GRAM Grana y Montero SAA

CONTENTS	Page
Consolidated Statement of Financial Position	1
Consolidated Statement of Income	2
Consolidated Statement of Comprehensive Income	3
Consolidated Statement of Changes in Equity	4
Consolidated Statement of Cash Flows	5
Notes to the Consolidated Financial Statements	6 - 37

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(All amounts are expressed in thousands of S/ unless otherwise stated)
						For the period
						ended December 31,
		Note				2018				2019
Revenues from construction activities							1,961,100				2,411,880
Revenues from services provided							1,003,623				1,089,724
Revenue from real estate and sale of goods							934,739				583,659
							3,899,462				4,085,263
Cost of construction activities							(1,921,112	)			(2,351,541	)
Cost of services provided							(741,172	)			(866,330	)
Cost of real estate and  sale of goods							(562,689	)			(425,352	)
			16				(3,224,973	)			(3,643,223	)
Gross profit							674,489				442,040
Administrative expenses			16				(278,433	)			(213,594	)
Other income and expenses			17				(61,335	)			(545,592	)
Loss from the sale of investments							(7	)			-
Operating profit (loss)							334,714				(317,146	)
Financial expenses							(247,982	)			(227,355	)
Financial income							50,925				74,656
Share of the profit or loss in associates and joint ventures							(3,709	)			(499	)
Profit (loss) before income tax							133,948				(470,344	)
Income tax			18				(113,318	)			(321,023	)
Profit (loss) from continuing operations							20,630				(791,367	)
Profit (loss) from discontinued operations			21				36,785				(42,996	)
Profit (loss) for the period							57,415				(834,363	)
Profit (loss) attributable to:
Owners of the Company							(83,188	)			(880,443	)
Non-controlling interest							140,603				46,080
							57,415				(834,363	)
Loss per share attributable to owners of the
Company during the year							(0.125	)			(1.071	)
Loss per share from continuing operations
attributable to owners of the Company during the year							(0.154	)			(1.019	)
The accompanying notes on pages 6 to 37 are an integral part of the consolidated financial statements.

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(All amounts are expressed in thousands of S/ unless otherwise stated)
			For the year
			ended December 31,
	Note		2018				2019
Profit for the year				57,415				(834,363	)
Other comprehensive income:
Items that will not be reclassified to profit or loss
Remeasurement of actuarial gains and losses, net of tax				16,589				-
Items that may be subsequently  reclassified to profit or loss
Cash flow hedge, net of tax				119				6
Foreign currency translation adjustment, net of tax				5,733				(8,170	)
Exchange difference from net investment in a foreign operation, net of tax				(8,147	)			(457	)
				-				-
				(2,295	)			(8,621	)
Other comprehensive income for the year, net of tax				14,294				(8,621	)
Total comprehensive income for the year				71,709				(842,984	)
Comprehensive income attributable to:
Owners of  the Company				(67,548	)			(887,329	)
Non-controlling interest				139,257				44,345
				71,709				(842,984	)
Comprehensive income attributable to owners of the Company:
Continuing operations				(131,284	)			(845,679	)
Discontinued operations				63,736				(41,650	)
				(67,548	)			(887,329	)
The accompanying notes on pages 6 to 37 are an integral part of the consolidated financial statements.

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2018 AND 2019
(All amounts are expressed in thousands of S/ unless otherwise stated)
		Attributable to the controlling interests of the Company
		Number
		of shares								Legal				Voluntary				Share				Other				Retained								Non-controlling
		In thousands				Capital				reserve				reserve				premium				reserves				earnings				Total				interest				Total
Balances as of January 1, 2018			660,054				660,054				132,011				29,974				881,795				(169,671	)			589,167				2,123,330				465,748				2,589,078
- IFRS adoption			-				-				-				-				-				-				(52,564	)			(52,564	)			(979	)			(53,543	)
Initial balances restated			660,054				660,054				132,011				29,974				881,795				(169,671	)			536,603				2,070,766				464,769				2,535,535
(Loss) profit for the year			-				-				-				-				-				-				(83,188	)			(83,188	)			140,603				57,415
Cash flow hedge			-				-				-				-				-				113				-				113				6				119
Adjustment for actuarial gains and losses			-				-				-				-				-				-				16,589				16,589				-				16,589
Foreign currency translation adjustment			-				-				-				-				-				6,930				-				6,930				(1,197	)			5,733
Exchange difference from net investment in a foreign operation			-				-				-				-				-				(7,992	)			-				(7,992	)			(155	)			(8,147	)
Comprehensive income of the year			-				-				-				-				-				(949	)			(66,599	)			(67,548	)			139,257				71,709
Transactions with shareholders:
- Dividend distribution			-				-				-				-				-				-				-				-				(102,772	)			(102,772	)
- Contributions (devolution) of non-controlling shareholders, net			-				-				-				-				-				-				-				-				(84,442	)			(84,442	)
- Additional acquisition of non-controlling			-				-				-				-				(9,583	)			-				-				(9,583	)			(4,050	)			(13,633	)
- Capital Increase			69,380				69,380				-				-				68,223				-				-				137,603				-				137,603
- Deconsolidation CAM Group			-				-				-				-				-				-				(42,878	)			(42,878	)			18,221				(24,657	)
- Deconsolidation Stracon GyM			-				-				-				-				51,709				-				(51,709	)			-				(29,412	)			(29,412	)
Total transactions with shareholders			69,380				69,380				-				-				110,349				-				(94,587	)			85,142				(202,455	)			(117,313	)
Balances as of December 31, 2018			729,434				729,434				132,011				29,974				992,144				(170,620	)			375,417				2,088,360				401,571				2,489,931
Balances as of January 1, 2019			729,434				729,434				132,011				29,974				992,144				(170,620	)			375,417				2,088,360				401,571				2,489,931
- IFRS adoption			-				-				-				-				-				-				(1,462	)			(1,462	)			-				(1,462	)
Initial balances restated			729,434				729,434				132,011				29,974				992,144				(170,620	)			373,955				2,086,898				401,571				2,488,469
(Loss) profit for the year			-				-				-				-				-				-				(880,443	)			(880,443	)			46,080				(834,363	)
Cash flow hedge			-				-				-				-				-				6				-				6				-				6
Foreign currency translation adjustment			-				-				-				-				-				(6,440	)			-				(6,440	)			(1,730	)			(8,170	)
Exchange difference from net investment in a foreign operation			-				-				-				-				-				(452	)			-				(452	)			(5	)			(457	)
Comprehensive income of the year			-				-				-				-				-				(6,886	)			(880,443	)			(887,329	)			44,345				(842,984	)
Transactions with shareholders:
- Dividend distribution			-				-				-				-				-				-				-				-				(12,762	)			(12,762	)
- Contributions (devolution) of non-controlling shareholders, net			-				-				-				-				-				-				-				-				(32,996	)			(32,996	)
- Capital increase			142,484				142,484				-				-				138,907				-				-				281,391				-				281,391
Total transactions with shareholders			142,484				142,484				-				-				138,907				-				-				281,391				(45,758	)			235,633
Balances as of December 31, 2019			871,918				871,918				132,011				29,974				1,131,051				(177,506	)			(506,488	)			1,480,960				400,158				1,881,118
The accompanying notes on pages 6 to 37 are part of the consolidated financial statements.

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
			For the year
			ended December 31,
	Note		2018		2019
OPERATING ACTIVITIES
Profit (loss) before income tax			170,733		(513,340)
Adjustments to  profit not affecting cash flows from
operating activities:
Depreciation			125,419		97,352
Amortization			112,072		104,225
Impairment of inventories			-		4,503
Impairment of accounts receivable and other accounts receivable			65,076		295,346
Reversal of impairment of inventories			(26,993)		(4,752)
Debt condonation			-		(18,186)
Impairment (reversal) of property, plant and equipment			-		17,756
Impairment of intangible assets			5,664		38,814
Reversal of impairment of accounts receivable			-		(19,448)
Reversal of impairment of intangible assets			-		(20,676)
Indemnification			686		-
Change in the fair value of the liability for put option			(6,122)		4,697
Other provisions			75,369		185,930
Financial expense,net			177,649		152,218
Foreign exchange loss (gain) on loans			-		-
Impairment of investments			-		218,660
Share of the profit and loss in associates and joint ventures
under the equity method of accounting			3,709		499
Reversal of provisions			(6,218)		(9,789)
Disposal of assets			16,327		5,386
Loss (profit) on sale of property, plant and equipment			7,105		(10,815)
Loss on sale from available-for-sale financial assets			1,529		-
Profit on sale of investments in subsidiaries			(73,642)		-
Loss on remeasurement of accounts receivable			25,110		42,739
Net variations in assets and liabilities:
Trade accounts receivable and unbilled working in progress			(236,011)		460,316
Other accounts receivable			190,354		141,304
Other accounts receivable from related parties			24,609		260,679
Inventories			200,575		(34,575)
Pre-paid expenses and other assets			18,309		4,935
Trade accounts payable			10,917		63,802
Other accounts payable			(311,848)		(279,102)
Other accounts payable to related parties			92,613		(299,464)
Other provisions			(6,615)		(2,178)
Interest payment			(188,704)		(157,476)
Payments for purchases of intangibles - Concessions			(10,305)		(21,902)
Payment of income tax			(178,094)		(111,254)
Net cash provided by operating activities			279,273		596,204
INVESTING ACTIVITIES
Sale of investment			222,971		-
Sale of property, plant and equipment			31,852		18,607
Sale of non-current assets held for sale, net			16,244		-
Interest received			36,508		6,553
Dividends received			1,823		1,517
Payment for purchase of investments properties			(209)		(88)
Payments for intangible purchase			(86,799)		(84,732)
Payments for purchase and contributions on investment in associate and joint ventures			(3,770)		-
Payments for property, plant and equipment purchase			(80,765)		(76,707)
Net cash provided by (applied to) investing activities			137,855		(134,850)
FINANCING ACTIVITIES
Loans received			1,018,624		581,637
Amortization of loans received			(1,265,920)		(1,074,259)
Amortization of bonds issued			(28,914)		(31,335)
Payment for transaction costs for debt			-		(4,770)
Dividends paid to non-controlling interest			(102,772)		(12,762)
Cash received (return of contributions) from non-controlling shareholders			(59,053)		(32,996)
Capital increase			137,603		281,391
Acquisition or sale of interest in a subsidiary of non-controlling shareholders			389		-
Net cash applied to financing activities			(300,043)		(293,094)
Net increase (net decrease) in cash			117,085		168,260
Exchange difference			57,756		(20,303)
Cash and cash equivalents at the beginning of the period			626,180		801,021
Cash and cash equivalents at the end of the period	8		801,021		948,978
NON-CASH TRANSACTIONS:
Capitalization of interests			3,361		7,229
Acquisition of assets through finance leases			2,365		3,851
Accounts payable to the non-controlling interest for purchase of investments			14,022		-
Contribution in inventories			25,389		-
Acquisition of right-of-use assets			-		101,745
The accompanying notes on pages 6 to 37 are an integral part of the consolidated financial statements.

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2018 (AUDITED) AND 2019 (UNAUDITED)

1.	GENERAL INFORMATION

a)	Incorporation and operations

Graña y Montero S.A.A. (hereinafter the Company) is the parent Company of the Graña y Montero Group that includes the Company and its subsidiaries (hereinafter, the “Group”) and is mainly engaged in holding investments in Group companies. Additionally, the Company provides services of strategic and functional advice and office leases to the Group 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) and real estate businesses. See details of operating segments in Note 7.

b)	Authorization for the issue of the financial statements

These condensed interim consolidated financial statements for the year ended December 31, 2019, were authorized preliminary by Management, and Board of Directors’ on January 30, 2020.

c)	Current situation of the Company

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

As for the Lava Jato case, the Company participated directly or through its subsidiaries as minority partners in certain entities that developed six infrastructure projects in Peru with companies belonging to the group Odebrecht (hereinafter 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 corruption acts in connection with some of these projects (tranches 2 and 3 of the Interoceanica Sur highway (“IIRSA Sur”) and the project to construct the Lima Metro (Electric Train).

i)

IIRSA Sur

With respect to the investigations conducted in relation to IIRSA Sur, the Public Prosecutor's Office indicted 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. have been incorporated as civilly liable third parties in the investigation process, which means that 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.

ii)	Electric Train

GyM S.A. has been incorporated as a civilly liable third party in the process related to the Electric Train construction project, tranches 1 and 2. The former Chairman of the Board of Directors, a former director and a past officer of the Company has been incorporated in the investigation.

2)	The Construction Club

On July 11, 2017, the Peruvian National Institute for the Defense of Free Competition and the Protection of Intellectual Property (“Indecopi”) initiated an investigation against several construction companies, including GyM S.A., about the existence of an alleged cartel called the Construction Club. Throughout the investigation, GyM S.A. has provided to Indecopi with all the information requested and continues collaborating with the ongoing investigations.

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 as legal entity under investigation in the criminal proceedings as a civilly liable third party along with 11 other construction companies.

3)	Gasoducto Sur Peruano (GSP)

The Company concluded that has an exposure to the preliminary investigation process conducted in relation to GSP (the South Peruvian Gas Pipeline project), even though as of to date it has not been incorporated as liable third party or as legal entity under investigation.

This conclusion is based on the fact that is public that the former Chairman of the Board of Directors and a former director are in a process of effective collaboration in relation to this process, among others.

4)	External Investigations related to businesses with Odebrecht Group and to the facts under criminal investigation.

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 external investigation was entrusted to the law firm Simpson, Thatcher and Bartlett, who reported exclusively to the Risk, Compliance and Sustainability Committee in order to preserve the independence of the investigation.

The External 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.

The Company continued to investigate the facts that were the subject of the criminal investigations described above, including topics that were beyond the scope of the investigation conducted by Simpson, Thatcher and Bartlett. After an extensive and costly review process, the Company obtained findngs relevant to the pending criminal investigations and decided to contribute them in their entirety to the authorities within the framework of an effective collaborative process.

On December 27, 2019, and as a result of its collaboration to the investigations, the Company signed a preliminary agreement whereby the Anti-Corruption Prosecutor and the Ad hoc Prosecutor's Office commit to entering into a definitive effective collaboration agreement with the Company that grants certainty regarding contingencies arising as a consequence of the above- mentioned processes. In addition, in the aforementioned preliminary agreement, the Anti- Corruption Prosecutor and the Ad hoc Prosecutor's Office authorized the Company to disclose the existence of the agreement but maintains the legal reservation on its contents.

5)	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 subsections 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 Government;

•	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 executed a trust agreement with the Ministry of Justice that provides to the terms and conditions that govern the trust that will secure its contingent obligations for an amount confirmed by authorities of S/80 million (equivalent to 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$282 million (equivalent to S/85 million). (Note 14).

Nonetheless, the Company, through its external attorneys, continues to conduct an ongoing evaluation of the information related to the criminal investigations described in this Note 1 in order to keep its defense prepared in the event of any new charges arises during those investigations. In conducting the aforementioned evaluation, the Company does not rule out the possibility of finding, in the future, adverse evidence, nor does rule out that authorities or third parties will find, in the future, adverse evidence not currently known to date during the investigations being conducted.

2.	BASIS OF PREPARATION

These condensed interim consolidated financial statements for the period ended December 31, 2019 have been prepared in accordance with IAS 34 "Interim Financial Reporting". The condensed interim 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, 2018, 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 group has decided not to adopt any standard, interpretation or modification issued in advance, that is not yet effective.

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, 2018, except for the new international financial information regulations (IFRS) effective as of January 1, 2019, explained as follows:

3.1   IFRS 16 Leases (Note 11 and Note 12).

The Group has adopted IFRS 16 Leases (hereinafter “IFRS 16”) from January 1, 2019.

In the adoption of IFRS 16, the Group recognized liabilities related to leases that have been previously classified as operating leases under IAS 17. These liabilities have been measured based on the present value of the remaining future payments, discounted using a rate of incremental interest as of January 1, 2019 (7.3% average interest rate).

As a result of the effect of the transition of IFRS 16, right-of-use assets and liabilities for S/97.7 million were recognized as of January 1, 2019 (representing 1.33% and 2.15% of total assets and liabilities, respectively). As part of the initial application of IFRS 16, the Company used the modified retrospective method, therefore, the financial statements for previous years were not modified.

The effect of IFRS 16 in the Group's financial statements is detailed as follows:

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.

a)	Market risks

i.	Foreign Exchange risk

The Group is exposed to exchange rate risk as a result of the transactions carried out locally in foreign currency and due to its operations abroad. As of December 31, 2018 and December 31, 2019, and, 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 implemented a divestment plan and a capital rase 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.

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.

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.

As of December 31, 2018 and 2019, the gearing ratio is presented below indicating the Group’s strategy to keep it in a range from 0.10 to 0.70.

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 Group 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 Group 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.

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, 2018. Except for the impairment of investment of Gasoducto Sur Peruano and taxes.

5.1	Impairment of investment and receivables in Gasoducto Sur Peruano

Based on the termination of the concession agreement, on which Gasoducto Sur Peruano S.A. (GSP) acts as concessionaire (Note 10-i), the Group identified potential impairment indicators affecting the recoverability of its investment. Consequently, the Management has deteriorate the entirety of this investment.

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

As of December 1, 2018 in relation to the amount to be recovered by GSP, the Group is assuming a recovery of the minimum amount established in the concession agreement, which is equivalent to 72.25% of the Net Carrying Amount (NCA) of the Concession assets. This amount, in substance, represents a minimum payment to be obtained by GSP based on a public auction (liquidation) to be set up for the adequate transfer of the Concession’s assets to a new Concessionaire within a year, under the relevant contractual terms and conditions. As of 31 December, 2019 the recovery of NCA estimated by Management equals 50%, as a result of the signing of the collaboration preliminary agreement.

With relation to the validity of its right to subordinate the Odebrecht Group’s liabilities in GSP, Management´s assessment, in consultation with its legal advisors, is that although some uncertainties exist, these do not represent a material risk for exercising this right.

The concession agreement also established two additional tranches of 82.5% or 100% of the NCA to be recovered as a result of public auction, depending on several factors. In any of these scenarios, the Group would be able to recover their total investment and no additional impairment would be necessary to be recognized.

5.2	Income taxes

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

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

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

The Group’s maximum exposure to tax contingencies amounts to S/71.4 million.

6.	INTERESTS IN OTHER ENTITIES

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

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

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

7.	OPERATING SEGMENTS