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 October 2020
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.
October 29, 2020
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: October 29, 2020
Name: Luis Francisco Diaz Olivero
Title: Chief Executive Officer
Date: October 29, 2020
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT
DECEMBER 31, 2019 AND SEPTEMBER 30 2020 (UNAUDITED)
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2019 AND SEPTEMBER 30, 2020 (UNAUDITED)
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 - 40 |
S/ | = | Peruvian Sol |
US$ | = | United States dollar |
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, | September 30, | December 31, | September 30, | |||||||||||||||||||||
Note | 2019 | 2020 | Note | 2019 | 2020 | |||||||||||||||||||
(as restated) | (as restated) | |||||||||||||||||||||||
Current assets | Current liabilities | |||||||||||||||||||||||
Cash and cash equivalents | 8 | 950,701 | 820,163 | Borrowings | 15 | 481,529 | 404,098 | |||||||||||||||||
Trade accounts receivables, net | 9 | 914,204 | 680,913 | Bonds | 16 | 44,737 | 56,701 | |||||||||||||||||
Work in progress, net | 10 | 49,457 | 145,102 | Trade accounts payable | 17 | 1,159,075 | 959,738 | |||||||||||||||||
Accounts receivable from related parties | 11 | 36,658 | 26,959 | Accounts payable to related parties | 11 | 38,916 | 41,219 | |||||||||||||||||
Other accounts receivable | 12 | 454,474 | 412,143 | Current income tax | 51,169 | 32,054 | ||||||||||||||||||
Inventories, net | 555,401 | 621,444 | Other accounts payable | 18 | 669,674 | 754,889 | ||||||||||||||||||
Prepaid expenses | 16,478 | 19,317 | Provisions | 19 | 113,483 | 128,329 | ||||||||||||||||||
2,977,373 | 2,726,041 | Total current liabilities | 2,558,583 | 2,377,028 | ||||||||||||||||||||
Non-current assets as held for sale | 2,398 | - | Non-current liabilities as held for sale | - | - | |||||||||||||||||||
Total current assets | 2,979,771 | 2,726,041 | Total current liabilities | 2,558,583 | 2,377,028 | |||||||||||||||||||
Non-current assets | Non-current liabilities | |||||||||||||||||||||||
Trade accounts receivable, net | 9 | 779,609 | 790,144 | Borrowings | 15 | 409,066 | 454,749 | |||||||||||||||||
Work in progress, net | 10 | 23,117 | 37,227 | Bonds | 16 | 879,305 | 881,169 | |||||||||||||||||
Accounts receivable from related parties | 11 | 574,723 | 616,858 | Trade accounts payable | 17 | 34,814 | 33,928 | |||||||||||||||||
Prepaid expenses | 27,934 | 24,020 | Other accounts payable | 18 | 296,290 | 262,616 | ||||||||||||||||||
Other accounts receivable | 12 | 273,432 | 271,568 | Accounts payable to related parties | 11 | 22,583 | 35,959 | |||||||||||||||||
Investments in associates and joint ventures | 13 | 37,035 | 38,296 | Provisions | 19 | 214,952 | 229,433 | |||||||||||||||||
Investment property | 28,326 | 26,437 | Derivative financial instruments | 52 | - | |||||||||||||||||||
Property, plant and equipment, net | 14 | 463,990 | 414,602 | Deferred income tax liability | 112,734 | 93,846 | ||||||||||||||||||
Intangible assets, net | 14 | 854,227 | 795,655 | Total non-current liabilities | 1,969,796 | 1,991,700 | ||||||||||||||||||
Right-of-use assets, net | 14 | 90,581 | 70,394 | Total liabilities | 4,528,379 | 4,368,728 | ||||||||||||||||||
Deferred income tax asset | 271,719 | 295,699 | ||||||||||||||||||||||
Total non-current assets | 3,424,693 | 3,380,900 | Equity | |||||||||||||||||||||
Capital | 20 | 871,918 | 871,918 | |||||||||||||||||||||
Legal reserve | 132,011 | 132,011 | ||||||||||||||||||||||
Voluntary reserve | 29,974 | 29,974 | ||||||||||||||||||||||
Share Premium | 1,132,179 | 1,131,574 | ||||||||||||||||||||||
Other reserves | (177,506 | ) | (188,213 | ) | ||||||||||||||||||||
Retained earnings | (510,766 | ) | (565,909 | ) | ||||||||||||||||||||
Equity attributable to controlling interest in the Company | 1,477,810 | 1,411,355 | ||||||||||||||||||||||
Non-controlling interest | 398,275 | 326,858 | ||||||||||||||||||||||
Total equity | 1,876,085 | 1,738,213 | ||||||||||||||||||||||
Total assets | 6,404,464 | 6,106,941 | Total liabilities and equity | 6,404,464 | 6,106,941 | |||||||||||||||||||
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements. |
- 1 -
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 September 30, | |||||||||||
Note | 2019 | 2020 | |||||||||
(as restated) | |||||||||||
Revenues from construction activities | 1,621,429 | 1,218,445 | |||||||||
Revenues from services provided | 845,780 | 747,447 | |||||||||
Revenue from real estate and sale of goods | 564,730 | 257,145 | |||||||||
3,031,939 | 2,223,037 | ||||||||||
Cost of construction activities | (1,537,103 | ) | (1,149,551 | ) | |||||||
Cost of services provided | (669,073 | ) | (658,657 | ) | |||||||
Cost of real estate and sale of goods | (446,389 | ) | (202,286 | ) | |||||||
21 | (2,652,565 | ) | (2,010,494 | ) | |||||||
Gross profit | 379,374 | 212,543 | |||||||||
Administrative expenses | 21 | (164,313 | ) | (121,444 | ) | ||||||
Other income and expenses | 22 | 42,142 | (36,100 | ) | |||||||
Operating profit | 257,203 | 54,999 | |||||||||
Financial expenses | (157,514 | ) | (102,205 | ) | |||||||
Financial income | 53,593 | 13,961 | |||||||||
Share of the profit or loss of associates and joint ventures accounted for using the equity method | 13 | (1,387 | ) | 1,945 | |||||||
Profit (loss) before income tax | 151,895 | (31,300 | ) | ||||||||
Income tax expense | (82,775 | ) | (14,796 | ) | |||||||
Profit (loss) for the period | 69,120 | (46,096 | ) | ||||||||
Profit (loss) attributable to: | |||||||||||
Owners of the Company | 34,944 | (55,143 | ) | ||||||||
Non-controlling interest | 34,176 | 9,047 | |||||||||
69,120 | (46,096 | ) | |||||||||
Earnings (loss) per share attributable to owners of the | |||||||||||
Company during the period | 26 | 0.043 | (0.063 | ) | |||||||
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements. |
- 2 -
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 September 30, | ||||||||
2019 | 2020 | |||||||
Profit (loss) for the period | 69,120 | (46,096 | ) | |||||
Other comprehensive income: | ||||||||
Items that may be subsequently reclassified to profit or loss | ||||||||
Cash flow hedge, net of tax | (13 | ) | (626 | ) | ||||
Foreign currency translation adjustment, net of tax | (16,624 | ) | (14,465 | ) | ||||
Exchange difference from net investment in a foreign operation, net of tax | (223 | ) | 144 | |||||
Other comprehensive income for the period, net of tax | (16,860 | ) | (14,947 | ) | ||||
Total comprehensive income for the period | 52,260 | (61,043 | ) | |||||
Comprehensive income attributable to: | ||||||||
Owners of the Company | 21,158 | (65,850 | ) | |||||
Non-controlling interest | 31,102 | 4,807 | ||||||
52,260 | (61,043 | ) | ||||||
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements. |
- 3 -
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | ||||||||||||||||||||||||||||||||||||||||
FOR THE PERIOD ENDED SEPTEMBER 30, 2019 AND 2020 | ||||||||||||||||||||||||||||||||||||||||
(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, 2019 | 729,434 | 729,434 | 132,011 | 29,974 | 992,144 | (170,620 | ) | 375,417 | 2,088,360 | 401,571 | 2,489,931 | |||||||||||||||||||||||||||||
Profit for the period | - | - | - | - | - | - | 34,944 | 34,944 | 34,176 | 69,120 | ||||||||||||||||||||||||||||||
Cash flow hedge | - | - | - | - | - | (12 | ) | - | (12 | ) | (1 | ) | (13 | ) | ||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | (13,555 | ) | - | (13,555 | ) | (3,069 | ) | (16,624 | ) | ||||||||||||||||||||||||||
Exchange difference from net investment in a foreign operation | - | - | - | - | - | (219 | ) | - | (219 | ) | (4 | ) | (223 | ) | ||||||||||||||||||||||||||
Comprehensive income of the period | - | - | - | - | - | (13,786 | ) | 34,944 | 21,158 | 31,102 | 52,260 | |||||||||||||||||||||||||||||
Transactions with shareholders: | ||||||||||||||||||||||||||||||||||||||||
- Dividend distribution | - | - | - | - | - | - | - | - | (7,975 | ) | (7,975 | ) | ||||||||||||||||||||||||||||
- Contributions (devolution) of non-controlling shareholders, net | - | - | - | - | - | - | - | - | (20,876 | ) | (20,876 | ) | ||||||||||||||||||||||||||||
- Capital Increase | 142,484 | 142,484 | - | - | 138,907 | - | - | 281,391 | - | 281,391 | ||||||||||||||||||||||||||||||
Total transactions with shareholders | 142,484 | 142,484 | - | - | 138,907 | - | - | 281,391 | (28,851 | ) | 252,540 | |||||||||||||||||||||||||||||
Balances as of September 30, 2019 | 871,918 | 871,918 | 132,011 | 29,974 | 1,131,051 | (184,406 | ) | 410,361 | 2,390,909 | 403,822 | 2,794,731 | |||||||||||||||||||||||||||||
Balances as of January 1, 2020 | 871,918 | 871,918 | 132,011 | 29,974 | 1,132,179 | (177,506 | ) | (510,766 | ) | 1,477,810 | 398,275 | 1,876,085 | ||||||||||||||||||||||||||||
Loss for the period | - | - | - | - | - | - | (55,143 | ) | (55,143 | ) | 9,047 | (46,096 | ) | |||||||||||||||||||||||||||
Cash flow hedge | - | - | - | - | - | (594 | ) | - | (594 | ) | (32 | ) | (626 | ) | ||||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | (10,257 | ) | - | (10,257 | ) | (4,208 | ) | (14,465 | ) | ||||||||||||||||||||||||||
Exchange difference from net investment in a foreign operation | - | - | - | - | - | 144 | - | 144 | - | 144 | ||||||||||||||||||||||||||||||
Comprehensive income of the period | - | - | - | - | - | (10,707 | ) | (55,143 | ) | (65,850 | ) | 4,807 | (61,043 | ) | ||||||||||||||||||||||||||
Transactions with shareholders: | ||||||||||||||||||||||||||||||||||||||||
- Dividend distribution | - | - | - | - | - | - | - | - | (64,716 | ) | (64,716 | ) | ||||||||||||||||||||||||||||
- Contributions (devolution) of non-controlling shareholders, net | - | - | - | - | - | - | - | - | (11,419 | ) | (11,419 | ) | ||||||||||||||||||||||||||||
- Additional acquisition of non-controlling | - | - | - | - | (605 | ) | - | - | (605 | ) | (89 | ) | (694 | ) | ||||||||||||||||||||||||||
Total transactions with shareholders | - | - | - | - | (605 | ) | - | - | (605 | ) | (76,224 | ) | (76,829 | ) | ||||||||||||||||||||||||||
Balances as of September 30, 2020 | 871,918 | 871,918 | 132,011 | 29,974 | 1,131,574 | (188,213 | ) | (565,909 | ) | 1,411,355 | 326,858 | 1,738,213 | ||||||||||||||||||||||||||||
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements. |
- 4 -
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES | ||||||||||||
CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||||||
(All amounts are expressed in thousands of S/ unless otherwise stated) | ||||||||||||
For the period | ||||||||||||
ended September 30, | ||||||||||||
Note | 2019 | 2020 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Profit (loss) before income tax | 151,895 | (31,300 | ) | |||||||||
Adjustments to profit not affecting cash flows from | ||||||||||||
operating activities: | ||||||||||||
Depreciation | 21 | 81,043 | 79,167 | |||||||||
Amortization | 21 | 80,482 | 75,164 | |||||||||
Impairment of inventories | - | 107 | ||||||||||
Impairment of accounts receivable and other accounts receivable | (1,519 | ) | 28,886 | |||||||||
Reversal of impairment of inventories | (305 | ) | (1,567 | ) | ||||||||
Debt condonation | - | (205 | ) | |||||||||
Impairment (reversal) of property, plant and equipment | 15,120 | (319 | ) | |||||||||
Impairment of intangible assets | 3,257 | 8 | ||||||||||
Change in the fair value of the liability for put option | - | 969 | ||||||||||
Other provisions | 6,704 | 31,093 | ||||||||||
Financial expense,net | 134,748 | 160,282 | ||||||||||
Impairment of work in progress | - | 13,595 | ||||||||||
Share of the profit and loss of associates and joint ventures accounted for using the equity method | 13 | 1,387 | (1,945 | ) | ||||||||
Reversal of provisions | (3,107 | ) | (7,108 | ) | ||||||||
Disposal (reversal) of assets | 1,039 | 2,322 | ||||||||||
Profit on sale of property, plant and equipment | (687 | ) | (9 | ) | ||||||||
Profit on remeasurement of accounts receivable | (12,963 | ) | (9,778 | ) | ||||||||
Net variations in assets and liabilities: | ||||||||||||
Trade accounts receivable and working in progress | 228,184 | 114,478 | ||||||||||
Other accounts receivable | 69,935 | 42,885 | ||||||||||
Other accounts receivable from related parties | (13,720 | ) | (30,836 | ) | ||||||||
Inventories | (67,235 | ) | (50,485 | ) | ||||||||
Pre-paid expenses and other assets | (5,075 | ) | 1,076 | |||||||||
Trade accounts payable | 111,626 | (169,619 | ) | |||||||||
Other accounts payable | (133,315 | ) | 68,456 | |||||||||
Other accounts payable to related parties | (913 | ) | 15,823 | |||||||||
Other provisions | 477 | (5,347 | ) | |||||||||
Interest payment | (117,009 | ) | (99,912 | ) | ||||||||
Payments for purchases of intangibles - Concessions | (15,871 | ) | (890 | ) | ||||||||
Payment of income tax | (79,677 | ) | (83,799 | ) | ||||||||
Net cash provided by operating activities | 434,501 | 141,192 | ||||||||||
INVESTING ACTIVITIES | ||||||||||||
Sale of property, plant and equipment | 6,932 | 5,563 | ||||||||||
Interest received | 4,108 | 3,163 | ||||||||||
Dividends received | 332 | 701 | ||||||||||
Payment for purchase of investments properties | (57 | ) | (40 | ) | ||||||||
Payments for intangible purchase | (79,426 | ) | (39,498 | ) | ||||||||
Payments for property, plant and equipment purchase | (50,307 | ) | (24,746 | ) | ||||||||
Net cash applied to investing activities | (118,418 | ) | (54,857 | ) | ||||||||
FINANCING ACTIVITIES | ||||||||||||
Loans received | 506,591 | 66,466 | ||||||||||
Amortization of loans received | (1,034,485 | ) | (194,079 | ) | ||||||||
Amortization of bonds issued | (23,088 | ) | (28,022 | ) | ||||||||
Payment for transaction costs for debt | (4,007 | ) | - | |||||||||
Dividends paid to non-controlling interest | (7,975 | ) | (55,085 | ) | ||||||||
Cash received (return of contributions) from non-controlling shareholders | 260,515 | (11,419 | ) | |||||||||
Net cash applied to financing activities | (302,449 | ) | (222,139 | ) | ||||||||
Net increase (net decrease) in cash | 13,634 | (135,804 | ) | |||||||||
Exchange difference | (10,451 | ) | 5,182 | |||||||||
Cash and cash equivalents at the beginning of the period | 801,021 | 950,701 | ||||||||||
Cash and cash equivalents at the end of the period | 8 | 804,204 | 820,079 | |||||||||
NON-CASH TRANSACTIONS: | ||||||||||||
Capitalization of interests | 5,088 | 5,129 | ||||||||||
Acquisition of assets through finance leases | 1,696 | 55 | ||||||||||
Dividends declared to non-controlling interest | - | 9,631 | ||||||||||
Acquisition of right-of-use assets | 115,668 | 9,673 | ||||||||||
Acquisition of supplier bonds | - | 25,871 | ||||||||||
The accompanying notes on pages 6 to 40 are an integral part of the consolidated financial statements. |
- 5 -
GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT DECEMBER 31, 2019 AND SEPTEMBER 30, 2020 (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 space 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 |
The condensed interim consolidated financial statements for the period ended September 30, 2020 were authorized preliminary by Management and Board of Directors on October 29, 2020.
The consolidated financial statements for the year ended December 31, 2019 were approved on the Annual General Mandatory Shareholder’s Meeting on July 13, 2020.
c) | The Impact of the Ongoing Novel Coronavirus (COVID-19) |
The ongoing COVID-19 pandemic and government measures to contain the spread of the virus are disrupting economic activity, and consequently adversely affecting our business, results of operations and financial condition, mainly during second quarter.
Countries around the world—including Peru as well as Chile and Colombia—have adopted extraordinary measures to contain the spread of COVID-19, including imposing travel restrictions, requiring closures of non-essential businesses, establishing restrictions on public gatherings, instructing residents to practice social distancing, issuing stay-at-home orders, implementing quarantines and similar actions.
The COVID-19 pandemic and the related government measures have significantly increased economic uncertainty and caused a global recession. According to recent projections from the International Monetary Fund, during 2020, the global economy is expected to contract by 4.4%, with Latin America expected to contract 8.1% and Peru, Chile and Colombia, in particular, expected to contract 13.9%, 6% and 8.2%, respectively. Moreover, the impact of the pandemic on economic activity has been sudden and severe, and we cannot predict the extent to which the economies in the countries where we operate will ultimately be impacted.
Since mid-March, substantially all of our engineering and construction and real estate projects were mandatorily shut down. However, since July projects have resumed their operations to normal with COVID-19 protocols Our infrastructure operations, which have for the most part been declared essential businesses, have continued to operate; however, certain of our infrastructure businesses have been adversely affected, in particular, by the sharp decline in traffic volumes and oil and gas prices between March and May.
- 6 -
Regarding the extent of the COVID-19 pandemic and its impact on the industries in which we operate, the full extent to which COVID-19 impact our business, results of operations and financial condition is currently under evaluation. We believe that the severity of the impact on the Company will depend, to a large extent, on how long the crisis continues.
The Company has been taking significant measures to mitigate the impact of the crisis on the Group. Among other measures, we are prioritizing the health and safety of our employees, as well as the medium-term sustainability of their employment. Certain actions we are taking include: the design and implementation of protocols to return to project sites, the creation of new office layouts to be compliant with social distancing guidelines, the development of telecommuting schemes, and other major cost-saving initiatives in operation and in support offices.
d) | Current situation of the Company |
● | As a result of decisions of a previous administration, the Group is involved in a series of criminal investigations and administrative procedures conducted by the Public Ministry that are based on events that occurred between 2004 and 2015. Such situations led to organizational changes at Group´s corporate governance structure, the initiation of independent investigations and the adoption of measures to address and clarify such situations, as explained below: |
● | On January 9, 2017, the Board of Directors approved the performance of an independent investigation related to six projects developed in association with companies of the Odebrecht Group. |
● | 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 independently of Management. The external investigation was performed by the law firm Simpson Thacher & Bartlett LLP, with the assistance of forensic accountants, who reported exclusively to the Risk, Compliance and Sustainability Committee. |
● | The external investigation concluded on November 2, 2017 and identified no evidence to conclude that any company personnel engaged in bribery in connection with any of our Company’s public projects in Peru with Odebrecht or its subsidiaries, or that any Company personnel was aware of, or knowingly participated in, any corrupt payments made in relation to such projects. |
● | Subsequently, in August 2019, José Graña Miró Quesada, a shareholder and the former chairman of our Company, indicated in public statements to the media that he and Hernando Graña Acuña, a shareholder and former board member of our Company, had initiated a process of plea bargaining to cooperate with Peruvian prosecutors in respect of multiple projects in which our Company participated with Odebrecht and in respect of the alleged “Construction Club”. Due to the confidential nature of the plea bargain process, the reported information is limited and difficult to verify. Any admission or other evidence of wrongdoing would be inconsistent with information gathered during the internal investigation and would have a material impact on the findings of the prior internal investigation. |
- 7 -
● | As new information about the various Peruvian criminal investigations of the Company emerged, and news that the Company’s former chairman and director were plea bargaining with Peruvian authorities, the Company's Board of Directors continued to investigate the allegations that were the subject of the investigations, including matters relating to the “Construction Club”, which was beyond the scope of the internal investigation conducted by Simpson Thacher & Bartlett LLP. After an extensive and detailed review process, the Company shared information relevant to the investigations with the Peruvian authorities within the framework of a plea bargain process. |
● | As a result of its contribution to the investigations, on December 27, 2019, the Company signed a preliminary settlement and cooperation agreement whereby the Anti-Corruption Prosecutor and the Ad hoc Prosecutor's Office promise to execute a final plea bargain agreement with the Company that would provide the Company with certainty regarding the contingencies it faces as a result of the above-mentioned processes. Additionally, in the aforementioned preliminary agreement, the Anti-Corruption Prosecutor and the Ad Hoc Attorney General's Office authorize the Company to disclose its existence but maintain its content confidential. |
At the same time, over the last three years, the new administration together with the new board initiated a transformation process based on the principles of Truth, Transparency and Integrity, making profound changes in the organization of the Company, such as the reconfiguration of the Board of Directors with an independent majority, new shareholding composition, as well as the creation of new governance practices, such as the Corporate Risk Management and autonomous Compliance function, with direct report to the Board of Directors, among other actions.
Criminal investigations derived from projects developed in partnership with companies of the Odebrecht group
In connection with the Lava Jato case, the Company participated directly or through its subsidiaries as minority partner in certain entities that developed six infrastructure projects in Peru with companies belonging to the Odebrecht group (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 in which the Company participate as minority partner.
● | IIRSA Sur |
In relation to investigations on IIRSA Sur, the former Chairman of the Board of Directors was included as a subject of an investigation for collusion, and a former director and a former executive was included as a subject of an investigation for money laundering. Subsequently, Graña y Montero S.A.A. and GyM S.A. have been included as third-party civilians responsible in the process, which means that it will be assessed whether the obligation to indemnify Governement for damages resulting from the facts under investigation will be imposed on these entities.
● | Electric Train construction project |
The first Preparatory Investigation Court of the Judiciary decided to incorporate GyM S.A. as civil third-party responsible in the process related to the construction of the Electric train construction Project, tranches 1 and 2. In this investigation the former Chairman of the Board, a former director and a former manager have been charged.
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● | Gasoducto Sur Peruano (GSP) |
In 2019, the Company concluded that it may have exposure with respect to the preliminary investigation process conducted in relation to GSP (the South Peruvian Gas Pipeline project), even though as of the date hereof, it has not been indicted or incorporated as a civilly liable third-party, although the former Chairman of the Board of Directors and a former director are seeking plea bargain agreements in relation to this process, among others.
Criminal investigations in conection to the Construction Club case
GyM S.A. has been incorporated, along with other construction companies, in the criminal investigation that the Public Ministry has been carrying out for the alleged crime of corruption of officials in relation to the so-called Construction Club. Similarly, at the end of February 2020, the Public Ministry has requested the incorporation of Concar S.A., the latter is pending judicial decision. Like officials of other construction companies, a former commercial manager of GyM S.A., the former president of the Board of Directors, a former director and the former Corporate General Manager of the Company have been included in the criminal investigation.
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 corruption cases. 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:
a. | 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; |
b. | The obligation not to transfer funds abroad without the prior consent of the Ministry of Justice; |
c. | The implementation of a compliance program; and |
d. | 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, it fully cooperates with the authorities in its investigations and has executed a trust agreement with the Ministry of Justice, under which the Company has established for an approximate amount 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 civil damages for the cases described above is S/280 million (US$83.6 million) and has registered as of September 30, 2020 S/165.3 million (equivalent to US$45.9 million) as net present value.
On the other hand, in cases where a provision for civil reparation has been registered, there are two projects carried out in partnership with Odebrecht that to date are not under investigation. If this is started and some evidence is found, the maximum possible exposure for civil reparation estimated according to Law 30737 for both projects would be S/52.7 million (approximately US$15.7 million).
However, the Company, through its external legal advisors, continues to conduct an ongoing evaluation of the information related to the criminal investigations described in this note in order to keep its defense prepared in the event any new charges may arise during those investigations. In conducting the aforementioned evaluation, the Company does not rule out the possibility of finding new incriminating evidence that is not known to date.
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Investigations and administrative process initiated by INDECOPI in conection to the Construction Club case
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 investigation.
On February 11, 2020, GyM S.A. was notified by the Technical Secretariat of the Commission for the Defense of Free Competition (“INDECOPI”) with the resolution that begins a sanctioning administrative procedure involving a total of 35 companies and 28 natural persons, for alleged anticompetitive conduct in the market of Public Works. The resolution does not include the assignment of responsibilities or the result of the administrative disciplinary procedure, which will be determined at the end of the said procedure. The procedure is in a probatory stage, therefore, INDECOPI has not carried out actions in order to quantifying the possible penalties that could result.
2. IMPACT OF THE COVID-19 PANDEMIC
The recent outbreak of the Novel Coronavirus 2019 (COVID-19) pandemic, which has been declared by the World Health Organization to be a “public health emergency of international concern”, has spread across the world since the end of 2019. In response to the decline in economic activity, the governments of Perú, Chile and Colombia have announced large stimulus programs to assist families and businesses.
As a result of the outbreak, the Group’s results of operations, financial positions and cash flows have been adversely affected during second quarter, however as of the date of this report and as a result of the gradual normalization of activities since July, the results of the three months period between July and September show a significant recovery in activity.
From the analysis made the different business of the Group have been impacted as follows:
1) | In the engineering and construction business we estimated figures revised 2020, considering a conservative scenario in which no new contracts are awarded in the rest of the year, therefore revenues for the year will be equivalent to the remaining backlog. Revenues could be increased as a result of negotiations on going with our clients regarding higher costs due to stoppages and new operating standards due to the COVID-19 situation. However, at the end of the third quarter, the backlog has increased with the award of the contract for the construction of the second runway at Jorge Chavez airport and the contract for the construction of the Piura gas pipeline. |
2) | In the real estate business the shut down of projects has impacted the delivery of real estate units during the year, which impacts the revenues and results of the year. |
3) | The infrastructure businesses continue operating because they were declared esencial services. However, there were some impacts on the different businesses: |
a. | Line 1 of the Metro operates with less passengers but revenues are not impacted due to the fact that revenues don’t depend on traffic but on the amount of kms travelled by each train. |
b. | Oil and gas business has been impacted by the reduction of the oil Price to levels below the estimations considered for 2020. In response to the sanitary crisis, Lots III and IV are in force majeure and due to this situation, further investments on new wells have been cancelled and suppliers obligations are being renegotiated as well as a new schedule for investment commitments are under review. |
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c. | The sanitary emergency situation caused an impact on Norvial S.A. revenues and on the results of 2020 as a result of traffic reduction. However, the level of traffic carried has been gradually recovered. In addition, in May the Republic Congress approved a law in order suspending the collection of toll, a measure that was in effect from May 9 to June 30, 2020. The Concession Contract clause 9.9, about operator contract guarantee, establishes Grantor’s obligation to recognize and pay the Concessionaire the corresponding rate difference in the event that any public entity does not allow the Concessionaire to collect the rate in accordance to the Concession Contract. The estimate compensation in application of the aforementioned clause will be claimed to the Government. |
d. | In the case of the other two road concessions, Survial S.A. and Concesion Canchaque S.A., the suspension in the collection of tolls will not impact the results of the year because the revenues do not depend on traffic. |
In general terms, we have not been affected by interruptions in the supply chain of personnel, services or materials, and despite the shut down of some of our projects, we do not estimate penalties or breach of our agreements.
The most important goodwill of the Group are the result of acquisitions in Colombia and Chile. Considering that in both countries the impacts of the pandemic did not lead to major projects shut downs, our estimates of the value of the goodwill have not been affected. Based on our impairment assessment as of September 30, 2020, we have determined that our goodwill is not impaired.
On the liquidity side, the Group has implemented a plan that includes several measures to reduce expenses and preserve cash in response to the ongoing COVID-19 pandemic, including the following: (i) developing a twelve-week cash plan, project-by-project, to ensure that Group subsidiaries will continue to meet its critical obligations during that period, which plan is monitored and updated weekly; (ii) preparing a cash plan for the remainder of the 2020 fiscal year, to identify in advance key liquidity issues that may arise; (iii) renegotiating certain of the Group’s subsidiaries obligations with respect to suppliers, banks and other third parties; (iv) identifying and reducing non-essential general expenses across the Group; (v) reducing headcount, and temporarily reducing salaries of senior management and Directors’ allowances, across the Group’s three segments; and (vi) reducing capital expenditures across the Group’s subsidiaries. In addition, the Group is evaluating the selling of non-strategic assets to finance any cash flow deficit during the year. This plan was approved by the Board of Directors on April and May 2020. The Group will continue to closely monitor the impacts of COVID-19 through the course of the year 2020. Therefore, the accompanying financial statements have been prepared assuming that the Group and subsidiaries will continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Basis of preparation
The condensed interim consolidated financial statements for the period ended September 30, 2020 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, 2019, 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.
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3.1.1. | Account balance reclassified as of December 31, 2019 |
a) | The receivable balance to Consorcio Constructor Ductos del Sur amounting to S/27.8 million as of December 31, 2019 was reclassified from “other accounts receivable” to “accounts receivable from related parties”. See reclassification performed: |
b) | Information on the subsidiary Adexus S.A. is presented. (hereinafter “Adexus”), whose main activity is to provide information technology solutions mainly in Chile and Peru, as of December 31, 2019 the subsidiary was recognized as a non-current asset held for sale; However, as of September 30, 2020, it was reclassified as a continuing operation for the reasons set forth in note 27. |
As a result of this process, the balances in the consolidated statement of financial position are reclassified as follows:
As at | As at | |||||||
December 31, | December 31, | |||||||
2019 | Reclassified (a) | Adexus (b) | 2019 | |||||
ASSETS | Audited | As restated | ||||||
Current assets | ||||||||
Cash and cash equivalents | 948,978 | - | 1,723 | 950,701 | ||||
Trade accounts receivables, net | 821,737 | - | 92,467 | 914,204 | ||||
Work in progress, net | 49,457 | - | �� - | 49,457 | ||||
Accounts receivable from related parties | 36,658 | - | - | 36,658 | ||||
Other accounts receivable | 444,500 | - | 9,974 | 454,474 | ||||
Inventories, net | 552,573 | - | 2,828 | 555,401 | ||||
Prepaid expenses | 11,348 | - | 5,130 | 16,478 | ||||
2,865,251 | - | 112,122 | 2,977,373 | |||||
Non-current assets as held for sale | 205,418 | - | (203,020) | 2,398 | ||||
Total current assets | 3,070,669 | - | (90,898) | 2,979,771 | ||||
Non-current assets | ||||||||
Trade accounts receivable, net | 753,202 | - | 26,407 | 779,609 | ||||
Work in progress, net | 23,117 | - | - | 23,117 | ||||
Accounts receivable from related parties | 546,941 | 27,782 | - | 574,723 | ||||
Prepaid expenses | 27,934 | - | - | 27,934 | ||||
Other accounts receivable | 300,323 | (27,782) | 891 | 273,432 | ||||
Investments in associates and joint ventures | 37,035 | - | - | 37,035 | ||||
Investment property | 28,326 | - | - | 28,326 | ||||
Property, plant and equipment, net | 443,870 | - | 20,120 | 463,990 | ||||
Intangible assets, net | 853,315 | - | 912 | 854,227 | ||||
Right-of-use assets, net | 78,813 | - | 11,768 | 90,581 | ||||
Deferred income tax asset | 240,919 | - | 30,800 | 271,719 | ||||
Total non-current assets | 3,333,795 | - | 90,898 | 3,424,693 | ||||
Total assets | 6,404,464 | - | - | 6,404,464 |
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As at | As at | |||||||
December 31, | December 31, | |||||||
2019 | Reclassified (a) | Adexus (b) | 2019 | |||||
Audited | As restated | |||||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities | ||||||||
Borrowings | 454,260 | - | 27,269 | 481,529 | ||||
Bonds | 44,737 | - | - | 44,737 | ||||
Trade accounts payable | 1,136,121 | - | 22,954 | 1,159,075 | ||||
Accounts payable to related parties | 38,916 | - | - | 38,916 | ||||
Current income tax | 47,999 | - | 3,170 | 51,169 | ||||
Other accounts payable | 635,305 | - | 34,369 | 669,674 | ||||
Provisions | 113,483 | - | - | 113,483 | ||||
Total current liabilities | 2,470,821 | - | 87,762 | 2,558,583 | ||||
Non-current liabilities as held for sale | 210,025 | - | (210,025) | - | ||||
Total current liabilities | 2,680,846 | - | (122,263) | 2,558,583 | ||||
Non-current liabilities | ||||||||
Borrowings | 344,806 | - | 64,260 | 409,066 | ||||
Bonds | 879,305 | - | - | 879,305 | ||||
Trade accounts payable | - | - | 34,814 | 34,814 | ||||
Other accounts payable | 273,101 | - | 23,189 | 296,290 | ||||
Accounts payable to related parties | 22,583 | - | - | 22,583 | ||||
Provisions | 214,952 | - | - | 214,952 | ||||
Derivative financial instruments | 52 | - | - | 52 | ||||
Deferred income tax liability | 112,734 | - | - | 112,734 | ||||
Total non-current liabilities | 1,847,533 | - | 122,263 | 1,969,796 | ||||
Total liabilities | 4,528,379 | - | - | 4,528,379 | ||||
Equity | ||||||||
Capital | 871,918 | - | - | 871,918 | ||||
Legal reserve | 132,011 | - | - | 132,011 | ||||
Voluntary reserve | 29,974 | - | - | 29,974 | ||||
Share Premium | 1,132,179 | - | - | 1,132,179 | ||||
Other reserves | (177,506) | - | - | (177,506) | ||||
Retained earnings | (510,766) | - | - | (510,766) | ||||
Equity attributable to controlling interest in the Company | 1,477,810 | - | - | 1,477,810 | ||||
Non-controlling interest | 398,275 | - | - | 398,275 | ||||
Total equity | 1,876,085 | - | - | 1,876,085 | ||||
Total liabilities and equity | 6,404,464 | - | - | 6,404,464 |
As a result of this process, the amounts in the consolidated statement of income are reclassified as follows:
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For the period ended | ||||||
September 30, 2019 | ||||||
Reported | Adexus | As restated | ||||
Revenues from construction activities | 1,621,429 | - | 1,621,429 | |||
Revenues from services provided | 803,999 | 41,781 | 845,780 | |||
Revenue from real estate and sale of goods | 407,691 | 157,039 | 564,730 | |||
2,833,119 | 198,820 | 3,031,939 | ||||
Cost of construction activities | (1,537,103) | - | (1,537,103) | |||
Cost of services provided | (632,162) | (36,911) | (669,073) | |||
Cost of real estate and sale of goods | (295,986) | (150,403) | (446,389) | |||
(2,465,251) | (187,314) | (2,652,565) | ||||
Gross profit | 367,868 | 11,506 | 379,374 | |||
Administrative expenses | (143,735) | (20,578) | (164,313) | |||
Other income and expenses | 40,866 | 1,276 | 42,142 | |||
Operating profit (loss) | 264,999 | (7,796) | 257,203 | |||
Financial expenses | (144,182) | (13,332) | (157,514) | |||
Financial income | 52,903 | 690 | 53,593 | |||
Share of the profit or loss of associates and joint ventures accounted for using the equity method | (1,387) | - | (1,387) | |||
Profit (loss) before income tax | 172,333 | (20,438) | 151,895 | |||
Income tax expense | (88,170) | 5,395 | (82,775) | |||
Profit (loss) from continuing operations | 84,163 | (15,043) | 69,120 | |||
(Loss) profit from discontinued operations | (15,043) | 15,043 | - | |||
Profit for the period | 69,120 | - | 69,120 | |||
Profit attributable to: | ||||||
Owners of the Company | 34,944 | - | 34,944 | |||
Non-controlling interest | 34,176 | - | 34,176 | |||
69,120 | - | 69,120 |
3.2 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, 2019.
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, which are supervised and monitored periodically.
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.
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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, 2019 and September 30, 2020, 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 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 equivalents and deposits with banks and financial institutions, as well as customer credit counterparties, including the outstanding balance of accounts receivable and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.
Concerning 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 of Directors.
Management does not expect the Group to incur any losses from the performance by these counterparties, except for the ones already recorded at the financial statements.
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 meet its obligations. However, since 2017, the Group experienced liquidity problems 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. This plan was met and the GSP debt was terminated. Due to the COVID-19 pandemic (Note 2), the Group has considered diverse measures to reduce its liquidity risk exposure and has developed a financial plan with the objective to be able to meet its obligations at the corporate as well as the subsidiary level.
The Group’s Corporate Finance Officemonitors rolling forecasts of the Group’s liquidity requirements to ensure it exists 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 ratio targets in the statement of financial position and, if applicable, external regulatory or legal requirements, for example, foreign currency restrictions.
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Surplus cash held by the operating entities over the balance required for working capital management is 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 consolidated statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows, which include interest to be applied according to the established schedule.
Less than | 1-2 | 2-5 | More than | |||||||
At December 31, 2019 | 1 year | years | years | 5 years | Total | |||||
Other financial liabilities (except | ||||||||||
for finance leases and lease | ||||||||||
liability for right-of-use asset) | 501,864 | 147,473 | 235,222 | - | 884,559 | |||||
Finance leases | 11,438 | 3,531 | 13,346 | - | 28,315 | |||||
Lease liability for right-of-use asset | 31,036 | 40,808 | 32,562 | 11,551 | 115,957 | |||||
Bonds | 115,690 | 157,516 | 358,461 | 1,077,960 | 1,709,627 | |||||
Trade accounts payables (except | ||||||||||
non-financial liabilities) | 989,574 | - | 34,814 | - | 1,024,388 | |||||
Accounts payables to related parties | 38,916 | 21,747 | - | 836 | 61,499 | |||||
Other accounts payables (except | ||||||||||
non-financial liabilities) | 200,098 | 2,505 | 194,908 | - | 397,511 | |||||
Other non-financial liabilities | - | 52 | - | - | 52 | |||||
1,888,616 | 373,632 | 869,313 | 1,090,347 | 4,221,908 |
Less than | 1-2 | 2-5 | More than | |||||||
At September 30, 2020 | 1 year | years | years | 5 years | Total | |||||
Other financial liabilities (except | ||||||||||
for finance leases and lease | | | | | | |||||
liability for right-of-use asset) | 392,198 | 207,684 | 193,906 | 20,447 | 814,235 | |||||
Finance leases | 15,743 | 10,132 | 26,098 | | 9,347 | 61,320 | ||||
Lease liability for right-of-use asset | 28,838 | 34,829 | 18,568 | 12,729 | 94,964 | |||||
Bonds | 127,715 | 166,431 | 382,737 | 1,001,773 | 1,678,656 | |||||
Trade accounts payables (except | ||||||||||
non-financial liabilities) | 868,892 | 33,928 | - | - | 902,820 | |||||
Accounts payables to related parties | 41,219 | 35,123 | - | 836 | 77,178 | |||||
Other accounts payables (except | ||||||||||
non-financial liabilities) | 273,714 | 3,924 | 182,869 | - | 460,507 | |||||
1,748,319 | 492,051 | 804,178 | 1,045,132 | 4,089,680 |
4.2 | Capital management risk |
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to minimize the cost of capital. In 2017 the situation of the Group had lead Management to monitor deviations that might cause the non-compliance of covenants and may hinder the renegotiation of liabilities (Note15). In extraordinary events as explained in Note 2, the Group identifies the possible deviations and requirements and establishes a plan.
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 based on 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.
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As of December 31, 2019 and September 30, 2020, the gearing ratio is presented below indicating the Group’s strategy to keep it in a range from 0.10 to 0.70.
At | At | |||
December 31, | September 30, | |||
2019 | 2020 | |||
Total financial liabilities and bonds (Note 15 and Note 16) | 1,814,637 | 1,796,717 | ||
Less: Cash and cash equivalents (Note 8) | (950,701) | (820,163) | ||
Net debt | 863,936 | 976,554 | ||
Total equity | 1,876,085 | 1,738,213 | ||
Total capital | 2,740,021 | 2,714,767 | ||
Gearing ratio | 0.32 | 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 table below shows the Group’s liabilities measured at fair value:
Level 2 | ||
At December 31, 2019 | ||
Financial liabilities | ||
Derivatives used for hedging | 52 |
As of September 30, 2020, this financial liability was settled.
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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, 2019.
6. SEASONALITY OF OPERATIONS
The Group does not present seasonality in the operations of any of its subsidiaries; however, economic activities temporarily restricted during last seven months, due to COVID-19 pandemic and government measures implemented to contain the spread of the virus. As a result, this situation affected negatively Group's revenues and financial position (Note 2).
7. OPERATING SEGMENTS
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 acts as the highest authority in making operational decisions, 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, and (iii) real estate.
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.
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.
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The table below shows the Group’s financial statements by operating segments:
Operating segments financial position | |||||||||||||||||
Segment reporting | |||||||||||||||||
Infrastructure | |||||||||||||||||
As of December 31, 2019 | Engineering and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Parent Company operations | Eliminations | Consolidated | ||||||||
Assets.- | |||||||||||||||||
Cash and cash equivalent | 372,991 | 53,118 | 123,020 | 300,896 | 6,388 | 60,718 | 33,570 | - | 950,701 | ||||||||
Trade accounts receivables, net | 531,591 | 63,402 | 44,513 | 97,059 | 1,168 | 83,019 | 93,452 | - | 914,204 | ||||||||
Work in progress, net | 49,457 | - | - | - | - | - | - | - | 49,457 | ||||||||
Accounts receivable from related parties | 202,181 | 369 | 43,852 | 1,853 | - | 1,144 | 99,794 | (312,535) | 36,658 | ||||||||
Other accounts receivable | 327,977 | 30,853 | 30,228 | 18,548 | 109 | 9,509 | 37,248 | 2 | 454,474 | ||||||||
Inventories, net | 57,093 | 32,366 | 7,109 | 30,594 | - | 437,012 | 2,828 | (11,601) | 555,401 | ||||||||
Prepaid expenses | 6,812 | 1,271 | 2,779 | 231 | 133 | - | 5,252 | - | 16,478 | ||||||||
1,548,102 | 181,379 | 251,501 | 449,181 | 7,798 | 591,402 | 272,144 | (324,134) | 2,977,373 | |||||||||
Non-current assets classified as held for sale | 2,398 | - | - | - | - | - | - | - | 2,398 | ||||||||
Total current assets | 1,550,500 | 181,379 | 251,501 | 449,181 | 7,798 | 591,402 | 272,144 | (324,134) | 2,979,771 | ||||||||
Long-term trade accounts receivable, net | 97,256 | - | 36,273 | 619,086 | - | 587 | 26,407 | - | 779,609 | ||||||||
Long-term work in progress, net | - | - | 23,117 | - | - | - | - | - | 23,117 | ||||||||
Long-term accounts receivable from related parties | 318,748 | - | 836 | - | 10,475 | - | 552,687 | (308,023) | 574,723 | ||||||||
Prepaid expenses | - | 887 | 24,462 | 2,307 | 788 | - | - | (510) | 27,934 | ||||||||
Other long-term accounts receivable | 86,097 | 63,649 | 5,156 | - | 7,346 | 50,449 | 60,735 | - | 273,432 | ||||||||
Investments in associates and joint ventures | 109,839 | 8,006 | - | - | - | 6,062 | 1,495,422 | (1,582,294) | 37,035 | ||||||||
Investment property | 1,450 | - | - | - | - | 26,876 | - | - | 28,326 | ||||||||
Property, plant and equipment, net | 186,589 | 184,819 | 11,106 | 841 | 153 | 11,742 | 69,899 | (1,159) | 463,990 | ||||||||
Intangible assets, net | 136,547 | 244,901 | 443,420 | 794 | - | 1,029 | 20,402 | 7,134 | 854,227 | ||||||||
Right-of-use assets, net | 5,638 | 24,038 | 3,860 | 5 | 7 | 5,048 | 67,300 | (15,315) | 90,581 | ||||||||
Deferred income tax asset | 176,740 | 4,741 | 13,054 | - | 720 | 19,736 | 51,552 | 5,176 | 271,719 | ||||||||
Total non-current assets | 1,118,904 | 531,041 | 561,284 | 623,033 | 19,489 | 121,529 | 2,344,404 | (1,894,991) | 3,424,693 | ||||||||
Total assets | 2,669,404 | 712,420 | 812,785 | 1,072,214 | 27,287 | 712,931 | 2,616,548 | (2,219,125) | 6,404,464 | ||||||||
Liabilities.- | |||||||||||||||||
Borrowings | 180,535 | 42,760 | 2,383 | 5 | 6 | 116,231 | 148,648 | (9,039) | 481,529 | ||||||||
Bonds | - | - | 28,995 | 15,742 | - | - | - | - | 44,737 | ||||||||
Trade accounts payable | 932,142 | 67,444 | 34,762 | 28,508 | 132 | 39,645 | 56,442 | - | 1,159,075 | ||||||||
Accounts payable to related parties | 206,907 | 2,233 | 35,554 | 21,024 | - | 23,437 | 58,951 | (309,190) | 38,916 | ||||||||
Current income tax | 18,451 | 961 | 3,710 | 23,887 | - | 704 | 3,456 | - | 51,169 | ||||||||
Other accounts payable | 441,271 | 16,721 | 53,987 | 4,713 | 835 | 83,345 | 68,802 | - | 669,674 | ||||||||
Provisions | 6,031 | 18,459 | 6,183 | - | - | 230 | 82,580 | - | 113,483 | ||||||||
Total current liabilities | 1,785,337 | 148,578 | 165,574 | 93,879 | 973 | 263,592 | 418,879 | (318,229) | 2,558,583 | ||||||||
Borrowings | 32,620 | 116,218 | 2,070 | - | - | 11,010 | 254,931 | (7,783) | 409,066 | ||||||||
Long-term bonds | - | - | 276,550 | 602,755 | - | - | - | - | 879,305 | ||||||||
Long-term trade accounts payable | - | - | - | - | - | - | 34,814 | - | 34,814 | ||||||||
Other long-term accounts payable | 222,887 | - | 15,989 | 2,176 | 2,106 | 26,841 | 26,291 | - | 296,290 | ||||||||
Long-term accounts payable to related parties | 120,255 | - | 836 | 22,583 | 23,784 | - | 165,286 | (310,161) | 22,583 | ||||||||
Provisions | 80,125 | 40,268 | 24,691 | 1,394 | - | - | 68,474 | - | 214,952 | ||||||||
Derivative financial instruments | - | 52 | - | - | - | - | - | - | 52 | ||||||||
Deferred income tax liability | 31,037 | 36,476 | 5,806 | 39,172 | - | - | 243 | - | 112,734 | ||||||||
Total non-current liabilities | 486,924 | 193,014 | 325,942 | 668,080 | 25,890 | 37,851 | 550,039 | (317,944) | 1,969,796 | ||||||||
Total liabilities | 2,272,261 | 341,592 | 491,516 | 761,959 | 26,863 | 301,443 | 968,918 | (636,173) | 4,528,379 | ||||||||
Equity attributable to controlling interest in the Company | 330,992 | 346,415 | 258,223 | 232,692 | 424 | 137,542 | 1,644,707 | (1,473,185) | 1,477,810 | ||||||||
Non-controlling interest | 66,151 | 24,413 | 63,046 | 77,563 | - | 273,946 | 2,923 | (109,767) | 398,275 | ||||||||
Total liabilities and equity | 2,669,404 | 712,420 | 812,785 | 1,072,214 | 27,287 | 712,931 | 2,616,548 | (2,219,125) | 6,404,464 |
- 19 -
Operating segments financial position | |||||||||||||||||
Segment reporting | |||||||||||||||||
Infrastructure | |||||||||||||||||
As of September 30, 2020 | Engineering and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Parent Company operations | Eliminations | Consolidated | ||||||||
Assets.- | |||||||||||||||||
Cash and cash equivalent | 273,649 | 58,474 | 130,090 | 250,299 | 7,421 | 71,184 | 29,046 | - | 820,163 | ||||||||
Trade accounts receivables, net | 423,473 | 44,966 | 29,673 | 106,178 | 552 | 14,558 | 61,513 | - | 680,913 | ||||||||
Work in progress, net | 144,949 | - | - | - | - | - | 153 | - | 145,102 | ||||||||
Accounts receivable from related parties | 119,049 | 158 | 40,838 | 2,338 | - | 11,724 | 96,499 | (243,647) | 26,959 | ||||||||
Other accounts receivable | 298,106 | 29,954 | 21,799 | 12,377 | 197 | 9,680 | 40,028 | 2 | 412,143 | ||||||||
Inventories, net | 84,508 | 37,637 | 9,387 | 32,476 | - | 456,733 | 2,359 | (1,656) | 621,444 | ||||||||
Prepaid expenses | 5,218 | 2,591 | 5,865 | 540 | 165 | - | 4,938 | - | 19,317 | ||||||||
Total current assets | 1,348,952 | 173,780 | 237,652 | 404,208 | 8,335 | 563,879 | 234,536 | (245,301) | 2,726,041 | ||||||||
Long-term trade accounts receivable, net | 92,383 | - | 49,565 | 624,690 | - | - | 23,506 | - | 790,144 | ||||||||
Long-term work in progress, net | - | - | 37,227 | - | - | - | - | - | 37,227 | ||||||||
Long-term accounts receivable from related parties | 335,721 | - | 916 | - | 10,771 | - | 610,771 | (341,321) | 616,858 | ||||||||
Prepaid expenses | - | 981 | 20,713 | 2,087 | 749 | - | - | (510) | 24,020 | ||||||||
Other long-term accounts receivable | 95,683 | 66,285 | 5,703 | - | 7,346 | 54,684 | 41,867 | - | 271,568 | ||||||||
Investments in associates and joint ventures | 109,596 | 8,992 | - | - | - | 6,094 | 1,469,327 | (1,555,713) | 38,296 | ||||||||
Investment property | 1,299 | - | - | - | - | 25,138 | 45,012 | (45,012) | 26,437 | ||||||||
Property, plant and equipment, net | 172,473 | 170,783 | 9,202 | 720 | 144 | 10,443 | 16,786 | 34,051 | 414,602 | ||||||||
Intangible assets, net | 130,664 | 254,633 | 382,881 | 709 | - | 914 | 19,510 | 6,344 | 795,655 | ||||||||
Right-of-use assets, net | 4,238 | 15,590 | 5,865 | 110 | 3 | 3,846 | 52,637 | (11,895) | 70,394 | ||||||||
Deferred income tax asset | 181,609 | 5,823 | 15,197 | - | 678 | 22,441 | 66,268 | 3,683 | 295,699 | ||||||||
Total non-current assets | 1,123,666 | 523,087 | 527,269 | 628,316 | 19,691 | 123,560 | 2,345,684 | (1,910,373) | 3,380,900 | ||||||||
Total assets | 2,472,618 | 696,867 | 764,921 | 1,032,524 | 28,026 | 687,439 | 2,580,220 | (2,155,674) | 6,106,941 | ||||||||
Liabilities.- | |||||||||||||||||
Borrowings | 173,763 | 39,822 | 2,725 | 40 | 1 | 108,084 | 89,604 | (9,941) | 404,098 | ||||||||
Bonds | 4,406 | - | 32,518 | 19,777 | - | - | - | - | 56,701 | ||||||||
Trade accounts payable | 744,965 | 57,596 | 37,932 | 27,087 | 163 | 30,130 | 61,865 | - | 959,738 | ||||||||
Accounts payable to related parties | 172,336 | 1,795 | 20,967 | 26,696 | 35 | 25,982 | 34,216 | (240,808) | 41,219 | ||||||||
Current income tax | 25,851 | 1,793 | 1,411 | 1,777 | 247 | 70 | 905 | - | 32,054 | ||||||||
Other accounts payable | 505,227 | 14,082 | 63,201 | 6,120 | 854 | 121,453 | 43,952 | - | 754,889 | ||||||||
Provisions | 12,432 | 21,276 | 11,304 | - | - | 490 | 82,827 | - | 128,329 | ||||||||
Total current liabilities | 1,638,980 | 136,364 | 170,058 | 81,497 | 1,300 | 286,209 | 313,369 | (250,749) | 2,377,028 | ||||||||
Borrowings | 23,037 | 109,072 | 3,305 | 70 | - | 10,089 | 328,943 | (19,767) | 454,749 | ||||||||
Long-term bonds | 22,752 | - | 255,234 | 603,183 | - | - | - | - | 881,169 | ||||||||
Long-term trade accounts payable | - | - | - | - | - | - | 33,928 | - | 33,928 | ||||||||
Other long-term accounts payable | 214,842 | - | 12,932 | 2,121 | 2,220 | 25,970 | 4,531 | - | 262,616 | ||||||||
Long-term accounts payable to related parties | 130,021 | 10 | 836 | 35,994 | 24,207 | - | 172,656 | (327,765) | 35,959 | ||||||||
Provisions | 85,688 | 38,720 | 25,195 | 1,394 | - | - | 78,436 | - | 229,433 | ||||||||
Deferred income tax liability | 17,714 | 34,630 | 42 | 41,460 | - | - | - | - | 93,846 | ||||||||
Total non-current liabilities | 494,054 | 182,432 | 297,544 | 684,222 | 26,427 | 36,059 | 618,494 | (347,532) | 1,991,700 | ||||||||
Total liabilities | 2,133,034 | 318,796 | 467,602 | 765,719 | 27,727 | 322,268 | 931,863 | (598,281) | 4,368,728 | ||||||||
Equity attributable to controlling interest in the Company | 288,557 | 352,315 | 237,644 | 200,104 | 299 | 135,720 | 1,645,468 | (1,448,752) | 1,411,355 | ||||||||
Non-controlling interest | 51,027 | 25,756 | 59,675 | 66,701 | - | 229,451 | 2,889 | (108,641) | 326,858 | ||||||||
Total liabilities and equity | 2,472,618 | 696,867 | 764,921 | 1,032,524 | 28,026 | 687,439 | 2,580,220 | (2,155,674) | 6,106,941 |
- 20 -
Operating segment performance | |||||||||||||||||
Segment Reporting | |||||||||||||||||
Infrastructure | |||||||||||||||||
For the period ended September 30, 2019 | Engineering and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Parent Company operations | Elimination | Consolidated | ||||||||
Revenue | 1,866,047 | 420,606 | 491,955 | 307,564 | 2,680 | 168,578 | 267,338 | (492,829) | 3,031,939 | ||||||||
Gross profit (loss) | 108,408 | 87,279 | 72,766 | 92,496 | 646 | 48,637 | 12,051 | (42,909) | 379,374 | ||||||||
Administrative expenses | (103,993) | (17,840) | (21,572) | (10,560) | (377) | (15,912) | (44,142) | 50,083 | (164,313) | ||||||||
Other income and expenses, net | 15,349 | (1,439) | (16,856) | 402 | 12 | (6,940) | 53,250 | (1,636) | 42,142 | ||||||||
Operating profit (loss) | 19,764 | 68,000 | 34,338 | 82,338 | 281 | 25,785 | 21,159 | 5,538 | 257,203 | ||||||||
Financial expenses | (59,942) | (10,917) | (19,687) | (8,236) | (6) | (10,952) | (61,965) | 14,191 | (157,514) | ||||||||
Financial income | 4,940 | 1,165 | 2,106 | 22,095 | 464 | 3,203 | 42,159 | (22,539) | 53,593 | ||||||||
Dividends | - | - | - | - | - | - | 7,808 | (7,808) | - | ||||||||
Share of profit or loss in associates | |||||||||||||||||
and joint ventures | (3,748) | 1,600 | - | - | - | 286 | 4,701 | (4,226) | (1,387) | ||||||||
(Loss) profit before income tax | (38,986) | 59,848 | 16,757 | 96,197 | 739 | 18,322 | 13,862 | (14,844) | 151,895 | ||||||||
Income tax | (7,441) | (17,508) | (13,859) | (28,835) | (391) | (3,679) | (11,087) | 25 | (82,775) | ||||||||
(Loss) profit for the year | (46,427) | 42,340 | 2,898 | 67,362 | 348 | 14,643 | 2,775 | (14,819) | 69,120 | ||||||||
(Loss) profit from attributable to: | |||||||||||||||||
Owners of the Company | (43,950) | 38,578 | (1,442) | 50,522 | 348 | (5,292) | 11,405 | (15,225) | 34,944 | ||||||||
Non-controlling interest | (2,477) | 3,762 | 4,340 | 16,840 | - | 19,935 | (8,630) | 406 | 34,176 | ||||||||
(46,427) | 42,340 | 2,898 | 67,362 | 348 | 14,643 | 2,775 | (14,819) | 69,120 |
- 21 -
Operating segment performance | |||||||||||||||||
Segment Reporting | |||||||||||||||||
Infrastructure | |||||||||||||||||
For the period ended September 30, 2020 | Engineering and construction | Energy | Toll roads | Transportation | Water treatment | Real estate | Parent Company operations | Elimination | Consolidated | ||||||||
Revenue | 1,435,515 | 272,966 | 305,099 | 253,923 | 2,511 | 66,473 | 176,585 | (290,035) | 2,223,037 | ||||||||
Gross profit (loss) | 82,102 | 41,264 | 30,314 | 80,122 | 640 | 13,958 | 1,251 | (37,108) | 212,543 | ||||||||
Administrative expenses | (78,484) | (11,758) | (12,502) | (9,932) | (299) | (14,150) | (33,629) | 39,310 | (121,444) | ||||||||
Other income and expenses, net | 3,756 | (5,632) | (13,532) | 66 | 13 | 730 | (20,882) | (619) | (36,100) | ||||||||
Operating profit (loss) | 7,374 | 23,874 | 4,280 | 70,256 | 354 | 538 | (53,260) | 1,583 | 54,999 | ||||||||
Financial expenses | (43,863) | (14,724) | (24,865) | (4,721) | (27) | (8,665) | (14,031) | 8,691 | (102,205) | ||||||||
Financial income | 4,843 | 1,167 | 4,874 | 2,337 | 329 | 4,321 | 5,893 | (9,803) | 13,961 | ||||||||
Dividends | - | - | - | - | - | - | 2,342 | (2,342) | - | ||||||||
Share of profit or loss in associates | |||||||||||||||||
and joint ventures | (258) | 1,686 | - | - | - | 32 | (2,749) | 3,234 | 1,945 | ||||||||
(Loss) profit before income tax | (31,904) | 12,003 | (15,711) | 67,872 | 656 | (3,774) | (61,805) | 1,363 | (31,300) | ||||||||
Income tax | (3,003) | (3,059) | 140 | (20,651) | (357) | 878 | 12,732 | (1,476) | (14,796) | ||||||||
(Loss) profit for the year | (34,907) | 8,944 | (15,571) | 47,221 | 299 | (2,896) | (49,073) | (113) | (46,096) | ||||||||
(Loss) profit from attributable to: | |||||||||||||||||
Owners of the Company | (31,439) | 6,504 | (13,785) | 35,416 | 299 | (1,822) | (49,035) | (1,281) | (55,143) | ||||||||
Non-controlling interest | (3,468) | 2,440 | (1,786) | 11,805 | - | (1,074) | (38) | 1,168 | 9,047 | ||||||||
(34,907) | 8,944 | (15,571) | 47,221 | 299 | (2,896) | (49,073) | (113) | (46,096) |
- 22 -
There are no differences as compared to previous year-end consolidated financial statements based on segmentation or measurement of financial performance by segment.
8. CASH AND CASH EQUIVALENTS
This account comprises:
At | At | |||
December 31, | September 30, | |||
2019 | 2020 | |||
Cash on hand | 1,323 | 1,031 | ||
Remittances in-transit | 5,664 | 1,917 | ||
Bank accounts | 225,101 | 202,349 | ||
Escrow account (a) | 552,439 | 495,755 | ||
Time deposits | 166,174 | 119,111 | ||
950,701 | 820,163 |
(a) | The Group maintains various administration or guarantee trusts depending on the purposes for which they were created. The balance corresponding to Reserve Funds Issued Bonds includes operating reserve accounts, maintenance and debt service payments, among others, corresponding to the bond issuance of the subsidiaries. The balance includes reserve funds for bond payments issued by the subsidiaries GyM Ferrovias S.A. and Norvial S.A. amounting to S/175 million and S/19 million, as of September 30, 2020, respectively (S/181 million and S/18 million, as of December 31, 2019, respectively), as shown as follows: |
At | At | |||
December 31, | September 30, | |||
2019 | 2020 | |||
Reserve funds issued bonds | 199,192 | 193,950 | ||
Real estate projects | 31,794 | 39,493 | ||
Engineering and construction projects | 236,526 | 180,623 | ||
Infrastructure projects | 84,927 | 81,689 | ||
552,439 | 495,755 |
The above figures are reconciled with the amount of cash shown in the consolidated statement of cash flows at the end of the year as follows:
At | At | |||
December 31, | September 30, | |||
2019 | 2020 | |||
Cash and cash equivalent | 950,701 | 820,163 | ||
Bank overdrafts (Note 15) | - | (84) | ||
Balances per Consolidated statement of cash flows | 950,701 | 820,079 |
- 23 -
9. TRADE ACCOUNTS RECEIVABLES, NET
This account comprises:
Total | Current | Non-current | ||||||||||
At | At | At | At | At | At | |||||||
December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | |||||||
2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |||||||
Receivables (net) (a) | 1,037,284 | 720,409 | 467,696 | 177,300 | 569,588 | 543,109 | ||||||
Unbilled receivables (net) - Subsidiaries (b) | 421,841 | 502,372 | 336,272 | 396,003 | 85,569 | 106,369 | ||||||
Unbilled receivables (net) - Concessions (c) | 234,688 | 248,276 | 110,236 | 107,610 | 124,452 | 140,666 | ||||||
1,693,813 | 1,471,057 | 914,204 | 680,913 | 779,609 | 790,144 |
a) | Receivables are presented net of impairment and present value discount for S/5.5 million and S/9 million, respectively (S/4.9 million and S/10.1 million as of December 31, 2019). The ageing is detailed as follows: |
At | At | |||||
December 31, | September 30, | |||||
2019 | 2020 | |||||
Current | 895,366 | 623,530 | ||||
Past due up to 30 days | 45,922 | 24,686 | ||||
Past due from 31 days up to 90 days | 28,662 | 6,949 | ||||
Past due from 91 days up to 120 days | 1,319 | 2,860 | ||||
Past due from 121 days up to 360 days | 9,204 | 3,002 | ||||
Past due over 360 days | 56,811 | 59,382 | ||||
1,037,284 | 720,409 |
As of September 30, 2020, the amount overdue for more than 360 days mainly includes invoices receivable from subsidiaries: Concar S.A. for S / 36.5 million and GyM S.A. for S / 18.6 million (as of December 31, 2019 Concar S.A. for S / 35.4 million and GyM S.A. for S / 18.9 million).
b) | Unbilled receivables from subsidiaries correspond to services performed and valuations in process or pending approval. The balance is net of present value discount for S/15.1 million (S/20.6 million as of December 31, 2019), and detailed by subsidiary: |
At | At | |||||
December 31, | September 30, | |||||
2019 | 2020 | |||||
GyM S.A. | 384,660 | 400,649 | ||||
Concar S.A. | 10,737 | 9,316 | ||||
GMI S.A. | 24,787 | 30,325 | ||||
Graña y Montero Petrolera S.A. | 1,657 | 1,749 | ||||
Qualys S.A. | - | 141 | ||||
Adexus S.A. | - | 60,192 | ||||
421,841 | 502,372 |
- 24 -
c) | Unbilled receivables from concessions correspond to future invoice according to Concession Contract terms. This amount is presented net of impairment of S/3.5 million as of September 30, 2020 and December 31, 2019, as detailed below: |
At | At | |||||
December 31, | September 30, | |||||
2019 | 2020 | |||||
GyM Ferrovias S.A. | 208,205 | 215,564 | ||||
Survial S.A. | 16,466 | 12,991 | ||||
Norvial S.A. (*) | 2,149 | 15,556 | ||||
Concesión Canchaque S.A.C. | 6,700 | 3,613 | ||||
Concesionaria La Chira S.A. | 1,168 | 552 | ||||
234,688 | 248,276 |
(*) The increase as of September 30, 2020, corresponds to the approximate present value of S / 13.2 million (S / 15.2 million at nominal value), due to the compensation estimate in application of the tariff guarantee calculated based on real traffic controlled during the period from May 10, 2020 to June 30, 2020 (stage of suspension of toll collection) ordered by the Peruvian Government.
10. WORK IN PROGRESS, NET
This account comprises:
Total | Current | Non-current | ||||||||||
At | At | At | At | At | At | |||||||
December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | |||||||
2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |||||||
Unbilled receivable concessions in progress (a) | 23,117 | 37,227 | - | - | 23,117 | 37,227 | ||||||
Work in progress (b) | 49,457 | 145,102 | 49,457 | 145,102 | ) | - | - | |||||
72,574 | 182,329 | 49,457 | 145,102 | 23,117 | 37,227 |
Work in progress costs include all those expenses incurred by the Group for construction contracts as detailed below:
a) | Includes the pre-operating costs incurred by the Concessionaire Vía Expresa Sur S.A for the concession contract for the Vía Expresa Sur project. The increase as of September 30, 2020, corresponds to the reclassification of the intangible portion, according to the bifurcated model adopted by the Concession, due to the suspension signed with the Metropolitan Municipality of Lima since June 2020, to agree on the terms and conditions to approve the Early Termination of the Concession Contract by mutual agreement, in accordance with the clause 16.3 of the aforementioned contract. |
b) | Includes mainly S/139.7 million corresponding to GyM S.A. and its subsidiary Vial y Vives - DSD S.A. (S/29.6 million as of December 31, 2019); and S/5.2 million from GMI S.A. (S/19.9 million as of December 31, 2019). |
- 25 -
11. TRANSACTIONS WITH RELATED PARTIES
a) Transactions with related parties
Major transactions between the Company and its related parties are summarized as follows:
At September 30, | ||||
2019 | 2020 | |||
Revenue from sales of goods and services: | ||||
- Associates | 108 | - | ||
- Joint operations | 31,158 | 13,389 | ||
31,266 | 13,389 |
Inter-company services are agreed based on market terms and conditions as if they had been agreed with third parties.
b) Balances of transactions with related parties
At December 31, | At September 30, | |||||||
2019 | 2020 | |||||||
Receivable | Payable | Receivable | Payable | |||||
Current portion: | ||||||||
Joint operations | ||||||||
Consorcio Rio Urubamba | 9,042 | - | 9,326 | - | ||||
Consorcio Peruano de Conservacion | 3,592 | - | 3,011 | - | ||||
Consorcio Italo Peruano | 1,011 | 363 | 1,605 | 216 | ||||
Consorcio Constructor Chavimochic | - | 5,953 | - | 10,729 | ||||
Consorcio GyM Conciviles | 1,257 | 1,958 | 1,331 | 645 | ||||
Consorcio La Gloria | 1,750 | 1,017 | 67 | 107 | ||||
Consorcio Ermitaño | 831 | 440 | 848 | 471 | ||||
Terminales del Peru | 1,176 | - | 704 | - | ||||
Consorcio TNT Vial y Vives - DSD Chile Ltda | - | 1,088 | - | 843 | ||||
Consorcio Rio Mantaro | - | 5,869 | - | 6,883 | ||||
Consorcio Vial Quinua | - | 2,048 | - | 2,051 | ||||
Consorcio Huacho Pativilca | 1,419 | 5,895 | 2 | 258 | ||||
Consorcio CDEM | 638 | - | 695 | 36 | ||||
Consorcio GyM-Stracon | 2,230 | - | 1 | 785 | ||||
Consorcio GyM-OSSA | 7,202 | - | - | 1,396 | ||||
Consorcio Chicama Ascope | 2,471 | - | 2,585 | - | ||||
Other minors | 1,407 | 2,102 | 4,104 | 6,026 | ||||
34,026 | 26,733 | 24,279 | 30,446 |
At December 31, | At September 30, | |||||||
2019 | 2020 | |||||||
Receivable | Payable | Receivable | Payable | |||||
Other related parties | ||||||||
Ferrovias Argentina | - | 12,183 | - | 10,773 | ||||
Peru Piping Spools S.A.C. | 2,632 | - | 2,680 | - | ||||
2,632 | 12,183 | 2,680 | 10,773 | |||||
Current portion | 36,658 | 38,916 | 26,959 | 41,219 | ||||
Non-current portion: | ||||||||
Gasoducto Sur Peruano S.A. | 572,624 | - | 614,579 | - | ||||
Ferrovias Participaciones | - | 22,583 | - | 35,959 | ||||
Other minors | 2,099 | - | 2,279 | - | ||||
Non-current | 574,723 | 22,583 | 616,858 | 35,959 |
Receivables and payables are mainly current and do not have specific guarantees.
Accounts receivable from related parties are mainly to sales of goods and services. These balances do not bear interest and as of September 2020 do not require a provision for impairment. The account receivable from GSP is presented net of impairment and present value discount .
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Accounts payable to related parties mainly related to services of engineering, construction, maintenance and others. Such accounts are not interest bearing because they are short-term.
12. OTHER ACCOUNTS RECEIVABLE
This account comprises:
Total | Current | Non-current | ||||||||||||||||||||||
At | At | At | At | At | At | |||||||||||||||||||
December 31, | At September 30, | December 31, | At September 30, | December 31, | At September 30, | |||||||||||||||||||
2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |||||||||||||||||||
Advances to suppliers | 135,481 | 77,272 | 135,481 | 77,272 | - | - | ||||||||||||||||||
Income tax on-account prepaid | 71,541 | 36,267 | 71,541 | 36,265 | - | 2 | ||||||||||||||||||
VAT credit | 47,167 | 75,716 | 32,903 | 59,567 | 14,264 | 16,149 | ||||||||||||||||||
Guarantee deposits | 189,210 | 210,660 | 104,965 | 140,934 | 84,245 | 69,726 | ||||||||||||||||||
Claims to third parties | 79,771 | 105,040 | 38,874 | 47,479 | 40,897 | 57,561 | ||||||||||||||||||
Petroleos del Peru S.A.- Petroperu S.A. | 80,942 | 84,943 | 17,293 | 18,658 | 63,649 | 66,285 | ||||||||||||||||||
ITAN and other tax receivable | 60,883 | 64,007 | 30,233 | 33,053 | 30,650 | 30,954 | ||||||||||||||||||
Restricted funds | 16,523 | 9,951 | 1,522 | 2,070 | 15,001 | 7,881 | ||||||||||||||||||
Rental and sale of equipment - GyM S.A. projects | 30,798 | 28,239 | 30,798 | 28,239 | - | - | ||||||||||||||||||
Accounts receivable from personnel | 2,940 | 7,914 | 2,940 | 7,914 | - | - | ||||||||||||||||||
Consorcio Panorama | 23,491 | 25,320 | - | - | 23,491 | 25,320 | ||||||||||||||||||
Other minors | 16,574 | 5,601 | 15,339 | 4,902 | 1,235 | 699 | ||||||||||||||||||
755,321 | 730,930 | 481,889 | 456,353 | 273,432 | 274,577 | |||||||||||||||||||
Impairment | (27,415 | ) | (47,219 | ) | (27,415 | ) | (44,210 | ) | - | (3,009 | ) | |||||||||||||
727,906 | 683,711 | 454,474 | 412,143 | 273,432 | 271,568 |
The fair value of the other short-term accounts receivable is similar to their book value due to their short-term maturity. The non-current portion corresponds mainly to non-financial assets such as advances to suppliers and tax credits. Other non-current accounts receivable have maturities that vary between 2 and 5 years.
The maximum exposure to credit risk as of the reporting date is the carrying amount of each class of other accounts receivable mentioned.
13. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
This account comprises:
At | At | |||||||
December 31, | September 30, | |||||||
2019 | 2020 | |||||||
Associates | 28,875 | 29,144 | ||||||
Joint ventures | 8,160 | 9,152 | ||||||
37,035 | 38,296 |
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The movement of our investments in associates for the nine months period ended September 30, 2019 and 2020 is as follows:
At September 30, | ||||||||
2019 | 2020 | |||||||
Beginning balance | 257,765 | 37,035 | ||||||
Dividends received | (332 | ) | (701 | ) | ||||
Share of the profit or loss in associates and joint | ||||||||
ventures | (1,387 | ) | 1,945 | |||||
Impairment of investment | (140 | ) | - | |||||
Translation adjustments | (19 | ) | 17 | |||||
Ending balance | 255,887 | 38,296 |
Concesionaria Chavimochic S.A.C.
The entity was awarded the concesion of the Chavimochic irrigation project, including a) design and construction of the work required for the third-phase of the Chavimochic irrigation project in the province of La Libertad; b) operation and maintenance of works; and c) water supply to the Project users. Construction activities started in 2015; the effective concession period is 25 years, and the total investment amounts was estimated in US$647 million.
The civil works of the third stage of the Chavimochic Irrigation Project were structured in two phases. To date, the works of the first phase (Palo Redondo Dam) are 70% completed. However, at the beginning of 2017, the procedure for early termination of the Concession Contract was initiated due to the breach of contract by the Grantor, and all activities were suspended in December 2017. Due to the fact that no agreement was reached, the Concessionaire initiated an arbitration process at the UNCID. The arbitration proceedings are suspended, as a consequence of the of the National Emergency.
Moreover, from 2018 to date, the Peruvian Government (“the Grantor”) has been evaluating the modification of the Concession Contract, to determine a mechanism that allow the completion of the project, without resolution as of to date.
Finally, the Grantor and the Ministry of Agriculture and Irrigation (MINAGRI), and the Chavimochic Special Project, have signed an Agreement in order to allow MINAGRI to subrogate the ownership of the Project, within the framework of the provisions of the Emergency Decree N ° 021-2020.
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14. PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS AND RIGHT-OF-USE ASSETS
The movement in property, plant and equipment, intangible assets and right-of-use assets accounts for the nine months period ended September 30, 2019 and 2020, is as follows:
Property, | ||||||
plant and | Intangibles | Right-of-use | ||||
equipment | assets | assets | ||||
Net cost at January 1, 2019 | 503,584 | 868,050 | - | |||
Additions | 45,060 | 109,473 | 115,668 | |||
Reclassifications, disposals and adjustments | (22,882) | (12,875) | 830 | |||
Deductions for sale of assets | (5,553) | - | - | |||
Depreciation, amortization | (62,072) | (80,482) | (22,049) | |||
Net cost at September 30, 2019 | 458,137 | 884,166 | 94,449 | |||
Net cost at January 1, 2020 | 463,990 | 854,227 | 90,581 | |||
Additions | 27,396 | 44,081 | 9,673 | |||
Reclassifications, disposals and adjustments (*) | (13,744) | (27,489) | (10,048) | |||
Deductions for sale of assets | (5,493) | - | - | |||
Depreciation, amortization | (57,547) | (75,164) | (19,812) | |||
Net cost at September 30, 2020 | 414,602 | 795,655 | 70,394 |
(*) Includes translation adjustments in the subsidiary GyM S.A. in property plant and equipment and intangibles, amounted to S/2.2 million and S/3.7 million, respectively.
a) Property, plant and equipment and right-of-use assets
As of September 30, 2020, additions to property, plant and equipment mainly corresponds to S/12.4 million in machinery in the engineering and construction;and, in works in progress for S / 5.8 and S / 3 million in the infrastructure and engineering and construction segments, respectively (S/5.7 million in machinery of the engineering and construction and real estate segment; S/6.6 million in various equipment of the engineering and construction segment; and S/25.6 million units to be received and works in progress in the segment infrastructure as of September 30, 2019).
As of September 30, 2020, additions to right-of-use assets comprise lease agreements signed by the Group in the first semester.
Depreciation of property, plant and equipment, investment property and right-of-use assets is presented in the Statement of Income as follows:
At September 30, | ||||
2019 | 2020 | |||
Cost of goods and services (Note 21) | 81,377 | 73,265 | ||
Administrative expenses (Note 21) | 4,499 | 5,902 | ||
Total depreciation related to property, plant and equipment, investment property and right-of-use assets | 85,876 | 79,167 | ||
(-) Depreciation of investment property | (1,755) | (1,808) | ||
(-) Depreciation of right-of-use asset | (22,049) | (19,812) | ||
Total depreciation of property, plant and equipment | 62,072 | 57,547 |
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b) Intangible assets
As of September 30, 2019 and 2020, additions registered in intangible assets mainly comprise of investments in preparation of wells located in Lots I, III, IV and V to provide oil explotation services.
As of September 30, 2020, S/24 million has been reclassified to work in progress (Note 10), related to the intangible of the Concessionaire Via Expresa Sur S.A.
Amortization of intangibles is broken down in the statement of income as follows:
At September 30, | |||||
2019 | 2020 | ||||
Cost of goods and services (Note 21) | 76,793 | 72,009 | |||
Administrative expenses (Note 21) | 3,689 | 3,155 | |||
80,482 | 75,164 |
Goodwill
Management reviews businesses results based on the type of economic activity carried out.
Goodwill allocated to cash-generating units are:
At | At | ||||
December 31, | September 30, | ||||
2019 | 2020 | ||||
Engineering and construction (*) | 36,632 | 33,579 | |||
Electromechanical | 20,735 | 20,735 | |||
57,367 | 54,314 |
(*) The variation reported in engineering and construction segment is due to translation adjustment of foreign business of the subsidiary GyM S.A.
As a result of the impairment testing on goodwill performed by Management on an annual basis the recoverable amount of the related cash-generating unit (CGU) is determined based on 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.
15. BORROWINGS
This item comprises:
Total | Current | Non-current | ||||||||||
At | At | At | At | At | At | |||||||
December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | |||||||
2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |||||||
Bank overdrafts (Note 8) | - | 84 | - | 84 | - | - | ||||||
Bank loans (a) | 631,863 | 528,308 | 445,289 | 355,343 | 186,574 | 172,965 | ||||||
Finance leases | 23,650 | 53,011 | 10,357 | 12,951 | 13,293 | 40,060 | ||||||
Lease liability for right-of-use asset | 92,870 | 78,497 | 23,980 | 23,621 | 68,890 | 54,876 | ||||||
Other financial entities (b) | 142,212 | 198,947 | 1,903 | 12,099 | 140,309 | 186,848 | ||||||
890,595 | 858,847 | 481,529 | 404,098 | 409,066 | 454,749 |
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a) | Bank loans |
As of December 31, 2019 and September 30, 2020, this item comprises bank loans in local and foreign currencies for working capital purposes. These obligations accrue fixed interest rates that fluctuate between 1.0% and 12.0% in 2019 and between 0.5% and 11.0% in 2020.
Current | Non-current | |||||||||||
At | At | At | At | |||||||||
Interest | Maturity | December 31, | September 30, | December 31, | September 30, | |||||||
rate | date | 2019 | 2020 | 2019 | 2020 | |||||||
GyM S.A. (i) | 0.67% / 11.00% | 2023 | 170,798 | 165,544 | 26,401 | 17,300 | ||||||
GMP S.A. (ii) | 3.25% / 6.04% | 2027 | 30,367 | 28,042 | 102,895 | 103,341 | ||||||
Graña y Montero S.A.A. (iii) | 9.10% / 10.10% | 2022 | 112,854 | 38,237 | - | 52,324 | ||||||
Adexus S.A. | 0.50% / 1.15% | 2026 | 20,927 | 18,876 | 57,278 | - | ||||||
Viva GyM S.A. | 6.84% / 8.88% | 2021 | 110,343 | 104,644 | - | - | ||||||
445,289 | 355,343 | 186,574 | 172,965 |
i) | Financial Stability Framework Agreement |
In July 2017, the Company and its subsidiaries (GyM S.A., Construyendo Pais S.A., Vial y Vives-DSD S.A. and Concesionaria Vía Expresa Sur S.A.) entered into a Financial Stability Framework Agreement with the following financial entities: Scotiabank Perú S.A., Banco Internacional del Perú S.A.A., BBVA Banco Continental, Banco de Crédito del Perú, Citibank del Peru SA and Citibank N.A. The Framework Agreement aims to: (i) grant GyM a syndicated revolving line of credit for working capital for up to US$1.6 million and S/143.9 million, which may be increased by an additional US$14 million subject to certain conditions; (ii) grant GyM S.A. a line of credit of up to US$51.6 million and S/33.6 million; (iii) grant the Company, GyM S.A., Construyendo Pais S.A., Vial y Vives - DSD S.A. and Concesionaria Vía Expresa Sur S.A. a non-revolving line of credit to finance repayment commitments subject to performance bonds; (iv) grant a syndicated line of credit in favor of Graña y Montero S.A.A. and GyM S.A. for the issuance of performance bonds up to an amount of US$100 million (which may be increased by an additional US$50 million subject to compliance with certain conditions); and (v) commit to maintain existing standby letters of credit issued at the request of GyM S.A. and the Company, as well as the request of Construyendo Pais S.A., Vial y Vives – DSD and Concesionaria Vía Expresa Sur S.A.
In July 2020, an addendum to the Framework Agreement, the Financing Agreement and the Syndicated Line of Guarantee Letter was signed, with the purpose of modifying certain provisions of said documents and extending the term of their validity until September 30, 2020.
As of September 30, 2020 the pending balance of the Financial Stability Framework Agreement is US$40.8 million (equivalent to S/147 million).
In accordance with the Financial Stability Framework Agreement, the Company must comply quarterly with two ratios, related to its invoices and sales provisions: (i) the calculated value of 90% of its bills receivable, and (ii) the calculated value of 80% of its income provisions must be greater than 50% of the amount of Tranche A pending payment.
As of September 30, 2020 due to the stoppage of activities generated by the COVID-19 pandemic, the account receivable rate and unbilled receivable rate reached 13% and 105%, respectively. In relation to account receivable rate, the Company does not comply with the requirement of the Financial Stability Framework Agreement.
On October 6, 2020, the financial entities unanimously agreed to extend the term of the financing documents until October 31, 2020; as well as granting a waiver of the obligation to maintain the composition of invoices and provisions during the months of April to October 2020.
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ii) | Terminales del Peru Loan |
Terminales del Peru (hereinafter “TP”), a joint operation of the subsidiary GMP S.A., has a medium-term loan agreement with Banco de Credito del Peru (hereinafter BCP) up to US$30 million to finance the investments committed and up to US$70 million to finance the additional investments from the operation contract of the North and Center terminals for the period 2015 to 2019 with a maximum exposure limit of US$80 million. These facilities are repaid within 8 years. As of September 30, 2020, these loans amount to S/86.2 million, this amount corresponds to the 50% interest held by the subsidiary GMP and due in 2027.
In addition, in November 2019, TP signed a loan agreement to finance the additional investments from 2019 to 2023, for a credit line amount to US$46 million with BCP. The contract confirmed the participation of an assignee, so BD Capital (BDC) acquired 50% of the BCP contractual position through the subscription of the accession contract and in November 2019 disbursed to TP US$23 million. As of September 30, 2020, the loan amounts to S/41.4 million, this amount corresponds to the 50% interest held by the subsidiary GMP and is due in 2026.
As of September 30, 2020 and the date of this report, TP is in compliance with the ratios established in the contract loan.
iii) | CS Peru Infrastructure Holdings LLC Loan |
In July 2019, the Company entered into a medium term loan credit agreement for up to US$35 million with CS Peru Infrastructure Holdings LLC. The term of the loan is three years, with quarterly installments of principal starting on the 18th month. The loan accrued interest at the following rates per annum: (i) for the period from and including the July 31, 2019 (“Closing Date”) to but excluding the date that is 6 months after the Closing Date, 9.10%; (ii) for the period from and including the date that is 6 months after the Closing Date to but excluding the date that is 1 year after the Closing Date, 9.35%; (iii) for the period between the first annual anniversary of the Closing Date and the day before the thirtieth month of the Closing Date, 9.60%, and (iv) for the period from the thirtieth month of the Closing Date to the third annual anniversary of the Closing Date, 10.10%.
The loan was used for working capital in the Company, GyM S.A. and Adexus S.A. In February 2020, US$10 million was partially paid. As of the date of this report, the principal amount outstanding under this loan is US$25.7 million (equivalent to S/92.6 million).
On November 21, 2019, as a result of the initiation of a preventive insolvency process by the Chilean subsidiary, Adexus SA, the Company received a communication from CS Peru Infrastructure Holdings LLC reporting the occurrence of a default event under the loan contract, in accordance with the provisions of Section 7.02 (e) and 9.09 of the same contract. As a consequence, as of December 31, 2019, the loan was classified as current liabilities. On February 28, 2020, the waiver was obtained by the Company, so it was reclassified to non-current liabilities. As of September 30, 2020 and as of the date of this report, the Company is in compliance with the covenants established in the loan contract.
b) | Other financial entities |
Monetization of Norvial dividends
At May 29, 2018 the Company subscribes an agreement between the Company and Inversiones Concesiones Vial S.A.C. ("BCI Peru") -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. With the signing of this agreement, the Company obligated itself to indirectly transfer its economic rights over 48.8% of the share capital of Norvial S.A. by transferring its class B shares (equivalent to 48.8% of the capital of Norvial S.A.) to a vehicle specially constituted for such purposes named Inversiones en Autopistas S.A. The amount of the transaction was US$42.3 millions (equivalent to S/138 million) and was completed on June 11, 2018.
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Likewise, it has been agreed that the 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. As of September 30, 2020, the loan principal remains at US$42.3 million, the balance of the loan payable amounts to S/150.3 million and S/142.2 million as of September 30, 2020 and December 31, 2019, respectively.
c) | Fair value of borrowings |
The carrying amount and fair value of borrowings are broken down as follows:
Carrying amount | Fair value | |||||||||||||||
At | At | At | At | |||||||||||||
December 31, | September 30, | December 31, | September 30, | |||||||||||||
2019 | 2020 | 2019 | 2020 | |||||||||||||
Bank overdrafts | - | 84 | - | 84 | ||||||||||||
Bank loans | 631,863 | 528,308 | 650,224 | 554,045 | ||||||||||||
Finance leases | 23,650 | 53,011 | 23,697 | 38,882 | ||||||||||||
Lease liability for right-of-use asset | 92,870 | 78,497 | 109,453 | 93,454 | ||||||||||||
Other financial entities | 142,212 | 198,947 | 142,212 | 235,851 | ||||||||||||
890,595 | 858,847 | 925,586 | 922,316 |
As of September 30, 2020, the fair value is based on cash flows discounted using a rate based on the borrowing rate of 0.5% and 11% (2.9% and 11% as of December 31, 2019) and are included as Level 2 in the level of measurement.
16. BONDS
This item is broken down as follows:
Total | Current | Non-current | ||||||||||||||||||||||
At | At | At | At | At | At | |||||||||||||||||||
December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | |||||||||||||||||||
2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |||||||||||||||||||
GyM Ferrovias S.A. (a) | 618,497 | 622,960 | 15,742 | 19,777 | 602,755 | 603,183 | ||||||||||||||||||
Norvial S.A. (b) | 305,545 | 287,752 | 28,995 | 32,518 | 276,550 | 255,234 | ||||||||||||||||||
GyM S.A. (c) | - | 27,158 | - | 4,406 | - | 22,752 | ||||||||||||||||||
924,042 | 937,870 | 44,737 | 56,701 | 879,305 | 881,169 |
a) | GyM Ferrovias S.A. |
In February 2015, the subsidiary GyM Ferrovias S.A. made an international issue of corporate bonds under Regulation S of Unites States of America. The issue was made in soles VAC (adjusted for the Constant Update Value) for an amount of S/629 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. As of September 30, 2020, an amortization has been made up to S/87.7 million (S/79 million as of December 31, 2019).
As of September 30, 2020, the balance includes accrued interest payable and VAC adjustments for S/99.2 million (S/86.8 million as of December 31, 2019).
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The account movement for the nine months period ended September 30, 2019 and 2020 is as follows:
2019 | 2020 | |||
Balance at January, 1 | 611,660 | 618,497 | ||
Amortization | (8,481) | (8,669) | ||
Accrued interest | 36,111 | 35,695 | ||
Interest paid | (22,570) | (22,563) | ||
Balance at September, 30 | 616,720 | 622,960 |
As part of the structuring process of the bond, GyM Ferrovias 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. |
As of December 31, 2019 and September 30, 2020, GyM Ferrrovias S.A. has complied with the covenants.
As of September 30, 2020, the fair value amounts to S/622.5 million (S/686.8 million as of December 31, 2019), is based on discounted cash flows using rate 3.87% (4.32% as of December 31, 2019) and is within level 2 of the fair value hierarchy.
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.
The account movement for the nine months ended at September 30, 2019 and 2020 is as follows:
2019 | 2020 | |||
Balance at January, 1 | 325,382 | 305,545 | ||
Amortization | (14,607) | (17,880) | ||
Accrued interest | 17,637 | 18,616 | ||
Capitalized interest | 2,103 | - | ||
Interest paid | (19,657) | (18,529) | ||
Balance at September, 30 | 310,858 | 287,752 |
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. |
As of December 31, 2019 and September 30, 2020, Norvial S.A. has complied with the covenants.
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As of September 30, 2020, the fair value amounts to S/317.1 million (S/327.2 million as of December 31, 2019), is based on discounted cash flows using rate 7.05% (between 6.20% and 7.59% as of December 31, 2019) and is within level 2 of the fair value hierarchy.
c) | GyM S.A. |
At the beginning of 2020, the subsidiary GyM S.A. prepared the First Private Bond Program, up to a maximum amount of US$8 million.
In the first quarter of the year, bonds issued amounts to US$7.8 million (equivalent to S/25.9 million) under the debt swap modality, related to its outstanding trade accounts.
The bonds mature in December 2027 and bear interest at a rate of 8.5%, payment is semi-annual and have a risk rating of B-, granted by the rating company Moody’s Peru. As of September 30, 2020, the balance includes accrued interest payable for US$175 thousand (equivalent to S/629 thousand).
As of September 30, 2020, GyM S.A. has complied with the covenants.
As of September 30, 2020, the fair value amounts to S/26.4 million, is based on discounted cash flows using rate 9.21% and is within level 3 of the fair value hierarchy.
17. TRADE ACCOUNTS PAYABLE
This item includes:
At | At | |||
December 31, | September 30, | |||
2019 | 2020 | |||
Invoices payable | 398,347 | 365,191 | ||
Provision of contract costs | 758,116 | 614,298 | ||
Notes payable | 37,426 | 14,177 | ||
1,193,889 | 993,666 |
As of September 30, 2020, the contract cost provisions include: i) estimate costs to come according to the the completion porcentage of projects amounting to S/90.8 million, for GyM S.A. and Concar S.A. (S/169.5 million as of December 31, 2019 for GyM S.A. and GMI S.A); and ii) services received not invoiced S/522.3 million (S/588.6 million as of December 31, 2019).
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18. OTHER ACCOUNTS PAYABLE
This item includes:
Total | Current | Non-current | ||||||||||
At | At | At | At | At | At | |||||||
December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | |||||||
2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |||||||
Advances received from customers (a) | 307,839 | 384,524 | 270,714 | 345,934 | 37,125 | 38,590 | ||||||
Consorcio Ductos del Sur - payable (b) | 148,076 | 128,021 | - | - | 148,076 | 128,021 | ||||||
Salaries and other payable | 92,313 | 106,630 | 92,313 | 106,630 | - | - | ||||||
Other taxes payable | 108,457 | 88,249 | 88,248 | 71,415 | 20,209 | 16,834 | ||||||
Put option liability on Morelco acquisition | 106,444 | 116,463 | 71,341 | 77,406 | 35,103 | 39,057 | ||||||
Consorcio Rio Mantaro - payables | 35,625 | 57,728 | 35,625 | 57,728 | - | - | ||||||
Acquisition of additional non-controlling interest | 22,697 | 27,433 | 22,697 | 27,433 | - | - | ||||||
Guarantee deposits | 16,445 | 21,107 | 16,445 | 21,107 | - | - | ||||||
Third-party loans | 11,619 | 11,606 | 9,545 | 9,531 | 2,074 | 2,075 | ||||||
Other accounts payables | 116,449 | 75,744 | 62,746 | 37,705 | 53,703 | 38,039 | ||||||
965,964 | 1,017,505 | 669,674 | 754,889 | 296,290 | 262,616 |
(a) | Advances received from customers relate mainly from construction projects, and are applied to progress billings, in accordance with contract terms. |
Total | Current | Non-current | ||||||||||
At | At | At | At | At | At | |||||||
December 31, | September 30, | December 31, | September 30, | December 31, | September 30, | |||||||
2019 | 2020 | 2019 | 2020 | 2019 | 2020 | |||||||
Advances - Consortiums | 115,250 | 108,014 | 113,093 | 106,551 | 2,157 | 1,463 | ||||||
Advances - Real estate projects | 66,258 | 105,347 | 66,258 | 105,347 | - | - | ||||||
Advances - Engineering and construction | 64,118 | 118,820 | 44,932 | 93,502 | 19,186 | 25,318 | ||||||
Advances - Road concessions | 42,030 | 47,433 | 26,534 | 35,855 | 15,496 | 11,578 | ||||||
Others | 20,183 | 4,910 | 19,897 | 4,679 | 286 | 231 | ||||||
307,839 | 384,524 | 270,714 | 345,934 | 37,125 | 38,590 |
(b) | The balance of other accounts payable from Consorcio Constructor Ductos del Sur corresponds to payment obligations to vendors and main subcontractors for S/128 million (S/148 million as of December 31, 2019), assumed by the subsidiary GyM S.A; as a result of the termination of GSP operations. |
The fair value of short-term accounts approximates their book value due to their short-term maturities. The non-current part mainly includes non-financial liabilities such as advances received from customers; the remaining balance is not significant in the financial statements for the periods shown.
19. PROVISIONS
The movement for the nine months ended at September 30, 2019 and 2020 is as follows:
Contingent | ||||||||||
liabilities | Provision | |||||||||
Legal | Tax | resulting from | for well | |||||||
contingencies | Contingent | acquisitions | closure | Total | ||||||
At January 1, 2019 | 84,728 | - | 4,498 | 20,382 | 109,608 | |||||
Additions | 13,138 | - | - | 15,928 | 29,066 | |||||
Reversals of provisions | (1,625) | - | (438) | - | (2,063) | |||||
Payments | (567) | - | - | - | (567) | |||||
Translation adjustments | (127) | - | (262) | - | (389) | |||||
At september 30, 2019 | 95,547 | - | 3,798 | 36,310 | 135,655 | |||||
At January 1, 2020 | 278,319 | - | - | 50,116 | 328,435 | |||||
Additions | 34,432 | - | - | 3,075 | 37,507 | |||||
Reversals of provisions | (7,108) | - | - | - | (7,108) | |||||
Payments | (4,166) | - | - | (1,181) | (5,347) | |||||
Translation adjustments | 4,275 | - | - | - | 4,275 | |||||
At september 30, 2020 | 305,752 | - | - | 52,010 | 357,762 |
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Legal contingencies
a) | Civil compensation |
Corresponding to the legal contingency estimated by management for exposure of the Company and its subsidiaries to a probable compensation in relation to their participation as minority partners in certain entities that developed infrastructure projects in Peru with companies belonging to the Odebrecht group and projects related to “Club de la Construcción”. As of September 30, 2020, the present value of the estimated provision totals S/165.3 million (S/79.9 million as of September 30, 2019).
b) | Securities Class actions NY SEC |
During the first quarter of 2017 two securities class actions have been filed against the Company, and certain former employees in the Eastern District of New York. Both complaints allege false and misleading statements during the class period. In particular, they allege that the Company failed to disclose, among other things, that a) the company knew that its partner Odebrecht was engaged in illegal activities, and b) the Company profited from such activities in violation of its own corporate governance standards.
As of the date of this report, the Company has signed the definitive settlement agreement with the plaintiffs' attorneys, by which the parties agree to terminate the class action, subject to the court approval and the payment of the transaction amount by the Company. The amount agreed for the termination of the class action is equivalent to US$20 million. As of September 30, 2020, the Company registered a provision of US$14.7 million (equivalent to S/52.7 million) the difference of US$ 5 million will be covered by the professional liability insurance policy in accordance with the agreement signed with the insurance company.
20. CAPITAL
As of September 30, 2020 and as of December 31, 2019, the capital of the Company is represented by 871,917,855 shares of a nominal value of S/1.00 each, all registered in the Public Registries.
As of September 30, 2020, a total of 196,344,775 shares were represented in ADS, equivalent to 39,268,955 ADSs at a rate of 5 shares per ADS.
As of December 31, 2019, a total of 218,043,480 shares were represented by ADS, equivalent to 43,608,696 ADSs at a rate of 5 shares per ADS.
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21. EXPENSES BY NATURE
For the nine months period ended September 30, 2019 and 2020, this item comprises:
Cost of | ||||||
goods and | Administrative | |||||
services | expenses | Total | ||||
At September 30, 2019 | ||||||
Salaries, wages and fringe benefits | 691,110 | 100,946 | 792,056 | |||
Services provided by third-parties | 939,417 | 36,352 | 975,769 | |||
Purchase of goods | 515,441 | 28 | 515,469 | |||
Other management costs | 344,066 | 17,843 | 361,909 | |||
Depreciation (Note 14 a) | 81,377 | 4,499 | 85,876 | |||
Amortization (Note 14 b) | 76,793 | 3,689 | 80,482 | |||
Impairment of accounts receivable | 731 | - | 731 | |||
Taxes | 5,454 | 956 | 6,410 | |||
Impariment of property, plant and equipment | (305) | - | (305) | |||
Inventory recovery | (1,519) | - | (1,519) | |||
Total | 2,652,565 | 164,313 | 2,816,878 | |||
At September 30, 2020 | ||||||
Services provided by third-parties | 592,023 | 33,678 | 625,701 | |||
Salaries, wages and fringe benefits | 693,980 | 69,439 | 763,419 | |||
Purchase of goods | 393,696 | 72 | 393,768 | |||
Other management costs | 167,295 | 8,782 | 176,077 | |||
Depreciation (Note 14 a) | 73,265 | 5,902 | 79,167 | |||
Amortization (Note 14 b) | 72,009 | 3,155 | 75,164 | |||
Impairment of accounts receivable | 15,441 | 321 | 15,762 | |||
Taxes | 4,503 | 95 | 4,598 | |||
Property, plant and equipment recovery | (258) | - | (258) | |||
Inventory recovery | (1,460) | - | (1,460) | |||
Total | 2,010,494 | 121,444 | 2,131,938 |
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22. OTHER INCOME AND EXPENSES
For the nine month period ended September 30, 2019 and 2020, this item comprises:
At September 30, | |||||
2019 | 2020 | ||||
Other income: | |||||
Sale of assets | 6,932 | 5,563 | |||
Debt forgiveness to suppliers | 14,017 | 205 | |||
Recovery of provisions and impairments | 2,538 | 4,322 | |||
Profit from Mizuho Bank Ltd. agreement (a) | 67,039 | - | |||
Others | 4,806 | 3,986 | |||
95,332 | 14,076 | ||||
Other expenses: | |||||
Cost of assets disposal | 6,044 | 5,468 | |||
Asset impairment (b) | 40,054 | 26,719 | |||
Civil repair to the Peruvian Government | - | 10,797 | |||
Legal and tax litigation | - | 239 | |||
Provision for well closure | 2,122 | 3,075 | |||
Administrative fine | 228 | 706 | |||
Others | 4,742 | 3,172 | |||
53,190 | 50,176 | ||||
42,142 | (36,100) |
a) | Corresponds to: the profit from the refinancing operation executed by Mizuho, linked to the agreement signed between GyM Ferrovías S.A. and Mizuho Bank Ltd. Pursuant to the terms of such agreement, the Company provided a stand-by letter of credit to guarantee a financial derivative required to execute the CPAOs purchase transaction related to the Expansion Project. Furthermore, the agreement stated that in case Mizuho Bank refinanced the debt obtained for the purchase of the CPAOs, the Company would be entitled to receive 70% of the profit obtained from such refinancing. |
b) | Corresponds to: i) to the impairment of intangibles at subsidiary Concesionaria Vía Expresa Sur S.A. for S/13.5 million, as a result of the Company's estimates on the recovery of the investment maintained in the project. The Concession Contract has been suspended by mutual agreement with the Municipality of Lima since June 2017 (Note 10), ii) the impairment registered at CAM Holding S.P.A. for S/12.7 million due to claims against escrow account. |
23. INCOME TAX
The condensed interim consolidated financial statements for the nine months period ended September 30, 2020, income tax expense is recognized based on management’s estimate of the annual income tax rate expected for the full financial year. The estimated annual tax rate as of September 30, 2020 is 47.27% (54.49% for the period ended in September 30, 2019).
24. CONTINGENCIES, COMMITTMENTS AND GUARANTEES
As of September 30, 2020, contingencies held by the Group are substantially the same as those existing as of December 31, 2019.
The Group maintains guarantees and letters of credit in force in various financial entities guaranteeing operations for US$429.5 million (US$390 million, as of December 31, 2019).
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25. DIVIDENDS
As part of the covenants at the refinancing agreements mentioned in Note 15, the Company is unable to pay dividends as established in the Financial Stability Framework Agreement.
For the nine months period ended September 30, 2020, the Group’s subsidiaries have paid dividends to its non-controlling interests in the amount of S/64.7 million (S/8 million for the period ended in September 30, 2019).
26. EARNINGS (LOSS) PER SHARE
The basic earnings (loss) per common share has been calculated by dividing the loss of the period attributable to the Group’s common shareholders by the weighted average of the number of common shares outstanding during that period. No diluted loss per common share has been calculated because there is no potential diluent common or investment shares (ie, financial instruments or agreements that entitle to obtain common or investment shares); therefore, it is the same as the earnings (loss) per basic share.
The basic earnings (loss) per common share is as follows:
At September 30, | ||||
2019 | 2020 | |||
Earning (loss) attributable to owners of the Company | ||||
during the period | 34,944 | (55,143) | ||
Weighted average number of shares in issue | ||||
at S/1.00 each, at September 30, | 805,218,485 | 871,917,855 | ||
Basic earning (loss) per share (S/) | (*) | 0.043 | (0.063) |
(*) The Group does not have common shares with dilutive effects at September 30, 2019 and September 30, 2020.
27. CONTINUING OPERATIONS
As of September 30, 2020, the financial information of the subsidiary Adexus S.A. (hereinafter Adexus) was reclassified as continuous operation. The subsidiary that have been reclassified as a non-current assets held for sale at December 31, 2018, has as main activity to provide information technology solutions mainly in Chile and Peru. Despite the fact that the Company has been committed to a pan to carry out the sale, the circumstances that arose in the subsidiary during this period, which are explained below, have forced us to change initial plan, focusing in negotiating with vendors liabilities terms sale resulting in a viable plan again.
On November 19, 2019, Adexus filed an application for reorganization under law 20 720 with the Chilean courts of justice. The Company impaired the total investment value as of December 31, 2019.
On January 9, 2020, the Company communicated that the creditors committee of Adexus approved with the favorable vote of more than 80% of the pledge creditors and 85% of the unsecured creditors, respectively, the judicial reorganization agreement proposed by Adexus in the framework of the reorganization procedure. According to the terms of the judicial reorganization agreement, Adexus will restructure and pay the total of its reorganized liabilities within a maximum period of six years, according to the new agreed conditions, being authorized to continue with its commercial activities normally. As a result of the financial protection provided by the Chilean law and with the support of its creditors, Adexus has achieved the restructuring of its liabilities while continuing to serve all its customers. As of September 30, 2020, Adexus S.A. has complied with the payment schedule agreed with the creditors.
The Group decided that Adexus will be subject to the patrimonial protection law; after achieving this restructuring, the Group will focus on honoring it in the terms agreed while finding the right shareholder for the future development of the subsidiary.
28. EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION
Between September 30, 2020 and the date of approval of the condensed interin consolidated financial statements, there have been no subsequent events that may affect the reasonableness of the financial statements issued.
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