fair value of borrowings are broken down as follows:

   
Book value
   
Fair value
 

 
At
   
At
   
At
   
At
 
   
December 31,
   
December 31,
   
December 31,
   
December 31,
 
   
2017
   
2018
   
2017
   
2018
 
                         
Bank overdrafts
   
120
     
119
     
120
     
119
 
Bank loans
   
1,561,634
     
1,091,127
     
1,627,000
     
1,211,272
 
Finance leases
   
128,309
     
37,652
     
141,040
     
51,750
 
Other financial entities
   
-
     
145,584
     
-
     
145,584
 
     
1,690,063
     
1,274,482
     
1,768,160
     
1,408,725
 

As of December 31, 2018, the fair value is based on cash flows discounted using a rate based on the borrowing rate of 2.4% and 8.9% (2.4% and 13.8%  in 2017) and are included as Level 2 in the level of measurement.

13.      BONDS

This item is broken down as follows:

    Total     Current   
    Non-current
 
   
At
   
At
   
At
   
At
   
At
   
At
 
   
December 31,
   
December 31,
   
December 31,
   
December 31,
   
December 31,
   
December 31,
 
   
2017
   
2018
   
2017
   
2018
   
2017
   
2018
 
                                     
GyM Ferrovías
   
603,657
     
611,660
     
12,294
     
13,422
     
591,363
     
598,238
 
Norvial
   
343,910
     
325,382
     
24,361
     
25,745
     
319,549
     
299,637
 
     
947,567
     
937,042
     
36,655
     
39,167
     
910,912
     
897,875
 

a)   
GyM Ferrovías S.A.
-31-
In February 2015, the subsidiary GyM Ferrovías S.A. made an international issue of corporate bonds under Regulation S. The issue was made in soles VAC (adjusted for the Constant Update Value) for an amount of S/629 million. Issuance costs amounted to S/22 million. The bonds mature in November 2039 and earn interest at a rate of 4.75% (plus the VAC adjustment), present a risk rating of AA + (local scale) granted by Apoyo & Asociados Internacionales Clasico de Riesgo and a guarantee scheme that includes mortgage on the concession of which GyM Ferrovías SA It is a concessionaire, security interest in the shares of GyM Ferrovías S.A., Assignment of the Collection Rights of the Administration Trust, a Flow Trust and Reserve Accounts for the Debt, Operation and Maintenance Service and the Capex in progress. As of December 31, 2018, an amortization has been made up to S/67.7 million (S/57.5 million as of December 31, 2017). As of December 31, 2018, the balance includes accrued interest payable and VAC adjustments for S/72.0 million (S/60.5 million as of December 31, 2017).

At December 31, 2017 and 2018 the account movement was as follows:

   
2017
   
2018
 
             
Balance at January, 1
   
604,031
     
603,657
 
Amortization
   
(19,141
)
   
(10,178
)
Accrued interest
   
49,132
     
48,130
 
Interest paid
   
(30,365
)
   
(29,949
)
Balance at December, 31
   
603,657
     
611,660
 
As part of the structuring process of the bond, GyM Ferrovías S.A. committed to report and verify compliance with the following, measured based on their individual financial statements (covenants):

-
Debt service coverage ratio not less than 1.2 times.
-
Maintain a constant balance in the minimum trust equal to one quarter of operation and maintenance costs (including the IGV).
-
Maintain a constant balance in the minimum trust equal to the following two coupons according to the bond schedule.

On August 23, 2017, GyM Ferrovías S.A. and Line One CPAO Purchaser LLC subscribed the contract for the sale and assignment of collection rights of the "Annual Payment for Complementary Investment (Complementary PAO)" derived from the Concession Contract up to an amount equivalent to US$316 million.

On August 23, 2017, GyM Ferrovías S.A. as Borrower, Mizuho Bank, Ltd. and Sumitomo Mitsui Banking Corporation as Lenders and Mizuho Bank, Ltd. as Administrative Agent signed a loan contract for Working Capital for an amount equivalent to US$80 million to partially finance the Expansion Project of the Line 1 of the Lima Metro. As of June 30, 2018, US$64 million has been disbursed .

b)   
Norvial S.A.

Between 2015 and 2016, the subsidiary Norvial S.A. issued the First Corporate Bond Program on the Lima Stock Exchange for a total S/365 million. Risk rating agencies Equilibrium y Apoyo & Asociados Internacionales graded this debt instrument AA.

The capital raised was used to finance the construction of the Second Phase of Red Vial No.5 and the financing of VAT arising from a project-related expenses.

At December 31, 2017 and 2018 the account movement was as follows:
-32-
   
2017
   
2018
 
             
Balance at January, 1
   
363,684
     
343,910
 
Amortization
   
(20,010
)
   
(18,736
)
Accrued interest
   
2,987
     
24,170
 
Capitalized interest
   
26,011
     
3,361
 
Interest paid
   
(28,762
)
   
(27,323
)
Balance at December, 31
   
343,910
     
325,382
 

As part of the process of bond structuring, Norvial S.A. engaged to adhere to the following covenants:

-
Debt service coverage ratio of not less than 1.3 times.
-
Proforma gearing ratio lower than 4 times.

The fair value of both obligations as of December 31, 2018 amounts to S/1,037 million (as of December 31, 2017 amounts to S/1,040 million), is based on discounted cash flows using rates between 4.09% and 5.45% (between 4.49% and 6.63% as of December 31, 2017) and is within level 2 of the fair value hierarchy.

As of December 31, 2017 and 2018, the Company has complied with the covenants of both types of bonds.

14.      PROVISIONS

This item is broken down based on the expectation of liquidation as follows:

   
At
   
At
 
   
December 31,
   
December 31,
 
   
2017
   
2018
 
             
Current portion
   
13,503
     
7,290
 
Non-current portion
   
33,914
     
106,347
 
     
47,417
     
113,637
 

The movement of this item as of December 31, 2017 and 2018 is as follows:
-33-
         
Contingent
             
         
liabilities
   
Provision
       
   
Legal
   
resulting from
   
for well
       
   
claims
   
acquisitions
   
closure
   
Total
 
                         
At January 1, 2017
   
15,732
     
8,125
     
17,216
     
41,073
 
Additions
   
9,510
     
-
     
-
     
9,510
 
Reversals of provisions
   
(235
)
   
(809
)
   
(412
)
   
(1,456
)
Payments
   
(1,680
)
   
-
     
-
     
(1,680
)
Translation adjustments
   
37
     
(67
)
   
-
     
(30
)
At December 31, 2017
   
23,364
     
7,249
     
16,804
     
47,417
 
                                 
At January 1, 2018
   
23,364
     
7,249
     
16,804
     
47,417
 
Additions
   
75,369
     
-
     
3,578
     
78,947
 
Reversals of provisions
   
(2,984
)
   
(298
)
   
-
     
(3,282
)
Deconsolidation of subsidiaries
   
(2,340
)
   
-
     
-
     
(2,340
)
Payments
   
(6,644
)
   
-
     
-
     
(6,644
)
Translation adjustments
   
(174
)
   
(288
)
   
-
     
(462
)
At December 31, 2018
   
86,592
     
6,663
     
20,382
     
113,637
 

As of December 31, 2018, the Group registered the present value of the estimated provision of S/73.5 million corresponding to the legal contingency described in Note 1.c.3) according to accounting rules.

15.      CAPITAL

As of December 31, 2018, the capital of the company is represented by 729,434,192 shares of a nominal value of S / 1.00 each, of which 660'053,790 are registered in the Public Registries and 69'380,402 are in the process of formalization registration. As of December 31, 2017, the capital issued, authorized, subscribed and paid in accordance with the Company's bylaws and its amendments was represented by 660,053,790 common shares.

At December 31, 2017, a total of 259,302,745 shares were represented in ADS, equivalent to 51,860,549 ADSs at a rate of 5 shares per ADS; and a total of 207,931,660 shares were represented by ADS equivalent to 41,586,332 ADSs as of December 31, 2018.

16.       EXPENSES BY NATURE

For the period ended December 31, 2017 and 2018, this item comprises:
-34-
   
Cost of
       
   
goods
   
Administrative
 
At December 31, 2017
 
and services
   
expenses
 
             
Salaries, wages and fringe benefits
   
1,004,657
     
149,866
 
Services provided by third-parties
   
1,317,548
     
111,647
 
Purchase of goods
   
943,349
     
74
 
Other management charges
   
233,741
     
48,537
 
Depreciation
   
115,210
     
7,464
 
Amortization of intangibles
   
71,493
     
5,427
 
Taxes
   
7,486
     
7,822
 
Impairment of inventories
   
40,908
     
18,406
 
Impairment of accounts receivable
   
698
     
-
 
Impairment of property, plant and equipment
   
14,660
     
20
 
     
3,749,750
     
349,263
 
                 
At December 31, 2018
               
Salaries, wages and fringe benefits
   
901,167
     
127,015
 
Services provided by third-parties
   
1,139,615
     
102,376
 
Purchase of goods
   
698,681
     
-
 
Other management charges
   
375,169
     
43,533
 
Depreciation
   
91,249
     
6,601
 
Amortization of intangibles
   
100,381
     
7,293
 
Exploration expenses
   
4,126
     
-
 
Taxes
   
12,478
     
1,294
 
Deterioration
   
11,811
     
-
 
Variation of existences
   
164,234
     
19,418
 
     
3,494,785
     
307,530
 

As of December 31, 2018, the subsidiary Viva GyM S.A. reverse the excess of provision for impairment in inventories  for S/27.8 million, and recorded an impairment provision in accounts receivable for  S/19.4 million.

17.      INCOME TAX

These condensed interim consolidated financial statements for the period ended December 31, 2018, income tax expense is recognized based on management’s estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to December 31, 2018 is 83.42% (88.96% for the period ended December 31, 2017). The variation of the effective rate as compared to the previous year is due to the effect of the permanent differences in the income tax calculation.

18.       CONTINGENCIES, COMMITTMENTS AND GUARANTEES

In the opinion of management and its legal advisors, the provisions recorded mainly for labor and tax claims are sufficient to cover the results of these probable contingencies. (Note 14).

a)   
Tax contingencies

As of December 31, 2018, contingencies held by the Group are substantially the same as those existing as of December 31, 2017.

b)   
Other contingencies
-35-
i)     
Civil lawsuits, mainly related to compensation for damages, contract resolutions and claims for work accidents amounting to S/0.36 million (S/0.30 million correspond to GyM, and S/0.06 million correspond to Morelco).
ii)    
Litigation proceedings amounting to S / 13.41 million (S / 9.64 million correspond to Consorcio Terminales and GMP, S / 2.67 correspond to GyM, S / 1.08 correspond to GyM Ferrovías, and the remaining S / 0.02 million correspond to Lomas - Real Estate).
iii)   
Administrative processes amounting to S / 13.21 million (S / 8.13 million correspond to the Ductos del Sur Constructor Consortium, S / 1.25 million correspond to Graña y Montero SAA, S / 2.13 million correspond to GyM Ferrovías, S / 0.85 million correspond to Viva GyM, and the remaining S / 0.85 million correspond to GMP, Terminales del Perú, Toromocho Consortium and Canchaque Concession).
iv)   
Labor processes amounting to S / 12.06 million (S /. 9.74 million correspond to GyM, its subsidiaries and consortiums, S / 0.69 million correspond to GMP, S / .33 million correspond to Vial y Vives - DSD, S /. 0.22 million correspond to Morelco, S / 0.50 million corresponds to the Huacho-Pativilca Consortium); and, S / 0.58 million correspond to Servisel.
v)    
Two class actions have been filed ("securities class action") against the company and certain of our former employees in New York ("Eastern District of New York") during the first quarter of 2017. In both actions it is alleged that tendentious and false financial statements ("false and misleading statements") were presented during the period. In particular, it is alleged that the defendant did not disclose, among other things, that: a) the Company knew that its Odebrecht partner was involved in illegal activities; and that, b) the Company profited from such activities in violation of its own standards of corporate governance. All the parties have agreed to consolidate the legal action and appoint a single claimant, whose board will control this class action. On March 6, 2018, the Tribunal has appointed Treasure Finance Holding Corp. as representative of the plaintiffs. The company submited an exception, in which the Court will be required to declare the claim to be inadmissible because even assuming that the facts alleged in it were true, the plaintiffs would not have the right to sue. base that: (a) the omission to record the alleged illicit payments alleged by the plaintiffs would not have a significant impact on the company's financial statements even if they existed; (b) the evidence offered by the plaintiffs should be dismissed by the Court; and (c) the plaintiffs have not alleged that the defendants acted with intent to deceive and to benefit. The procedural incident is expected to be resolved in 2019. After this, the Court could dismiss the claim or admit it. Management considers that the claim will probably be dismissed by the corresponding courts for deficiency in the filing of the claim. Therefore, we are of the opinion that the risk of significant losses for the Company is not probable at this date.

c)   
Performance Bonds and Guarantees

At December 31, 2018, the Group holds current performance bonds and guarantees with a number of financial institutions to secure transactions for US$471.60 million and US$13.9 million, respectively (US$959.70 million and US$202.20 million, respectively, as of December 31, 2017).

19.      DIVIDENDS

As part of the covenants at the refinancing agreements mentioned in Note 12, the Company is unable to pay dividends until the cancellation of all liabilities related to these borrowings.

For  the period ended December 31, 2018,  the  Group has paid dividends to  its non-controlling subsidiaries participate by S/102.80 million (S/42.9 million for the same period in 2017).

20.      DISCONTINUED OPERATIONS

As part of the process of divestments of non-strategic assets initiated by the Company selling its participation in GMD S.A. in 2017; CAM Servicios del Perú S.A., CAM Chile S.A. and Stracon GyM SA were sold, during the year 2018.
-36-
a)  
CAM Servicios del Perú S.A. y CAM Chile S.A.

On December 4, 2018 the Company signed a purchase-sale agreement for their total share (representing 73.16%) of CAM Servicios del Perú S.A. y CAM Chile S.A. The Group received  for its participation in CAM Chile S.A. and CAM Servicios del Perú S.A. the sums of (i) US$15.78 million (equivalent to S/51.7 million), for the shares issued by CAM Chile S.A. and (ii) US $3.0 for the shares issued by CAM Servicios del Perú S.A., respectively.

The financial performance presented are for the eleven months ended November 30, 2018.

GRUPO CAM
           
(Net of intercompany transactions)
           
From January 1 to November 30, 2018
           
   
CAM SERVICIOS
   
CAM CHILE SPA
 
   
DEL PERU
       
Revenue
   
139,088
     
636,032
 
Operating costs
   
(139,836
)
   
(656,513
)
Finance costs, net
   
(1,630
)
   
(14,894
)
Operating loss from discontinued activities before taxation
   
(2,378
)
   
(35,375
)
Income tax expense
   
399
     
13,240
 
Loss from discontinued ordinary activities after taxation
   
(1,979
)
   
(22,135
)
                 
Loss from discontinued activities attributable to owners of the Company
   
(1,448
)
   
(16,194
)
                 
                 
Details of the sale of the subsidiary
               
                 
Revenues from the sale of investments
   
10,367
     
51,668
 
Cost from the sale of investments
   
(13,080
)
   
(17,208
)
 Income tax expense on gain
   
1,628
     
(4,144
)
(Loss) Gain on sale after income tax
   
(1,085
)
   
30,316
 

b) 
STRACON GyM S.A.

On March 28, 2018, the Company signed an agreement for the sale of the total shares (representing 87.59%) on Stracon GyM. The selling price was agreed at US$76.8 millones ( equivalent to S/248.8 million) ,   which was fully paid.
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STRACON GyM S.A.
     
(net of intercompany transactions)
     
   
2018
 
   
From January 1
 
   
to March 31,
 
       
Revenue
   
235,619
 
Operating costs
   
(223,306
)
Finance costs, net
   
2,806
 
Operating profit from discontinued activities before taxation
   
15,119
 
Income tax expense
   
(6,527
)
Profit from discontinued ordinary activities after taxation
   
8,592
 
         
Profit from discontinued activities attributable to owners of the Company
   
7,525
 
         
Details of the sale of the subsidiary
       
         
Revenues from the sale of investments
   
248,820
 
Cost from the sale of investments
   
(206,925
)
 Income tax expense on gain
   
(6,390
)
Gain on sale after income tax
   
35,504
 

c)  
GMD S.A.

On June 6, 2017 the Company signed a purchase-sale agreement for their total share (representing 89.19%) of GMD S.A. The selling price was agreed at US$84.7 million (equivalent to S/269.9 million), which was fully paid.

The financial performance presented are for the five months ended May 31, 2017.
-38-
GMD S.A.
     
(Net of intercompany transactions)
     
   
2017
 
   
From January 1
 
   
to May 31,
 
       
Revenue
   
111,950
 
Operating costs
   
(104,600
)
Finance costs, net
   
(2,617
)
Income tax expense
   
4,733
 
Profit from discontinued ordinary activities after taxation
   
(1,171
)
     
3,562
 
         
Profit from discontinued activities attributable to owners of the Company
   
3,179
 
         
Details of the sale of the subsidiary
       
         
Revenues from the sale of investments
   
269,961
 
Cost from the sale of investments
   
(55,913
)
 Income tax expense on gain
   
(63,939
)
Gain on sale after income tax
   
150,109
 

21.      EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION

On January 29, 2019, the Company have signed a non-binding agreement by which are established in a referential manner the main terms and conditions for which our company could transfer 100% of the shares issued by Adexus S.A. (Chilean subsidiary of Grupo Graña y Montero specialized in information technology services) to Advent Internacional S.A.C. or to an affiliated company. To the date, the parties have started negotiating the transaction documents and are working on the Due Diligence (DD) process.

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