GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES. Consolidated Financial Statements. As of December 31, 2009 and 2008

Transcription

1 Consolidated Financial Statements As of December 31, 2009 and 2008 (With the Independent Auditor s Report Thereon) (TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH)

2 Contents Page Independent Auditor s Report Financial Statements Balance Sheet 1 Income Statement 2 Statement of Changes in Stockholders Equity 3 Statement of Cash Flows 4 Notes to the Financial Statements 6 50

3

4

5 . 1. (TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH) Consolidated Balance Sheet As of December 31, 2009 and 2008 (Stated in thousands of nuevos soles) Assets Liabilities and Stockholders Equity Current assets: Current liabilities: Cash and banks and restricted funds (note 5) 396, ,628 Bank loans (note 17) 5, , Trade accounts payable 182, ,361 Accounts receivable: Related parties (note 7) 405 1,465 Trade (note 6) 329, ,480 Consortiums (note 8) 131,208 20,008 Related parties (note 7) 673 1,576 Other accounts payable (note 18) 519, ,623 Consortiums (note 8) 4,269 8,485 Commercial papers (note 19) 37,122 41,979 Other accounts receivable (note 9) 176,471 80,168 Current portion of long-term debt (note 20) 111,745 90, , ,709 Total current liabilities 986, , Inventories, net (note 10) 277, ,623 Long-term debt (note 20) 278, ,970 Prepaid taxes (note 11) 50,393 54,747 Available-for-sale non-financial assets 1,838 1,997 Deferred income tax (note 25.e) 48,146 30, Total current assets 1,237, ,704 Deferred income 3,222 4, Prepaid expenses and taxes (note 11) 22,850 - Total liabilities 1,316, , Long-term accounts receivable (note 12) 23,158 16,862 Stockholders equity: Capital stock (note 21) 390, ,798 Deferred income tax (note 25.e) 7,971 6,641 Legal reserve (note 22) 41,165 26,503 Other reserves (note 22) 4,862 3,262 Investments (note 13) 94, ,496 Unrealized results (note 23) ( 3,783) - Retained earnings 232, ,625 Property, plant, and equipment (note 14) 425, , Total stockholders equity Goodwill (note 15) 66,947 31,551 attributable to Parent Company 665, ,188 Other assets, net (note 16) 266,876 99,125 Minority interest 162,561 44, Total stockholders equity 827, ,568 Commitments and contingencies (note 26) Total assets 2,144,851 1,541,108 Total liabilities and stockholders equity 2,144,851 1,541,108 ======= ======= ======= ======= See the accompanying notes to the consolidated financial statements.

6 . 2. (TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH) Consolidated Income Statement For the years ended December 31, 2009 and 2008 (Stated in thousands of nuevos soles) Valuation of works (note 27) 1,419,872 1,339,842 Income from rendered services 471, ,402 Sale of merchandise and other 110,291 41, Total revenue 2,001,475 1,827, Cost of works (note 27) ( 1,252,261) ( 1,130,416) Cost of rendered services ( 329,435) ( 264,458) Cost of sales of merchandise and property ( 90,228) ( 33,346) Total cost ( 1,671,924) ( 1,428,220) Gross profit 329, ,490 Operating, administrative, and general expenses (note 28) ( 105,532) ( 104,554) Operating profit 224, , Other (expenses) income: Financial, net (note 29) ( 40,024) ( 30,155) Results attributable to associates 16,056 3,704 Various, net 7,498 8,643 Exchange difference, net (note 4.i) 19,999 ( 44,143) ,529 ( 61,951) Profit before workers profit sharing and income tax 227, ,985 Workers profit sharing (note 24) ( 11,128) ( 12,958) Income tax (note 25) ( 70,154) ( 65,994) Profit before minority interest 146, ,033 Minority interest ( 11,867) ( 6,844) Net profit for the year 134, ,189 ======== ======== Earnings per basic share in S/. (note 30) ======== ======== See the accompanying notes to the consolidated financial statements.

7 . 3. (TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH) Consolidated Statement of Changes in Stockholders Equity For the years ended December 31, 2009 and 2008 (Stated in thousands of nuevos soles) Capital stock (note 21) Legal reserve (note 22) Other reserve (note 22) Unrealized earnings (note 23) Retained earnings Total equity attributable to Parent Company Minority interest Total stockholders equity Balances as of December 31, ,423 13,514 4, , ,337 33, ,211 Capitalization 91, ( 91,042) Transfer to legal reserve - 12, ( 12,989) Dividends paid ( 25,981) ( 25,981) - ( 25,981) Adjustment ( 564) ( 564) 3,662 3,098 Treasury shares (note 21) ( 667) - ( 1,126) - - ( 1,793) - ( 1,793) Net profit for the year , ,189 6, , Balances as of December 31, ,798 26,503 3, , ,188 44, ,568 Transfer to legal reserve - 14, ( 14,662) Dividends paid ( 29,438) ( 29,438) - ( 29,438) Adjustment ( 4,402) ( 4,402) - ( 4,402) Minority interest (note 15) , ,314 Treasury shares (note 21) 830-1, ,430-2,430 Fluctuation in derivative fair value ( 3,783) - ( 3,783) - ( 3,783) Net profit for the year , ,399 11, , Balances as of December 31, ,628 41,165 4,862 ( 3,783) 232, , , ,955 ======== ======== ======== ======== ======== ======== ======== ======== See the accompanying notes to the consolidated financial statements.

8 . 4. (TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH) Statement of Cash Flows For the years ended December 31, 2009 and 2008 (Stated in thousands of nuevos soles) Operating activities: Net profit for the year 134, ,189 Adjustment to net result that do not affect the cash flow of operating activities: Depreciation 71,189 61,346 Deterioration of intangible assets 3,600 2,907 Amortization of other assets 48,676 12,757 Profit attributable to associates ( 16,053) ( 3,704) Loss on sale of assets ( 9) 2,295 Net variations in assets and liabilities: Trade accounts receivable 195 ( 137,341) Other accounts receivable ( 57,492) 28,282 Inventories ( 104,396) ( 79,366) Prepaid expenses and taxes and other assets ( 14,893) ( 10,361) Available-for-sale non-financial assets Trade accounts payable ( 173) ( 1,306) Consortia 111,200 14,411 Other accounts payable 73,374 18,686 Taxes, remunerations and profit sharing payable ( 12,734) 29,644 Advances for contract of works 254,953 1,998 Deferred income tax 16,345 3,575 Minority interest 63, Net cash provided by operating activities 571,523 91, Investing activities: Sale of property, plant, and equipment 4,433 10,385 Dividends received 11,555 - Purchase of intangible assets ( 70,355) ( 21,117) Purchase of investments ( 5,541) ( 6,607) Purchase of fixed assets ( 46,849) ( 192,944) Net cash used in investing activities ( 106,757) ( 210,283)

9 . 5. (TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH) Statement of Cash Flows Financing activities: Loans received, net of amortizations ( 147,250) 122,993 Securitization bonds, net of amortization ( 27,689) ( 16,455) Dividends paid ( 29,438) ( 25,981) Commercial papers ( 4,857) 41,979 Repurchase of own shares ( 2,430) ( 1,793) Net cash (used in) provided by financing activities ( 211,664) 120, Net increase in cash 253,102 1,682 Cash and cash equivalents at the beginning of the year 127, ,726 Variation in restricted funds 6,835 1, Cash at end of year 386, ,030 ========= ========= See the accompanying notes to the consolidated financial statements.

10 . 6. As of December 31, 2009 and 2008 (1) Business Activity Graña y Montero S.A.A. was incorporated on August 12, 1996 as the holding company of Grupo Graña y Montero. Its main activity is to invest in subsidiaries and related parties. Additionally, as from September 2005, it renders services of general management, financial management, commercial management, legal advisory and human resources management (prior to that date, it rendered business advisory services) to said companies. The Company s legal domicile is located at Av. Paseo de la República 4675, Surquillo. Likewise, as from year 2006, Graña y Montero S.A.A. has been engaged in the leasing of offices to the Group companies and to third parties. Year 2009 consolidated financial statements will be submitted to Board of Directors and General Stockholders Meeting within the terms established by law for the separate financial statements of Graña y Montero S.A.A.: (a) Subsidiaries: The consolidated financial statements of Graña y Montero S.A.A. and Subsidiaries (hereinafter the Group) include assets, liabilities, revenue and expenses of the following subsidiaries: GyM S.A. is engaged in the business of civil construction, electromechanical assembly, buildings, management and development of real property projects and other related services. GMP S.A. is engaged in the exploitation, production, treatment, and trading of oil, natural gas and its derivatives, as well as the storage and delivery of fuels. GMD S.A. is engaged in providing IT solutions in the Peruvian corporate market. GMI S.A. Ingenieros Constructores is engaged in providing services of advisory and engineering consultancy, execution of surveys and projects, project management and works supervision. Concar S.A. is engaged in the operation and maintenance of highways on concession. Fashion Center S.A. is engaged in developing and operating the conditioning and fitting out project for commercial and recreational use of the area of Parque Salazar of the district of Miraflores. Until June 30, 2007, Larcomar S.A. was engaged in the operation of the project that is currently operated by Fashion Center S.A. Survial S.A., is engaged in the execution of the concession agreement of phase 1 of Southern Inter-oceanic highway. Concesión Canchaque S.A. is engaged in the execution of the concession agreement of the Buenos Aires Canchaque highway. GMV S.A. is engaged in the real estate business, management services and project management and other services related to real estate and building sectors.

11 . 7. NORVIAL S.A., is engaged in the development of activities related to the economic use of goods part of the concession of the Ancón - Huacho - Pativilca tranche of the Pan- American Highway. (b) Consortia: Additionally, the consolidated financial statements of the Group include assets, liabilities, revenue and expenses of the consortiums in which it participates as venturer, through its subsidiaries, and where there is jointly control, being the most important the following: GyM S.A. s Consortia Percentage of interest Consorcio Pasco Consorcio GyM EYVISAC Consorcio Marcona GYM S.A. JJC Contratistas Generales S.A. Chinecas Consorcio BAC Constructores Transmantaro Consorcio La Quinua Consorcio Héroes Navales GYM S.A. - Skanska del Perú S.A Consorcio La Gloria Consorcio Alto Cayma Consorcio Río Pallca Consorcio Constructor Alto Cayma Consorcio Proyecto Chinquitirca Consorcio Constructor Cementero Consorcio Constructor IIRSA-Norte Consorcio GyM Concar Consorcio Vial Ayahuaylas 5.00 GyM S.A. s Consorcio Terminales GMD S.A. s Consorcio Ransa Comercial S.A. - GMD S.A Consorcio Telefónica del Perú S.A.A.- GMD S.A Consorcio Corporación TX Consorcio Procesos Electorales GMI S.A. Ingenieros Consultores Consorcio Vial Ayahuaylas 5.00 CONCAR S.A. s Consorcio GYM Concar Consorcio Vial Ayahuaylas 90.00

12 . 8. Consortia Percentage of interest GMV S.A. s Asociación en Participación Compass Fondo de Inversión Inmobiliario Graña y Montero S.A.A. s Asociación en Participación Torre Siglo XXI Asociación T In this regard, the consolidated financial statements include the following amounts coming from consortiums and joint ventures: In thousands of S/ Assets 290, ,345 ========= ========= Liabilities 114,478 94,489 ========= ========= Revenues 316, ,786 ========= ========= Expenses 271, ,184 ========= ========= The Group operates its divisions and/or business segments as described in note 31. (2) Basis for the Preparation of Consolidated Financial Statements The consolidated financial statements are prepared and presented in accordance with Accounting Principles Generally Accepted in Peru, which comprise the International Financial Reporting Standards (IFRS) authorized through resolutions issued by the Consejo Normativo de Contabilidad - CNC (Peruvian Accounting Board). The IFRSs include the International Accounting Standards (IAS) and the pronouncements of the Standing Interpretations Committee (SIC). In Peru, the CNC authorized as of December 31, 2009, current IAS 1 to 41, IFRSs 1 to 8, SICs 1 to 33, and all the pronouncements from 1 to 14 issued by the current Interpretations Committee (IFRIC). On February 22, 2010, Management approved the consolidated financial statements as of December 31, 2009 and they will be presented to Board of Directors for corresponding approval, and then put to the Ordinary General Stockholders Meeting for consideration, within the terms established by Law, for final approval. In management s opinion, the Board of Directors and General Stockholders Meeting will approve the accompanying financial statements as of December 31, 2009, without any modifications. The General Stockholders Meeting, held on March 30, 2009 approved the financial statements as of December 31, 2008.

13 . 9. (a) (b) (c) Measurement Bases The consolidated financial statements have been prepared in conformity with the historical cost principle, except for the derivative instruments recorded at fair value. Functional and Presentation Currency The consolidated financial statements are presented in nuevos soles (S/.) which is the Company s functional and presentation currency. Significant Accounting Estimates and Criteria The accounting estimates and criteria used for the preparation of the consolidated financial statements are continuously evaluated and are based on historical experience and other factors, including the reasonable expectation of occurrence of future events depending on the circumstances. The Company makes estimates and assumptions regarding the future. Resulting accounting estimates may vary from respective actual results. However, it is the opinion of management that estimates and assumptions applied by the Company do not have significant risk as to produce a material adjustment to the balances of assets and liabilities for next year. Significant estimations related to the consolidated financial statements are: amortization of intangible assets, depreciation of property, plant, and equipment, provision for severance indemnities, provision for income tax, and workers profit sharing, liability, the accounting criteria for which is described below. Review of carrying amount and provision for impairment The Company applies the guidelines stated in IAS 36 to determine whether a permanent asset requires from a provision for impairment. This determination requires the use of professional judgment by Management to analyze the indicators that might present impairment as well as the determination of value in use. In this last case, it is required to apply judgment in the elaboration of future cash flows that include the projection of future operations level of the Company, projection of economic factors that affect income and costs, as well as the election of the discount rate to be applied in this flow. Taxes Interpretations of applicable tax legislation are required in determining obligations and tax expenses. The Company looks for professional counseling in tax matters before taking any decision on it. Although Management considers that its estimates are prudent and appropriate, interpretation differences may arise with tax authorities affecting the charges for taxes in the future.

14 . 10. Management has exercised its critical judgment when applying accounting policies for the preparation of the accompanying financial statements, as explained in the corresponding accounting policies. (d) Consolidated Financial Statements The consolidated financial statements comprise the financial statements of Graña y Montero S.A.A., and the financial statements of the subsidiaries and consortia detailed in note 1. Subsidiaries The subsidiaries are all entities over which the Company has authority to govern their operating and financial policies generally for being holder of more than half of voting shares. Subsidiaries are consolidated from the date on which their control is transferred to the Company. They are de-consolidated from the date the control ceases. The Company uses the purchase method to record the acquisition of subsidiaries. The cost of acquisition is measured as the fair value of delivered assets, equity instruments issued, and liabilities incurred or assumed at the date of the exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are initially measured at fair value at the acquisition date. The excess of the cost of acquisition over the fair value of the Company s interest in identifiable net assets acquired is recorded as goodwill in the assets. If the cost is lower than the subsidiary s fair value of net assets (badwill), the difference is recognized directly in the income statement. Transactions, balances and unrealized gains among the companies that the Group controls are eliminated. Also, unrealized losses are eliminated unless the transaction provides evidence of impairment in the value of the assets transferred. Consortia The Company s interest in jointly controlled entities is recorded by the proportionate consolidation method, through which the Company includes in the relevant components of its consolidated financial statements the proportionate shareholding of its interest in revenue and expenses, assets and liabilities and individual cash flows of the joint venture. Significant transactions between the Company and joint ventures have been eliminated. Minority Interest Interests from third parties, that are not part of the Group, are shown as minority interests under the equity in the consolidated balance sheet and in the consolidated income statement.

15 . 11. (3) Main Accounting Policies Main accounting principles applied in the preparation of consolidated financial statements are detailed below. These principles and practices have been applied consistently to all years presented in these financial statements; unless otherwise indicated. (a) Cash and Cash Equivalents Cash and cash equivalents comprise cash in hands, overnight, time and sight deposits held at banks with original maturities between two and three months. (b) Trade Accounts Receivable and Provision for Doubtful Accounts Accounts receivable are initially recorded at their fair value and are subsequently valued at amortized cost, less the provision for deterioration. The provision for deterioration of trade accounts receivable is determined when there is objective evidence that the Group will not collect all the amounts overdue according to terms originally established. Management considers that the balances of trade accounts receivable as of December 31, 2009 and 2008 do not present uncollectibility risks. Trade accounts receivable are presented net of the advances received from clients provided that they are related with the same work agreement and said agreement establishes the possibility of compensation. (c) Inventories Inventories are valued at construction, acquisition and/or contribution costs, which do not exceed the net realizable value. The cost of construction materials is determined through the weighted average method, except in the case of inventories in transit, determined by the specific identification method. The net realizable value is the estimated selling price in the ordinary course of business, less cost to sale, and the commercialization costs. For the reductions of inventory book value at net realizable value, a provision for inventory impairment is recorded in the results of the period when those reductions occur. (d) Financial Instruments A financial instrument is any contract that gives rise to both a financial asset in one entity and a financial liability, or equity instrument in another. In the case of the Group, financial instruments correspond to primary instruments such as accounts receivable, accounts payable, long-term debts, commercial papers, derivative instruments, and shares representing capital share in other companies. Financial instruments are classified as asset, liability or equity according to the substance of the contract. The interest, dividends, gains, and losses generated by a financial instrument, and classified as liability, are recorded as income or expense in the income statement. The payment to holders of financial instruments classified as equity is recorded directly against equity. The financial instruments are compensated when the Group has the legal right to

16 . 12. compensate them, and management has the intention of paying them on a net basis or negotiating the asset, and paying the liability simultaneously. Fair value is the amount for which an asset could be exchanged between knowledgeable, purchaser and a seller, or a liability settled between a debtor and a creditor in an arm s length transaction. In Management s opinion, the carrying amount of financial instruments as of December 31, 2009 and 2008, is substantially similar to their fair values due to their short period of realization and/or maturity. The recognition and valuation criteria of those accounts are disclosed in the notes to the financial statements on accounting policies. (e) Financial Assets The Group classifies its investments in the following categories: i) marketable financial assets, ii) loans and accounts receivable, iii) Held-to-maturity investments, and iv) available-for-sale financial assets. The classification depends on the purpose for which investments were acquired. Management determines the classification of their investments as of the date of their initial recognition and reassesses this classification as of every closing date. Financial assets at fair value through profit or loss A financial asset is classified in this category if it was mainly acquired in order to be sold in the short-term or if it is so designated by Management. Derivative financial instruments are also classified as marketable unless they are designated as hedges. Assets in this category are classified as current assets if they are held as marketable or they are expected to be realized within 12 months as from the balance sheet date. During 2009 and 2008, the Group did not hold any investment under this category. Loans and accounts receivable Loans and accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides with money, goods or services directly to a debtor, with no intention to trading the account receivable. They are included in current assets, except for maturities exceeding 12 months after balance sheet date; these ones are classified as non-current assets. Loans and accounts receivable are included in trade accounts receivable from affiliates and various accounts receivable in the balance sheet (notes 6, 7, 8 and 9). Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities acquired with the intention and ability to hold them to maturity. During 2009 and 2008, the Group did not hold any investment under this category.

17 . 13. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets designated in this category or that do not classify in any of the other categories. These assets are shown as non-current assets unless Management has express intention to sell the investment within 12 months after the date of the balance sheet. During 2009 and 2008, the Group did not hold any investment under this category. Recognition and Measurement Investment purchases and sales are recognized as of the trade date, date on which the Group commits to purchase or sale the asset. Transaction costs related to financial assets recorded at fair value through profit and losses are recognized in the income statement. Financial assets are derecognized when the rights to receive cash flows from investments have expired or have been transferred, and the Group has substantially transferred all risks and rewards derived from ownership. Available-for-sale financial assets and held-for-trading assets are subsequently recognized at fair value. Loans, accounts receivable, and held-tomaturity investments are measured at their amortized cost using the effective interest method. Realized and unrealized gains and losses arising from changes in the fair value of the heldfor-trading category are included in the income statement, in the period they are originated. Unrealized gains and losses arising from changes in the fair value of nonmonetary securities, classified as available-for-sale, are recognized in equity. When securities classified as available-for-sale are sold or impaired, accumulated fair value adjustments are included in the income statement as gains or losses on investment in securities. Fair value of quoted investments is based on current bid prices. If market is not active (or securities are not quoted), the Company establishes the fair value by using valuation techniques. The Group evaluates at each balance sheet date, if there is objective evidence of the impairment of a financial asset or group of financial assets. (f) Available-for-Sale Non-Financial Assets Assets are classified as available for sale when their book value is expected to be recovered through their sale, when there is a plan for such a sale, and it is highly probable that their sale occurs in the short-term. These assets are valued at the lower of their cost or at their realizable value, less cost to sell. (g) Derivative Instruments The Group uses derivative instruments to reduce the risk of exchange rate fluctuations in its foreign currency accounts payable. Derivative instruments are recorded in conformity with IAS 39 Financial Instruments: Recognition and Measurement.

18 . 14. Derivative Instrument Contracts, for which the Group has established a fair value hedging relationship, are recorded as assets or liabilities in the balance sheet and are presented at fair value. Changes in the fair value are presented in the income statement, under net gains (losses) on derivative instruments. Derivative instruments are assessed at the beginning of the hedge and are considered highly effective if they are within a range of %. These hedges can be effective or not to compensate the risk of variations in the exchange rate of accounts payable in foreign currency recognized in the financial statements. In both cases, changes in the fair value are directly recorded in the results of the period. Likewise, the Group is exposed to the market risk due to changes in the interest rate and uses derivative instruments to mitigate partially this risk. Derivative Instrument Contracts, for which the Group has established a hedging relationship of future cash flows, are recorded as assets or liabilities in the balance sheet and presented at its fair value. As these hedges are effective to compensate the exchange risk in the interest rate, changes in the fair value are recorded directly to an equity account. These amounts are transferred to the results of the period in which the financial liability is settled and are presented in the net gains (losses) on derivative instruments. Such instruments shall be evaluated on a periodic basis and consider their effectiveness to reduce the risk associated to the exposure that is being covered. If in any moment, the hedging is not effective, changes in the fair value, as from that moment, shall be shown in the results of the period. (h) Investments in Associates Associates are all entities on which the Group exerts significant influence but not control. Investments in associates are recorded under the equity method, recognizing changes in the results and the equity of the associate, on a proportion basis, in the Group s financial statements. Dividends received from the associates are recorded as a decrease in the investment value. (i) Joint Venture The Group s interest in jointly controlled entities is recorded by the proportionate consolidation method, through which the Group includes in the relevant components of its financial statements the proportionate shareholding of its interest in revenue and expenses, assets and liabilities and individual cash flows of the joint venture. Significant transactions between the Group and joint ventures have been eliminated. (j) Property, Plant, and Equipment Property, plant, and equipment are recorded at acquisition cost, less accumulated depreciation (note 14). Historical cost includes disbursements directly attributable to the acquisition of these items. Subsequent costs attributable to the goods of the fixed asset improving their original performance are capitalized; other costs are recognized in the results.

19 . 15. Lands are not depreciated. Depreciation of plant and equipment and vehicles recognized as Large Equipment is calculated based on their use hours, in relation to the estimated useful hours of these assets. The depreciation of other assets that do not qualify as Large Equipment is calculated by straight line method to assign its cost less its residual value during the estimated useful life, as follows: Years Buildings and premises 5 to 33 Plant and equipment 5 to 10 Vehicles 5 to 10 Furniture and fixtures 4 to 10 Various equipment 4 to 10 The residual value and the useful life of an asset are reviewed and adjusted, if necessary, at each balance sheet date. The carrying amount of an asset is written off immediately at its recoverable amount when the carrying amount of the asset exceeds its estimated recoverable value. Gains and losses for sale of fixed assets correspond to the difference between the income from the transaction and the asset carrying amount. Those are included in the income statement. Assets under construction are capitalized as a separate component of property, plant and equipment. At completion, the cost is transferred to the appropriate category. Work-inprogress is not depreciated. (k) Impairment Loss When there are events or circumstantial economic changes indicating that the value of longlive asset might not be recoverable, Management reviews the carrying amount of these assets. If the result of the analysis is that the carrying amount of the asset exceeds its recoverable amount, the Company recognizes an impairment loss in the income statement, or the revaluation surplus is decreased in the case of revalued assets, by an amount equivalent to the excess in the carrying amount net of its tax effects related to deferred income tax and workers profit sharing. Recoverable amounts are estimated for each asset or, if it is not possible, for each cash-generating unit. The recoverable amount of a long-life asset or a cash-generating profit is the higher of the asset s fair value less costs to sell and its value in use. Fair value less cost to sell of a longlife asset or cash-generating profit, is the amount obtainable from its sale, in a transaction conducted on mutual independence conditions between knowledgeable parties, less corresponding costs to sell. Value in use is the present value of the future cash flows expected to arise from value of an asset or a cash-generating unit. Book balances of nonfinancial assets different from those of the goodwill that have been written off due to deterioration are reviewed as of the date of each report to verify any possible reversal of deterioration.

20 . 16. (l) Finance Lease Agreements Lease and/or sale agreements with a leaseback agreement on plant and equipment, through which the Group substantially assumes all risks and rewards related to the property of leased assets, are classified as finance lease and are capitalized at the inception of the lease terms, at an amount equal to the fair value of leased property, or if lower, to the present value of the minimum lease payments. Lease payments are apportioned between the reduction of the outstanding liability and the finance charge so as to produce a constant periodic rate of interest on the remaining balance of the liability. Obligations for finance and/or sale leases with finance leaseback agreements, net of financial charges, are included in the Long-term Debt account in the balance sheet. The financial cost is charged to results over the lease period. The cost of assets acquired through finance lease and/or sale with finance leaseback agreement is depreciated over their estimated useful life. (m) Public Service Concession Arrangements Public service concession arrangements operated by Consorcio Terminales, a consortium in which subsidiary Graña y Montero Petrolera S.A. has a 50% interest, are recorded as intangible assets because cash flows are conditional on usage levels of public service by users. Revenue and costs relating to construction of public infrastructure works are recognized by reference to the stage of completion, while revenue and expenses related to rendering of public services are recognized on an accrual basis. (n) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s interest of the identifiable net assets of a subsidiary as of the acquisition date. Likewise, the goodwill arising during the acquisition of minority interest in a subsidiary represents the excess of cost of the additional investment over fair value of net identifiable assets as of the date of acquisition. Goodwill is reviewed to determine whether a recognition of provisions for impairment is required. It is recorded at cost less accumulated provisions for impairment. Impairment losses are recognized in the income statement and are not reversed. Gains and losses from the sale of subsidiaries or associates include the carrying amount of goodwill related to the sold entity. Goodwill is allocated to cash-generating units to conduct impairment tests. Each of those cash-generating units represents the Group s investment in every place where it operates per primary reporting segment (note 15). (o) Other Assets Concessions included in Other Assets item of the balance sheet are recognized as such based on the forecast that these will generate future economic benefits for the Group. Concessions are recorded at cost. These fees are amortized at straight-line method based on the remaining maturity of concession agreements. Repairs of highways and works in parking lots are capitalized, and regular maintenance of highways and parking lots are recognized in expenses when they are incurred.

21 . 17. Investments in exploration, development and subscription rights of concession agreements are amortized as from the period when income from its exploitation is obtained until the maturity of the respective agreements. On the other hand, if it were the case, investments in exploration and exploitation, referred to those exploration agreements in which it has been determined that results are not successful, are charged to the results in the period when this situation is determined, after the compensation attributable to the interests of third parties in said investments. Costs related to the development or maintenance of software are recognized in results when incurred. However, costs that are directly related to single and identifiable software, that are controlled by the Group and that will provide future economic benefits higher than their cost in more than one year, are recognized as intangible assets. Direct costs related to the development of software include personnel costs and an aliquot part of general expenses. Development costs of capitalized software are amortized by straight-line method in the estimate of its useful life, without exceeding five years. (p) Loans Loans are initially recognized at their fair value, net of transaction costs incurred. These loans are subsequently recorded at their amortized cost, and any resulting difference between the funds received (net of transaction costs) and the redemption value is recognized in the income statement over the period of the loan using the effective interest method. Loans are classified as current liability unless the Group has the unconditional right to differ settlement of the liability for at least twelve months after the balance sheet date. (q) Provisions Provisions are recognized when the Group has a present legal obligation, either legal or constructive, as a result of past events, and when it is probable that an outflow of resources will be required to settle the obligation, and it is possible to reliably estimate its amount. Restructuring cost provisions comprise lease termination penalties and employee termination payment. Provisions for future operating losses are not recognized. When there are a number of similar obligations, the probability that an outflow of resources will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized although the likelihood of outflow for any specific item included in the same class of obligations may be small. Provisions are recognized at present value of expenditures expected to be required to settle the obligation using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense in the income statement.

22 . 18. (r) (s) Share of the Profits The Group recognizes a liability and an expense for workers profit sharing in profits equivalent to 5% and 10% of taxable base determined according to the current tax legislation for each subsidiary. Income Tax Current income tax is determined according to current tax provisions (note 25). Deferred income tax is recorded using the liability method, recognizing the effect of temporary differences that arise between the tax base of assets and liabilities and its balance in the financial statements. Deferred tax assets are only recognized as it is probable to have taxable benefits in the future against the credits that can be used. The effect of these temporary differences is also considered in the calculation of workers profit sharing. (t) Capital Stock Common shares are classified as equity. When the capital stock recognized as equity is repurchased (treasury shares) in conformity with the IFRSs, the payment made including any cost directly related (net of taxes) is deducted from the Group s equity until shares are amortized, reissued or sold (this repurchase has a different connotation under article 105 of Companies Act). When such shares are subsequently reissued or sold, any payment received, net of incremental costs directly attributable to the transaction and effects corresponding to income tax, is included in the equity (note 21). (u) Dividend Distribution Dividend distribution to stockholders is recognized as liability in the financial statements in the period when dividends are approved by General Stockholders Meeting. (v) Contingent Liabilities and Contingent Assets Contingent liabilities are not recognized in financial statements. They are only disclosed in the notes to financial statements unless the possibility of an outflow of economic resources is remote. Contingent assets are not recognized in financial statements, and they are only disclosed when an inflow of economic benefits is probable. (w) Revenue Recognition The Group recognizes revenues when the amount can be reliably measured, it is probable that future economic benefits will flow to the Group, and specific criteria are met per type of revenue as described below. Revenues are recognized in the results as follows:

23 . 19. Income from work valuations Income from work valuations and their respective costs are recognized as such when executing them, according to work progress. Additionally, such income and costs are adjusted to recognize the final projected profit margin of works which is monthly reviewed. Income is invoiced prior approval of works owners. Sale of goods Ordinary revenues from sale of goods are recognized and recorded when the products are delivered and the significant risks and rewards of ownership of the goods are transferred to the buyer, and the collection of corresponding accounts receivable is fairly certain. Rendering of services Revenues from rendered services are recognized in the accounting period in which the services are rendered, by reference to the stage of completion of the service, determined based on the services performed to date as a percentage of total services to be performed. Revenue and costs for services rendered are recognized as such when the services are rendered. Interest and dividends Interest income is recognized on a time proportion basis, using the effective interest method. Revenues from dividends are recognized when the right to receive the payment has been established. (x) Standards Not Yet Adopted by the Company Certain standards and interpretations have been issued internationally. In Peru, the CNC has not yet approved the following standards: - IFRS 9 Financial Instruments: This standard is related to classification and measurement of financial assets; it will be effective in January 2013 and its early adoption is recommended. This standard does not supersede IAS IFRIC 15 Agreements for the Construction of Real Estate: Effective on or after January 1, IFRIC 16 Hedges of a Net Investment in a Foreign Operation: Effective for periods beginning on or after October 1, IFRIC 17 Distributions of Non-cash Assets to Owners: Effective beginning on or after July 1, IFRIC 18 Transfers of Assets from Customer: Effective for transfers received on or after July 1, 2009.

24 Revisions to certain accounting standards and interpretations previously issued, most of them applicable internationally for periods beginning on or after January 1, The Company s management has not yet determined the potential effect that those standards, not yet approved by the CNC, might have on the preparation of its financial statements. (4) Financial Risk Management The Group s activities may expose it to a variety of financial risks related to the effects of fluctuations in the debt and equity market prices, fluctuations in foreign exchange, interest rates, and fair values of financial assets and financial liabilities. The Group s general program for the administration of risks is mainly focused on financial market unpredictability, and seeks to minimize potential adverse effects on the Group s financial behavior. Administration and Finance Management is in charge of the administration of risk following the policies approved by the Board of Directors. The Administration and Finance Management identifies, evaluates, and covers the financial risks in close cooperation with operating units. (i) Currency risk The Group's activities and indebtedness in foreign currency exposes it to exchange rate fluctuation risk, specially concerning the U.S. dollar. In order to reduce the Group s exposure, it conducts efforts to keep an appropriate balancing between assets and liabilities and between income and expenses in foreign currency. Balances in U.S. dollars (US$) as of December 31 are summarized as follows: In thousands of US$ Assets: Cash and banks 94,350 18,372 Trade accounts receivable 110, ,353 Other accounts receivable 64,546 ) 51, ) 269, , Liabilities: Bank loans ( 32,961) ( 36,884) Trade accounts payable ( 102,269) ( 41,524) Other accounts payable ( 87,173) ( 79,727) Long-term debts (including current portion) ( 68,871) ( 73,804) ( 291,274) ( 231,939) Net liability position ( 21,712) ( 54,486) ========= =========

25 . 21. These balances have been stated in nuevos soles (S/.) at the following exchange rates established by the SBS (Superintendency of Banking, Insurance, and Private Pension Fund Administrators) ruling as of December 31: In S/ US$ - Buy rate (assets) US$ - Sell rate (liabilities) As of December 31, 2009 and 2008, the Group and its Subsidiaries recorded gains on exchange for S/. 1, million and S/ million, and losses on exchange for S/. 1, million and S/ million, respectively. (ii) Interest rate risk The Group s income and operating cash flows are independent from the changes in the market interest rate because the Group s debt is substantially subject to fixed rate. Only the short-term debt corresponding to bank loans that finance working capital are subject to fluctuation of interest rates. The Group has taken a medium- and long-term debt at variable rate that subsequently was fixed using hedging transactions (Swaps). (iii) Credit risk The Group does not have significant credit concentration risk. Concerning the loans to its related parties, the Company has established measures aimed at assuring recoverability of such loans. The Group s certificates of time deposits are limited to four sound financial entities in order to avoid risk concentration. (iv) Liquidity risk Prudent management of liquidity risk implies keeping enough cash and marketable securities, financing available through a proper number of credit sources, and the capacity of closing positions in the market. The Company maintains an average debt maturity greater than the DEBT/ EBITDA ratio; additionally, the Group holds overnight deposits and certificates of time deposits for an approximate amount of US$ 26.3 million destined to face cash demands that new projects or investments may require. Finally, the program of commercial papers obtained during 2006 was renewed in year 2008 for 2 additional years, enabling lines amounting to US$ 20 million that contribute to reduce the dependence on lines granted by the financial system, to diversify financing sources.

26 . 22. (v) Capital Risk The main objective of the Group s capital management is assuring that it keeps a strong credit rating and capital ratio in order to support its business and maximize the value for the stockholder. The Company manages its capital structure and makes adjustments in the light of changes in business conditions. Under special circumstances, the Group provides contingent guarantees as credit support for main businesses when required. In thousands of S/ Bank loans 5, ,359 Trade accounts payable 182, ,361 Various accounts payable 680, ,894 Long-term debt 393, ,274 Derivative Instruments 4, Total debts 1,265, ,888 Cash and cash equivalents ( 386,967) ( 127,030) Net debts 878, ,858 Stockholders equity 827, ,568 Financial instruments 3, Stockholders equity and debts, net 1,710,300 1,379,426 ======== ======== Leverage ratio 51.37% 55.74% ======== ======== The Group has a prudent indebtedness and may continue increasing part of the debt in the future. The debt could be used for further Group s expansion. (5) Cash and Banks and Restricted Funds They comprise the following: In thousands of S/ Cash and checking accounts 95,634 76,624 Cash reserve 76,041 20,970 Overnight and time deposits 215,292 29, , ,030 Restricted funds 9,763 16, Total 396, ,628 ========= =========

27 . 23. As of December 31, 2009, the Group holds checking accounts, cash reserve, and time deposits at local banks in domestic and foreign currency for approximately S/ million and US$ million at interest rates ranging from 0.10% to 0.20% annually (S/ million and US$ million, respectively, as of December 31, 2008). As of December 31, 2009, restricted funds mainly includes US$ 3.40 million (US$ 4 million as of December 31, 2008) from subsidiary GMP S.A. held at Banco de Crédito del Perú, to guarantee obligations of a related party. (6) Trade Accounts Receivable Trade accounts receivable comprise invoices receivable and provisions pending invoicing mainly related to income from work valuations, income from rendered services, and sale of merchandise and property. As of December 31, 2009 and 2008, trade accounts receivable are shown net of advances from clients of S/ million and S/ million, respectively. Those invoices receivable have current maturity, do not accrue interest, and do not have specific collaterals. Aging of accounts receivable is as follows: In thousands of S/ Current 297, , days past due 24,557 29,665 Past due over 30 days 7,426 5, Total 329, ,480 ========= ========= As of December 31, 2009, trade accounts receivable mainly decreased due to collection of accounts receivable related to stage of completion of the works in the contracts of Concesión Canchaque S.A. for S/ million and Survial S.A. for S/ million (as of December 31, 2008 S/ million and S/ million for Concesión Canchaque S.A. and Survial S.A. respectively). Those balances are guaranteed by the Peruvian government once OSITRAN issue the corresponding Certificados de Avance de Obra - CAO (work completion certificates). Likewise, for the collection from Pluspetrol for S/ million for the works at Andoas and Topping Plant. (7) Related Parties The movement of accounts receivable and payable with related parties for the year ended December 31, 2009, is as follows: