Colombia Telecomunicaciones S. A. E.S.P. Unaudited Interim Condensed Consolidated Financial Statements

Transcription

1 Colombia Telecomunicaciones S. A. E.S.P. Unaudited Interim Condensed Consolidated Financial Statements At March 31 st, 2018 and for the three-month period ended March 31, 2018

2 Unaudited Interim Condensed Consolidated Financial Statements At March 31, 2018 and for the three-month period ended March 31, 2018 Contents Interim Condensed Consolidated Statements of Financial Position.. 3 Interim Condensed Consolidated Statements of Comprehensive Income... 4 Interim Condensed Consolidated Statements of Changes in Shareholder s Equity... 5 Interim Condensed Consolidated Statements of Cash Flow.. 6 Notes to the Interim Condensed Consolidated Financial Statements... 7

3 Unaudited Interim Condensed Consolidated Statements of Financial Position Notes At March 31, At December 31, Assets US$ (a) US$ (a) Current Assets: Cash and cash equivalents 26,090 72,541, , ,372,212 Financial assets (4) 2,906 8,080,392 19,706 54,790,883 Trade and other receivables (5) 287, ,580, , ,976,423 Prepayments (6) 40, ,554,852 14,962 41,602,240 Contract assets (3) 12,609 35,057, Inventories (7) 53, ,110,303 47, ,237,447 Current tax assets (8) 83, ,436,332 70, ,429,595 Total current assets 506,880 1,409,361, ,800 1,570,408,800 Non-current assets: Financial assets (4) 1,683 4,678,558 6,986 19,424,663 Trade and other receivables (5) 61, ,842,541 64, ,051,394 Prepayments (6) 18,962 52,724,117 20,885 58,070,616 Contract assets (3) 11,763 32,706, Property, plant and equipment (9) 1,826,504 5,078,539,651 1,894,625 5,267,946,843 Investment properties 2,477 6,886,439 2,477 6,886,439 Intangibles assets (10) 891,603 2,479,074, ,046 2,577,623,529 Goodwill (11) 521,185 1,449,138, ,185 1,449,138,328 Deferred tax assets (12) 634,627 1,764,560, ,146 1,763,223,712 Total non-current assets 3,970,248 11,039,151,788 4,071,386 11,320,365,524 Total Assets 4,477,128 12,448,513,612 4,636,186 12,890,774,324 Liabilities Current liabilities: Financial obligations (13) 156, ,947, , ,566,935 Suppliers and accounts payable (14) 465,453 1,294,178, ,984 1,523,651,978 Contract liabilities (3) 598 1,663, Current tax liabilities (8) 69, ,289,550 33,332 92,677,976 Deferred liabilities 41, ,956,976 42, ,454,144 Provisions (15) 48, ,715,793 72, ,322,045 Employee defined benefit liabilities 6,356 17,673,116 6,356 17,673,116 Total current liabilities 788,508 2,192,424, ,640 2,312,346,194 Non-current liabilities: Financial obligations (13) 1,264,259 3,515,232,860 1,299,882 3,614,282,330 Suppliers and accounts payable (14) 69, ,893,050 63, ,470,413 Contract liabilities (3) 3,747 10,418, Deferred liabilities 24,292 67,543,134 26,884 74,751,487 Provisions (15) 16,092 44,736,490 17,877 49,708,673 Employee defined benefit liabilities 71, ,125,386 71, ,126,843 Deferred tax liabilities (12) 25,003 69,518,810 21,736 60,435,401 Total non-current liabilities 1,473,664 4,097,468,426 1,501,104 4,173,775,147 Total Liabilities 2,262,172 6,289,892,923 2,332,744 6,486,121,341 Shareholder s Equity (16) 2,212,238 6,151,062,252 2,300,086 6,395,321,415 Shareholder s Equity, Net attributable to non-controlling interests 2,718 7,558,437 3,356 9,331,568 Total Liabilities and Shareholder s Equity 4,477,128 12,448,513,612 4,636,186 12,890,774,324 (a) Solely for the convenience of the reader, Colombian pesos amounts at March 31, 2018 and December 31, 2017, have been translated into US dollars at the exchange rate formed in the interbank market on March 31, 2018 of COP$2, to US$1,00. The accompanying notes 1 to 25 are an integral part of these interim condensed consolidated statements of financial position. 3

4 Unaudited Interim Condensed Consolidated Statements of Comprehensive Income Period from January 1 to March 31, Notes of (a) of of (a) of Operating revenue: Sales of goods and rendering of services (17) 444,762 1,236,646, ,747 1,206,021,645 Other operating revenue (17) 21,111 58,698,529 9,032 25,113, ,873 1,295,345, ,779 1,231,134,803 Operating costs and expenses (18) (310,756) (864,048,423) (303,839) (844,815,378) Operating income before depreciation and amortization OIBDA 155, ,296, , ,319,425 Depreciation and amortization (19) (131,644) (366,031,746) (95,310) (265,005,528) Operating income 23,473 65,265,002 43, ,313,897 Financial expenses, net (20) (26,936) (74,894,373) (34,195) (95,078,616) Interest expenses PARAPAT (20) - - (41,236) (114,656,490) Loss before wealth tax (3,463) (9,629,371) (31,801) (88,421,209) Wealth tax (21) - - (594) (1,651,105) Loss before taxes (3,463) (9,629,371) (32,395) (90,072,314) Income and deferred tax (22) (902) (2,509,207) (26,966) (74,978,527) Loss of the period (4,365) (12,138,578) (59,361) (165,050,841) Loss is attributable to: Owners of the company (4,041) (11,236,759) (59,361) (165,050,841) Non-controlling interests (324) (901,819) - - Loss of the period (4,365) (12,138,578) (59,361) (165,050,841) Other comprehensive income: Loss in hedge valuation (44,094) (122,601,831) (10,267) (28,548,452) Revaluation of land and buildings - - (482) (1,339,781) Other comprehensive income (44,094) (122,601,831) (10,749) (29,888,233) Total comprehensive income for the period (48,459) (134,740,409) (70,110) (194,939,074) Loss comprehensive attributable to: Owners of the company (44,191) (122,872,819) (10,749) (29,888,233) Non-controlling interests , Other comprehensive income (44,094) (122,601,831) (10,749) (29,888,233) (a) Solely for the convenience of the reader, Colombian pesos amounts for the three-month period ended March 31, 2018 and March 31, 2017 have been translated into US dollars at the exchange rate formed in the interbank market on March 31, 2018 of COP$2, to US$1,00. The accompanying notes 1 to 25 are an integral part of these interim condensed consolidated statements of comprehensive income. 4

5 Unaudited Interim Condensed Consolidated Statements of Change in Shareholder s Equity Subscribed and paid-in capital Share premium Reserves Attributable to owners of the Company Other equity instruments Reserves from Revaluation and Hedge Derivatives (US$000) (a) Actuarial results in obligations for post-employment benefits Retained earnings Total Non-controlling interest Total Equity Balances at December 31 st, ,218,955 12, , ,197 (1,985,757) (129,839) (129,839) Shares issue 703 2,313,679 2,314,382 2,314,382 Equity perpetual instruments coupon (44,733) (44,733) (44,733) Consolidation reserves 5,280 5,280 5,280 Net profit of the year 107, ,832 1, ,858 Non-controlling interest 2,330 2,330 Other integral income 46, ,164 47,164 Balances at December 31 st, ,226 3,532,634 18, , , (1,922,658) 2,300,086 3,356 2,303,442 Adjustment on initial application of IFRS-9 (Note 3) (22,463) (22,463) 100 (22,363) Adjustment on initial application of IFRS-15 (Note 3) 3,498 3,498 (16) 3,482 Equity perpetual instruments coupon (21,247) (21,247) (21,247) Consolidation reserves Net profit of the period (4,041) (4,041) (324) (4,365) Non-controlling interest (495) (495) Total loss comprehensive of the period (45,167) 976 (44,191) 97 (44,094) Balances at March 31 st, ,226 3,532,634 18, , , (1,965,935) 2,212,238 2,718 2,214,956 (a) Solely for the convenience of the reader, Colombian pesos amounts at March 31, 2018 and December 31, 2017, have been translated into U.S. dollars at the exchange rate formed in the interbank market at on March 31, 2018 of COP$2, to US$

6 Unaudited Interim Condensed Consolidated Statements of Change in Shareholder s Equity Subscribed and paid-in capital Share premium Reserves Attributable to owners of the Company Other equity instruments Reserves from Revaluation and Hedge Derivatives Actuarial results in obligations for post-employment benefits Retained earnings Total Non-controlling interest Total Equity (COP$000) Balances at December 31 st, ,454,871 3,389,266,946 36,105,611 1,263,049, ,446,615 (5,521,336,695) (361,012,985) (361,012,985) Shares issue 1,955,188 6,433,113,699 6,435,068,887 6,435,068,887 Equity perpetual instruments coupon (124,377,527) (124,377,527) (124,377,527) Consolidation reserves 14,682,182 14,682,182 14,682,182 Net profit of the year 299,822, ,822,515 2,853, ,675,953 Minority shareholders 6,478,130 6,478,130 Other integral income 129,165,612 1,972, ,138, ,138,343 Balances at December 31 st, ,410,059 9,822,380,645 50,787,793 1,263,049, ,612,227 1,972,731 (5,345,891,707) 6,395,321,415 9,331,568 6,404,652,983 Adjustment on initial application of IFRS-9 (Note 3) (62,458,584) (62,458,584) 278,217 (62,180,367) Adjustment on initial application of IFRS-15 (Note 3) 9,726,630 9,726,630 (44,706) 9,681,924 Equity perpetual instruments coupon (59,075,850) (59,075,850) (59,075,850) Consolidation reserves 1,658,219 1,658,219 1,658,219 Net profit of the period (11,236,759) (11,236,759) (901,819) (12,138,578) Minority shareholders (1,375,811) (1,375,811) Total loss comprehensive of the period (125,584,042) 2,711,223 (122,872,819) 270,988 (122,601,831) Balances at March 31 st, ,410,059 9,822,380,645 52,446,012 1,263,049, ,028,185 1,972,731 (5,466,225,047) 6,151,062,252 7,558,437 6,158,620,689 Notes 1 to 25 are integral part of these Interim condensed consolidated statements of change in Shareholder s Equity. 6

7 Unaudited Interim Condensed Consolidated Statements of Cash Flows Period from January 1 to March 31, of (a) of of (a) of Cash flows generated in operating activities Cash received from customers 501, ,023, ,682 1,319,839,487 Cash paid to suppliers and other accounts payables (357,023) (992,697,064) (295,937) (822,845,300) Net interests paid and other financial expenses (44,271) (123,093,853) (48,796) (135,675,567) Payment of PARAPAT - - (27,007) (75,091,143) Indirect taxes paid (18,845) (52,398,056) (16,843) (46,831,090) Self-withholdings on income tax and income tax for equality CREE (15,933) (44,301,690) (14,334) (39,855,070) Net cash from operating activities 65, ,532,538 71, ,541,317 Cash flows from investment activities Acquisition of plant and equipment and intangible assets (118,061) (328,263,738) (119,727) (332,898,717) Net cash used in investment activities (118,061) (328,263,738) (119,727) (332,898,717) Cash flows from financing activities Perpetual equity instruments coupon s payment (21,247) (59,075,850) (22,255) (61,879,788) New financial debt 46, ,441,441 41, ,565,000 Collections from exchange rate hedges (8,042) (22,359,518) (13,398) (37,251,347) Payment of financial debt (52,907) (147,105,442) (10,078) (28,022,811) Payment of PARAPAT - - (3,445) (9,580,085) Net cash used in financing activities (35,283) (98,099,369) (7,973) (22,169,031) Net decrease in cash and cash equivalents (87,694) (243,830,569) (55,935) (155,526,431) Cash and cash equivalents at January 1, 113, ,372,212 77, ,661,546 Cash and cash equivalents at March 31, 26,090 72,541,643 21,268 59,135,115 Balance at January 1, 113, ,372,212 77, ,661,546 Cash on hand and at banks 77, ,421,755 54, ,429,174 Other cash equivalents 36, ,950,457 22,741 63,232,372 Balance at March 31, 26,090 72,541,643 21,268 59,135,115 Cash on hand and at banks 20,681 57,502,510 15,599 43,371,712 Other cash equivalents 5,409 15,039,133 5,669 15,763,403 (a) Solely for the convenience of the reader, Colombian pesos amounts for the three-month period ended March 31, 2018 and March 31, 2017 have been translated into US dollars at the exchange rate formed in the interbank market on March 31, 2018 of COP$2, to US$1,00. The accompanying notes 1 to 25 are an integral part of these interim condensed consolidated statements of financial position. 7

8 At March 31 st, 2018 and for the three-month period ended March 31, 2018 (Figures expressed in thousands of pesos and thousands of dollars, except for exchange rates and where otherwise indicated) Note 1 - General Information a) Reporting Entity Colombia Telecomunicaciones S.A. E.S.P. (hereinafter "the Company" or the Parent Company ) was established as a commercial limited company by shares in Colombia through Public Deed No of June 16, 2003 with a duration until December 31, 2092 and with its main domicile in Bogotá D.C. located in transversal 60 No.114 A The Company, which capital is majority owned by private enterprises, is subject to the legal regime provided by Law 1341 of 2009 and other applicable regulations, thus being classified as a utility service provider (E.S.P., for its abbreviation in Spanish). Nevertheless, its applicable regime for its acts and contract is the private law. The Company s main corporate purpose is the organization, operation, provision and exploitation of activities related to telecommunication networks and services, such as local commuted basic public telephony, local extended and domestic and international long-distance, mobile services, mobile telephony services in any part of the nation and internationally, carriers, teleservices, telematic, added value, satellite services in their various types, television services in every type, including cable television, broadcasting services, internet and broadband services, wireless technology, video, lodging services for IT applications, data center services, operation services of private and public telecommunications and total information system operations, content supply and/or generation services and applications, information services and any other activity, product or services qualified as of telecommunications and/or of information and communication technologies (TIC, for its Spanish acronym) such as resources, tools, equipment, IT programs, applications, networks and media, which allow the compilation, processing, storage, information transmission such as voice, data, text, video and images, including its communications and information activities, including its complementary and supplementary activities within the national territory and abroad, and with foreign connection; for such purpose using own goods, assets and rights, or applying the use of third parties goods, assets and rights. Likewise, the Company may perform the commercial activities defined in its bylaws. The Company, as of September 27, 2017, acquired control of the subsidiaries Empresa de Telecomunicaciones de Bucaramanga S.A. E.S.P. and Metropolitana de Comunicaciones S.A. E.S.P. with a direct and indirect shareholding of 94.48% and 87.45%, respectively. In the Chamber of Commerce of Bogotá was registered the situation of control and enterprise group. In addition to the foregoing, and through these entities, 100% of the entity Operaciones Tecnológicas y Comerciales S.A.S. - "Optecom" is owned indirectly by Telefonica S.A. 1. The company Empresas de Telecomunicaciones de Bucaramanga S.A. E.S.P. Telebucaramanga (formerly Empresas Públicas de Bucaramanga S.A. E.S.P.), was established on November 21, 1972 by Agreement 51 of the Council of Bucaramanga. In accordance with public deed number 1435 of May 23, 1997, this company provides mixed public utilities services, structured under the scheme of a joint stock company regulated under the terms established in Law 142 of 1994 and other regulations that control these services. The corporate purpose of "Telebucaramanga" is to provide telecommunications services, telematics and other complementary activities, of added value, derived and/or related to such services; perform strategic alliances and shared associations; establish conventions and administrative agreements; commercialize services provided by third parties, perform administration and marketing activities and exploit goods and real estate, and participate in public tenders. 8

9 2. The company Metropolitana de Telecomunicaciones S.A. E.S.P. (hereinafter Metrotel S.A. E.S.P. or Metrotel ), was established in accordance with Colombian laws on May 9, 1994 as a public limited company, through Public Deed No. 1,586 of Notary 5 th of Barranquilla. The address registered as domicile and main office is Calle 74 No (Barranquilla - Colombia). The main corporate purpose of Metrotel consists on the provision and operation of all types of services, authorizations and telecommunications concessions, including the study, design, construction, assembly, installation, improvement, conservation, leasing, administration and operation of telecommunications services and networks. Its main domicile is located in the city of Barranquilla and the Company's term expires on January 12, The Company Optecom S.A.S. was established in accordance with Colombian laws on October 22, 2013, as a simplified stock company (S.A.S.). Its main corporate purpose is the realization of one or more of the activities provided in Law 1341 of 2009, for the providers of IT and communication networks and services and other own and complementary activities of the IT and communications sector. The Company s term is indefinite; the address registered as address and main office is Vía Office 409 (Barranquilla - Colombia). Note 2 - Basis of Accounting These Interim Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with the Company last annual financial consolidated statements as at and for the year ended December 31, 2017 ( last annual financial consolidated statements ), They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant for an understanding of the changes in the financial position and performance of the Company since the last financial statements. According to the offering memorandum related to the Senior Bond issue, the Company will provide certain financial information to the Trustee for the delivery to bondholders; in this case an English version of the Company's unaudited quarterly Interim Condensed Consolidated Financial Statements. In the preparation of these Interim Condensed Consolidated Financial Statements, significant management judgments in applying accounting policies were the same as those applied to the financial statements for the year ended at December 31, 2017, except for the adoption of new standards included in Note 3. These Interim Condensed Consolidated Financial Statements have been prepared on the basis of the historical cost model, except for land and buildings, the derivative financial instruments and the financial investments that have been measured at their fair value. The carrying amounts of the recognized assets and liabilities, and designated as items being hedged in the hedging relationships of fair value that otherwise would be carried at their amortized cost, have been adjusted to record the changes in the attributable fair values at the risks covered in the respective effective hedging relationships. 9

10 These Interim Condensed Consolidated Financial Statements are presented in Colombian pesos and all values have been rounded to the nearest thousand (COP$000), unless otherwise indicated, all references herein to, pesos or COP$ are to pesos, the official currency of Colombia, and all references herein to US dollars, or US$ are to US dollars. We maintain our books and records in pesos, solely for the convenience of the readers, we have converted the amounts included in the set "Interim Condensed Consolidated Financial Statements", in the "Notes to the Interim Condensed Consolidated Financial Statements" and in this document from Colombian pesos into US dollars using the exchange rate formed in the interbank market on March 31, 2018 of COP$2, to US$1,00. These convenience conversions should not be considered representations that any such amounts have been, could have been or could be converted in the future into US dollars at that or at any other exchange rate. Inflation Annual inflation at the end of the first quarter was within the Central Bank target range, reaching the minimum level in March (3.14% YoY). This evolution was explained by the quick convergence in food inflation (average 0.5% MoM in 1Q18) and an important reduction of the tradable component, due to the appreciation of exchange rate respect to the end of On the other hand, non-tradable annual inflation reduced to 4.75% YoY in March from 5.33% in the same month of the previous year, as a consequence of a lower indexation effect. Interest Rate In the first quarter of 2018, the Central Bank decided to keep the interest rate in 4.50%. This decision is due to the lower convergence in the non-tradable inflation and core inflation indicators respect to the quick convergence in total inflation in January and February, and the weakness in the economic recovery. Even though in the memorandum of January, the central bank announced that the cycle of cuts to the policy rate had finished, the inflationary surprise of March, the anchoring of the expectations and the gradual convergence of core inflation indicators, could generate an additional cut of 25 bps. Exchange Rate The average exchange rate during the first quarter of 2018 was COP$2,859, 2.2% lower than the same period of 2017 (COP$2,922). The appreciation of the Colombian peso was mainly associated to: 1) better performance in oil prices, 2) stabilization in the country s credit risk, whereas the five-years Credit Default Swap decreased in average 45.3 bps compared to same period last year, and 3) a lower differential of interest rates respect to Use of Estimates, Significant Accounting Judgments and Assumptions In preparing the Interim Condensed Consolidated Financial Statements, the management makes judgments, estimations and assumptions that could affect the values of revenues, expenses, assets and liabilities reported at the date of the Interim Condensed Consolidated Financial Statements, including the related disclosures. Even though they may differ from their final effect, management considers that the estimates and assumptions used were adequate in every circumstance. Among the main estimates and accounting judgments there are: i) deferred taxes, ii) contingent liabilities, iii) revaluation, iv) impairment of assets, v) definition of the fair value of financial instruments, vi) estimate for dismantling and vii) pension liabilities. 10

11 Exchange Rate Fluctuations Although we publish our financial statements in COP$, a portion of our assets, liabilities, revenues and expenses are denominated in currencies other than COP$, therefore, we are exposed to fluctuations in the value of these currencies against the COP$. Hence, currency fluctuations have had and may continue to have a material impact on our financial condition, results of operations and cash flows. Financial Risk Management The Company actively manages risks through the use of derivative financial instruments (primarily on exchange rate and interest rate); as well, the net balance sheet positions are taken into account in order to take advantage of natural hedges that are offset directly, therefore to avoid incurring on bid-offer spread costs on hedging operations. The main financial risk management objectives and policies of the Company at March 31, 2018, and for the three-month period ended on that date, are consistent with those disclosed in the financial statements at December 31, 2017 and for the year ended on that date. Materiality Criteria These Interim Condensed Consolidated Financial Statements do not include any information or disclosures that don t require presentation due to their qualitative significance, therefore they have been determined as immaterial or of no relevance pursuant to the concepts of materiality or relevance defined in the IFRS conceptual framework. Interim Condensed Consolidated Statement of Cash Flow The Interim Condensed Consolidated Statement of Cash Flow was prepared according to the direct method. The direct method presents cash flows from activities through a summary of cash outflows and inflows. Operation Segments The Company s Management prepares sufficient financial and managing information to assess profitability, risk and the assets managed at Company level. Although the Company prepares certain financial and management information of each of the business areas, it is not sufficient to evaluate and determine individually profitability, risk, and assets and liabilities allocated as required by IFRS 8. Given the requirements of IFRS regarding the identification of segments and based on the available information, the Company s Management has identified a single business segment. Impairment of non-current assets At the end of period, the presence or absence of impairment on non-current assets, including goodwill, intangibles assets, property and plant and equipment is evaluated. If such indicators exist or when it comes to assets which are subject to annual impairment analysis, the Company estimates the recoverable value of the asset, being the higher of the fair value minus the cost of disposal and its value in use, such value in use is determined by the discount of the estimated future cash flows by applying a discount rate before taxes that reflects the value of money over time and considering the specific risks associated to the asset. 11

12 When the recoverable value of an asset is below its net book value, it is considered impaired. In this case, the book value is adjusted to the recoverable value, recording the loss in the Comprehensive Income Statement, Amortization charges for future periods are adjusted to the new accounting value over the remaining useful life. To determine the impairment, the Company uses the strategic plan of its sole cash generating unit to which assets are assigned, this strategic plan usually covers a period of three years. For longer periods, from the third year projections based on these plans by applying a constant or decreasing rate of expected growth are used, this rate separately considers each assessed element and the included growth is a reflect of the trend of the same in recent years. The discount rates used are determined based on financial and available information and are adjusted by the country risk rate and corresponding business risk. Thus, in fiscal years 2017 and 2016 a nominal percentage rate calculated in pesos of 10.83% and 11.08%, respectively, was used; concluding that for the closing of 2017, there is no evidence of impairment in the long-term assets. When new events take place or changes in existing circumstances indicates that an impairment loss recorded in a prior period may have disappeared or been reduced, a new estimate of the recoverable amount of the corresponding asset is made. Losses previously recorded are reversed only if the assumptions used in calculating the recoverable amount would have changed since the most recent impairment loss was recognized. In this case, the carrying amount of the asset is increased to its new recoverable value, with the limit of the net book value that such asset would have if no impairment losses have been recognized in previous periods. The reversal is recognized in the Comprehensive Income Statement and the charges for amortization of future periods are adjusted to the new carrying amount, unless the asset is carried at its revalued amount, in which case the reversal is treated similarly to a revaluation increase. Impairment losses of goodwill are not reversed in subsequent periods. Financial assets impairment At the end of the period, the Company assesses whether there is any objective evidence that a financial asset or group of financial assets are impaired in value. A financial asset or group of financial assets are considered impaired in value only if there is objective evidence of impairment of that value as a result of one or more events that occurred after the asset s initial recognition (the "event causing the loss"), and that event causing the loss has an impact on estimated future cash flows generated by the financial asset or the group of financial assets, and that impact can be estimated reliably. The evidence of impairment could include, among others, indications such that as debtors or group of debtors are in significant financial difficulties, default or delinquency in debt principal or interest payment, the probability that they go bankrupt or adopt other form of financial reorganization, or when observable data indicates that there is a measurable decrease in the estimated future cash flows, as well, adverse changes in the status of payments in arrears or economic conditions that correlate with defaults. Charges for impairment of financial assets, net of recoveries that apply, are presented in the Comprehensive Income Statement, in financial costs and other operating expenses lines, as appropriate to the nature of the assets that generate them. 12

13 Inventories Warehouse materials for installation in investment projects, as well, as inventories of goods for sale are valued at the lower of weighted average cost or net realizable value, the smaller of the two. The valuation of obsolete, defective or slow-moving inventories, have been reduced to their probable net realizable value the calculation of the recoverable value of inventories is made in function on their age and turnover. The net asset value is calculated based on the estimated sales value during the normal business course minus the estimated costs of selling. Costs of inventories include the transfer from the other comprehensive income of any gain or loss arising on cash flow hedges used for inventory purchases in foreign currency. Note 3 - Changes in Significant Accounting Policies Except as described below, the accounting policies applied in these interim condensed consolidated financial statements are the same as those applied in the Company s consolidated financial statements as at and for the year ended 31 December The final changes in accounting policies are also expected to be reflected in the Company s consolidated financial statements as at and for the year ending 31 December The Company s has initially adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 January A number of other new standards are effective from 1 January 2018 but they do not have a material effect on the Company s financial statements. The details of the new significant accounting policies and the nature of the changes to previous accounting policies in relation to the Company s are set out below. a) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaced IAS 18 Revenue and related interpretations. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determining the timing of the transfer of control at a point in time or over time requires judgement. The Company s has adopted IFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognition at the date of initial application (i.e. 1 January 2018). Accordingly, the information presented for 2017 has not been restated i.e. it is presented, as previously reported, under IAS 18 and related interpretations. The following table summarizes the impact, net of tax, of transition to IFRS 15 on retained earnings and Non-Controlling Interest. There was no material impact on the Company s interim condensed consolidated statement of cash flows for the three-month period ended March 31, 2018: Impact of adopting IFRS 15 at 1 January 2018 Retained earnings Benefits in contracts with customers 3,089 8,589,111 Irrevocable right of use 409 1,137,519 3,498 9,726,630 Non-controlling interests Benefits in contracts with customers 16 44,706 13

14 b) Contract balances The following table provides information about contract assets and contract liabilities from contracts with customers. At March 31, 2018 Contract Assets: Current Benefits in contracts with customers 12,609 35,057,680 Non-current Benefits in contracts with customers 11,763 32,706,744 24,372 67,764,424 At March 31, 2018 Contract liabilities: Current Irrevocable right of use IRU s 598 1,663,119 Non-current Irrevocable right of use IRU s 3,747 10,418,696 4,345 12,081,815 IFRS 9 Financial Instruments IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The following table summarizes the impact, net of tax, of transition to IFRS 9 on the opening balance of retained earnings and non-controlling interests. Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with an Expected Credit Loss (ECL) model. The new impairment model applies to financial assets measured at amortized cost and contract assets. The Company s has determined that the application of IFRS9 s impairment requirements at January 01,2018, results in an additional impairment allowance as follow: At March 31, 2018 Trade and other receivables 13,375 37,188,085 Portfolio for funded equipment 7,291 20,271,395 Portfolio for services provided not yet invoiced 1,040 2,891,681 Others concepts 757 2,107,423 Total impact application for the first time IFRS 9 22,463 62,458,584 14

15 Note 4 - Financial Assets The breakdown of the current financial assets is the following: At March 31, At December 31, of of Deposits and guaranteed (b) 2 5, ,000 Hedging instruments (Note 13) (a) 2,904 8,075,392 19,704 54,785,883 Current financial assets 2,906 8,080,392 19,706 54,790,883 Hedging instruments (Note 13) (a) - - 4,991 13,876,164 Other equity participations 22 60, ,000 Deposits and guaranteed (b) 1,661 4,618,558 1,973 5,488,499 Non-current financial assets 1,683 4,678,558 6,986 19,424,663 Total financial assets 4,589 12,758,950 26,692 74,215,546 a) The derivatives portfolio valuation in the total financial asset shows a decrease of 88.2%, or US$21,791 (COP$60,586,655) mainly explained by: i) US$19,042 (COP$ 52,944,530) due to the exchange rate revaluation during the period which affects Non Delivery Forwards (NDF), Cross Currency Interest Rate Swap (CCIRS) and FX Options; ii) the variation in interest rate valuation of US$ 2,749 (COP$ 7,642,125). b) Corresponds to deposits constituted by judicial order with expiration until its resolution and other requirements are fulfilled. Note 5 - Trade and Other Receivables The balance sheet of trade and other receivables is the following: At March 31, At December 31, Current: Customers for sale of goods and rendering services (1) 402,143 1,118,147, ,457 1,105,118,394 Commercial agents and distribution channels 51, ,580,528 53, ,906,361 Portfolio for funded equipment 54, ,211,322 51, ,539,475 Portfolio with national operators 28,908 80,377,572 26,214 72,885,876 Shareholders, related parties and foreign associated companies (2) 26,541 73,795,885 16,694 46,416,257 Other receivables 30,898 85,916,455 30,304 84,260,051 Less: Allowance for impairment (5) (306,583) (852,448,238) (278,784) (775,149,991) 287, ,580, , ,976,423 Non-current: Portfolio with national operators 48, ,610,499 48, ,610,499 Portfolio of grants and contributions (3) 13,707 38,111,870 13,707 38,111,870 Shareholders, related parties and foreign associated companies (2) 12,705 35,326,797 13,633 37,905,278 Portfolio for funded equipment 3,208 8,919,827 2,794 7,768,025 Portfolio with RENATA (4) 45, ,949,364 47, ,731,538 Less: Allowance for impairment (61,887) (172,075,816) (61,887) (172,075,816) 61, ,842,541 64, ,051, , ,423, ,819 1,006,027,817 15

16 (1) Includes residential, business and wholesale customers whose billing is pending. (2) Among the main transactions, it includes local telephony operations, consulting, interconnection, roaming and data transmission service. (3) Includes portfolio with for grants and contributions. (4) Corresponds to portfolio with the National Academic Network Corporation (RENATA) for the sale of equipment for MPLS (dedicated channels) and connectivity. (5) Includes the recognition for the first time of the International Financial Reporting Standard - IFRS 9 for USD$22,463 (COP$62,458,585) (Note 3). Note 6 - Prepayments The prepayments during the first quarter of 2018 present a net increase of 65.8% US$23,595 ($65,606,113). The increase in the prepayments of short-term equivalent to 170.5% or US$25,518 (COP$70,952,612) is mainly due to the following variations: i) increase of the contribution to the Communications Regulatory Commission (CRC, for its acronym in Spanish) and for the use of the spectrum for mobile services of the year 2018 for US$14,999 (COP$41,705,643), ii) renovation of the support and maintenance agreements of platforms and applications in 2018 for US$6,901 (COP$19,187,780), iii) increase in the cost of equipment and installation of the customers home service (broad-band and fixed line) for US$6,857 (COP19,066,495), iv) decrease of US$3,239 (COP$9,007,305) represented mainly by the classification of irrevocable rights of use (IRUs) as contractual asset. The prepayments of long-term decreased 9.2% or US$1,923 (COP$5,346,499), principally due to the following variations: i) transfer of the amount of the irrevocable right of use (IRU) as a contractual asset due to the adoption of IFRS 15 since January 1, 2018, which generated a decline of US$9,971 (COP$27,722,996), ii) an increase in the cost of equipment and installation in the customers home service (broad-band and fixed line) for US$8,048 (COP$22,376,497). Note 7 Inventories Inventories at the end of the first quarter of 2018 increased by 11% or US$5,349 (COP$14,872,856), compared to December 31, The breakdown is detailed as follows: At March 31, At December 31, Mobile phones and accessories 30,555 84,958,604 34,285 95,329,658 Equipment in transit 13,864 38,547,471 7,065 19,644,370 Other inventories (1) 10,513 29,232,182 7,763 21,584,251 Computer equipment 487 1,353, ,517,518 55, , ,075,797 Impairment loss (2,151) (5,981,748) (1,740) (4,838,350) 53, ,110,303 47, ,237,447 (1) Includes modems, equipment for corporate services, location equipment, and television equipment, among others. 16

17 Note 8 Current Tax Assets The current tax assets is presented as follows: of At March 31, At December 31, of of of Self-withholding for income tax (a) 74, ,136,479 58, ,660,761 Advance payments, withholdings and self-withholding ICA (b) 3,185 8,855,552 6,003 16,691,260 Income tax withholdings (a) 3,729 10,369,724 3,269 9,089,721 Other current tax assets 2,545 7,074,577 2,873 7,987,853 83, ,436,332 70, ,429,595 The increase of US$12,950 (COP$36,006,737) at the end of March 31, 2018, compared to the end of December 31, 2017, is explained as follows: a) Increase in the withholdings and self-withholdings by the way of income tax for US$16,096 (COP$44,755,721), due to: i) accrual of self-withholdings in the first quarter of 2018 for US$15,636 (COP$43,475,718) and ii) withholding for sales applied by the financial entities for US$460 (COP$1,280,003). b) Net decrease of US$2,818 (COP$7,835,708) cause by the prepayments, retentions and self-retentions by the way of local business tax (ICA, for its acronym in Spanish) of 2017 and accruals of the first quarter of The current tax liability is presented as follows: of At March 31, At December 31, of Sales tax proportionality IVA (a) 38, ,333,063 14,040 39,038,213 Contributions (b) 17,562 48,829, Withholdings and self-withholdings (c) 10,526 29,267,578 13,676 38,024,888 Others current tax liabilities 2,827 7,858,943 5,616 15,614,875 69, ,289,550 33,332 92,677,976 The increase of US$36,545 (COP$101,611,574), at the end of March 31, 2018, compared to the end of December 31, 2017, is explained as follows: a) The increase in the income tax US$24,922 (COP$69,294,850) is due to a: i) net decrease cause by the payment of the VI bimester of 2018 and net accrual of the II bimestre (march) of 2018 of US$3,729 (OP$10,369,061) and ii) increase of the VAT sales tax liability for the first two months of 2018 for US $ 28,651 (COP $ 79,663,911) that will be offset with the balance in favor of the 2017 income tax. b) Accrual of the contribution to the Ministry of Information Technologies and Communications for the use of the fixed and mobile service spectrum for 2018 for US $ 17,562 (COP $ 48,829,966). c) Net decrease in the accrual of withholding taxes and self-withholdings of the income tax to March 2018, compared to December 2017 at US $ 3,150 (COP $ 8,757,310). 17

18 Note 9 - Property, Plant and Equipment The cost of property, plant and equipment and its corresponding accumulated depreciation is presented below: Concept At March 31 st, 2018 At December 31 st, 2017 Accumulated Net Accumulated Net Cost or fair value Depreciation Books amount Cost Depreciation Books amount (US$000) Land and constructions 1,221,066 (632,242) 588,824 1,218,948 (618,007) 600,941 Technical installations, machinery and other 3,277,669 ( 2,241,149) 1,036,520 3,241,545 (2,182,446) 1,059,099 Assets under construction 133, , , ,595 Furniture, information equipment and other 278,059 (210,605) 67, ,843 (203,853) 71,990 4,910,500 (3,083,996) 1,826,504 4,898,931 (3,004,306) 1,894,625 Concept At March 31 st, 2018 At December 31 st, 2017 Accumulated Net Accumulated Net Cost or fair value Depreciation Books amount Cost Depreciation Books amount (COP$000) Land and constructions 3,395,137,319 (1,757,930,709) 1,637,206,610 3,389,247,850 (1,718,350,334) 1,670,897,516 Technical installations, machinery and other 9,113,459,831 (6,231,447,830) 2,882,012,001 9,013,018,024 (6,068,225,448) 2,944,792,576 Assets under construction 371,765, ,765, ,091, ,091,030 Furniture, information equipment and other 773,135,438 (585,579,444) 187,555, ,972,610 (566,806,889) 200,165,721 13,653,497,634 (8,574,957,983) 5,078,539,651 13,621,329,514 (8,353,382,671) 5,267,946,843 18

19 The movements for the first quarter 2018 of the items comprising the item of property, plant and equipment are as follows: Concept Balance at December 31 st 2017 Additions Disposals Transfers Balance at March 31 st 2018 (US$000) Cost: Land and constructions 1,218, (129) 1,941 1,221,066 Technical installations, machinery and other 3,241,545 4,883 (1,570) 32,811 3,277,669 Assets under construction 162,595 17,783 (49) (46,623) 133,706 Furniture, information management equipment and other 275, (81) 2, ,059 4,898,931 23,079 (1,829) (9,681) 4,910,500 Concept Balance at December 31 st 2017 Additions Disposals Transfers Balance at March 31 st 2018 (COP$000) Cost: Land and constructions 3,389,247, ,233 (357,704) 5,396,940 3,395,137,319 Technical installations, machinery and other 9,013,018,024 13,576,360 (4,364,337) 91,229,784 9,113,459,831 Assets under construction 452,091,030 49,443,876 (137,125) (129,632,735) 371,765,046 Furniture, information management equipment and other 766,972, ,868 (223,866) 6,089, ,135,438 13,621,329,514 64,167,337 (5,083,032) (26,916,185) 13,653,497,634 19

20 Balance at December Depreciation Additions Balance at 31 st Disposals Transfers Revaluation 2017 Charge of Subsidiary March 31 st (US$000) Accumulated depreciation: Constructions (618,007) (13,140) (1,223) (632,241) Technical installations, Machinery and other (2,182,446) (59,072) 1,295 - (927) - (2,241,150) Furniture, information management equipment and other (203,853) ( 7,185) (210,605) (3,004,306) (79,397) 1,453 - (523) (1,223) (3,083,996) 1,894,625 (56,318) (376) (9,681) (523) (1,223) 1,826,504 Balance at December Depreciation Additions Balance at 31 st Disposals Transfers Revaluation 2017 Charge of Subsidiary March 31 st (COP$000) Accumulated depreciation: Constructions (1,718,350,334) (36,536,317) 357, (3,401,762) (1,757,930,709) Technical installations, (6,068,225,448) (164,244,924) 3,599, (2,577,040) - (6,231,447,830) Machinery and other Furniture, information (566,806,889) (19,975,505) 79,275-1,123,675 - (585,579,444) management equipment and other (8,353,382,671) (220,756,746) 4,036,561 - (1,453,365) (3,401,762) (8,574,957,983) 5,267,946,843 (156,589,409) (1,046,471) (26,916,185) (1,453,365) (3,401,762) 5,078,539,651 20

21 Note 10 Intangibles Assets The cost and accumulated amortization of intangibles assets are presented as follows: Concept Cost At March 31 st, 2018 At December 31 st, 2017 Accumulated Net books Accumulated amortization amount Cost amortization (US$000) Net books amount Operating licenses 840,795 (163,350) 677, ,795 (134,776) 706,019 Computer applications 667,298 (509,360) 157, ,189 (493,305) 163,884 Customers list 248,182 (226,078) 22, ,182 (226,231) 21,951 Other intangibles 46,254 (12,138) 34,116 47,015 (11,823) 35,192 1,802,529 (910,926) 891,603 1,793,181 (866,135) 927,046 Concept Cost At March 31 st, 2018 At December 31 st, 2017 Accumulated Net books Accumulated amortization amount Cost amortization (COP$000) Net books amount Operating licenses 2,337,806,459 (454,190,060) 1,883,616,399 2,337,806,459 (374,740,705) 1,963,065,754 Computer applications 1,855,401,858 (1,416,259,822) 439,142,036 1,827,294,528 (1,371,618,794) 455,675,734 Customers list 690,063,337 (628,607,033) 61,456, ,063,337 (629,032,021) 61,031,316 Other intangibles 128,606,772 (33,746,867) 94,859, ,722,865 (32,872,140) 97,850,725 5,011,878,426 (2,532,803,782) 2,479,074,644 4,985,887,189 (2,408,263,660) 2,577,623,529 Movements of intangibles for first quarter of the 2018 are as follows: Concept Balance at December 31 st, 2017 Addition Retirements Transfers Balance at March 31 st, 2018 Operating licenses 840, ,795 Computer applications 657, (5,708) 15, ,298 Customers list 248, ,182 Other intangibles 47,015 5,332 (3) (6,090) 46,254 1,793,181 5,379 (5,711) 9,680 1,802,529 Accumulated amortization: Operating Licenses (134,776) (28,574) - - (163,350) Computer applications (493,305) (21,763) 5,708 - (509,360) Customers list (226,231) (226,078) Other intangibles (11,823) (318) 3 - (12,137) (866,135) (50,502) 5,711 - (910,926) 927,046 (45,123) - 9, ,603 21

22 Concept Balance at December 31 st, 2017 Additions Retirements Transfers Balance at March 31 st, 2018 Operating licenses 2,337,806, ,337,806,459 Computer applications 1,827,294, ,909 (15,871,214) 43,848,635 1,855,401,858 Customers list 690,063, ,063,337 Other intangibles 130,722,865 14,824,893 (8,536) (16,932,450) 128,606,772 4,985,887,189 14,954,802 (15,879,750) 26,916,185 5,011,878,426 Accumulated amortization: Operating licenses (374,740,705) (79,449,355) - - (454,190,060) Computer applications (1,371,618,794) (60,512,242) 15,871,214 - (1,416,259,822) Customers list (629,032,021) 424, (628,607,033) Other intangibles (32,872,140) (883,262) 8,535 - (33,746,867) (2,408,263,660) (140,419,871) 15,879,749 - (2,532,803,782) 2,577,623,529 (125,465,069) - 26,916,185 2,479,074,644 Note 11 - Goodwill The recorded goodwill was generated in the purchase of Compañía Celular de Colombia S.A. COCELCO S.A. in 2000 for an amount of $939,163,377. Likewise, as of September 27, 2017 includes goodwill generated by the takeover of subsidiaries Empresa de Telecomunicaciones de Bucaramanga S.A. E.S.P. and Metropolitana de Comunicaciones S.A. E.S.P. for $509,974,951. Goodwill is considered as an asset of indefinite useful life, as the period in which this asset is expected to contribute to revenue generation is also considered indefinite. According to the impairment analysis performed by the Company at the year-end of 2017 and 2016, no need was identified to record impairment on the goodwill in the Financial Statements, considering its recoverable amount superior to the book value The discount rates used are determined based on financial and available information and are adjusted by the country risk rate and corresponding business risk. Thus, in fiscal years 2017 and 2016 a nominal percentage rate calculated in pesos of 10.83% and 11.08%, respectively, was used; concluding that for the closing of 2017, there is no evidence of impairment in the long-term assets. Note 12 - Deferred Tax Deferred Tax Assets The deferred tax assets increased in 0.08% or US$481 (COP$1,337,054) compared with December 31, Deferred Tax Liabilities The deferred tax liabilities increased in 15% or US$3,267 (COP$9,083,409) compared with December 31, 2017, mainly, due to the recognition of the tax impact of exchange differences valued in US$2,292 (COP$6,373,597) and the tax impact for the adoption of the IFRS15 US$1,268 (COP$3,525,859). Additionally, one decreased by the use of temporary differences PDTI US$118 (COP$327,760) and Useful Lives in subsidiaries US$175 (COP$488,287). 22

23 Note 13 Financial Obligation Financial obligations total US$1,420,688 (COP$3,950,179,910) as of March of 2018, showing a decrease of 0.6% or US$8,513 (COP$23,669,355) compared to December of of At March 31, At December 31, of of of Current Financial obligations (a) 78, ,136,212 85, ,006,130 Hedging instruments (c) (1) 70, ,790,188 22,867 63,580,471 Other financial obligations (interests) 8,279 23,020,650 20,853 57,980,334 Total Current 156, ,947, , ,566,935 Non current Financial obligations (b) 1,226,319 3,409,743,376 1,285,265 3,573,641,552 Hedging Instruments (d) (1) 37, ,489,484 14,617 40,640,778 Total Non-current 1,264,259 3,515,232,860 1,299,882 3,614,282,330 Total financial debt 1,420,688 3,950,179,910 1,429,201 3,973,849,265 (1) See, Hedging instruments a) Decrease in short-term financial debt with credit institutions for US$7,506 (COP$20,869,918) due to i) debt amortizations of US$5,909 (COP$16,429,815), ii) decrease of US$5,354 (COP$14,887,213) associated with exchange rate differences and others compensated by iii) long-term to short-term reclassifications of US$3,757 (COP$10,447,110). b) Decrease in long-term financial debt with credit institutions and bonds for US$58,946 (COP$163,898,176) due to i) decrease of US$55,189 (COP$153,451,066) associated with exchange rate differences and others; ii) long-term to short-term reclassifications of US$3,757 (COP$10,447,110). Senior bond At March 31, At December 31, Senior Bond Face value 750,000 2,085,352, ,900 2,238,000,000 Transaction cost (1,714) (4,765,185) (1,807) (5,024,654) Total Senior Bond 748,286 2,080,587, ,093 2,232,975,346 The net variation in long-term bonds was US$54,807 (COP$152,388,031), associated with exchange rate revaluation of 6.8%, The bonds nominal value is shown net of transaction cost. c) Increase in the short-term valuation of derivatives of US$47,190 (COP$131,209,717), mainly explained by decreasing exchange rate valuation (6.8%) which affects Non Delivery Forwards (NDF) of US$42,831 (COP$119,090,619) and FX Options of US$3,798 (COP$10,561,719); in addition US$ 561 (COP$1,557,379) explained by the variation in the interest rate valuation due to the upward displacement of the Libor Interest Rate Swap curve during the period. 23