U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F/A

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-35991

GRAÑA Y MONTERO S.A.A.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Republic of Peru

(Jurisdiction of incorporation or organization)

Av. Paseo de la República 4667

Surquillo

Lima 34, Peru

(Address of principal executive offices)

Daniel Urbina Pérez, Chief Legal Officer

Tel. 011-51-1-213-6565

Av. Paseo de la República 4667

Surquillo

Lima 34, Peru

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Shares, par value s/.1.00 per share, American Depositary Shares, each representing five Common Shares	New York Stock Exchange* New York Stock Exchange

* Not for trading purposes, but only in connection with the registration on the New York Stock Exchange of the American Depositary Shares representing those common shares.

Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation

pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

At December 31, 2016 660,053,790 shares of common stock

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     Yes  ☐    No  ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  ☒

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every interactive data filed required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 203.405 of this chapter) during the preceding 12 months (or for such other period that the Registrant was required to submit and post such files)    Yes  ☐    No  ☐ Note: Not required for Registrant.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ☒ Accelerated filer    ☐ Non-accelerated filer    ☐ Emerging growth company    ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards^† provided pursuant to Section 13(a) of the Exchange Act.    ☐

^†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing:

U.S. GAAP    ☐ International Financial Reporting  ☒ Standards as issued by the International Accounting Standards Board Other    ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow. Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Explanatory Note

This Amendment No. 1 to Form 20-F (the “Form 20-F/A”) is being filed solely to amend the annual report on Form 20-F for the fiscal year ended December 31, 2016 filed by Graña y Montero S.A.A. on May 15, 2018 (the “Form 20-F”) in the following manner:

• to include the audit opinion relating to the consolidated financial statements of the company, as of and for the year ended December 31, 2014;

• to remove in its entirety the Consolidated Income Statement formerly on page F-9 of the Form 20-F, which was duplicative of the information in note 2.30 of the consolidated financial statements;

• to change the words “Minority Interest” on page F-28 to “Non-controlling Interest”; and

• to update the Table of Contents immediately prior to page F-1 and the corresponding page numbering of the consolidated financial statements.

Except for the above amendments, no changes have been made to the financial statements of the company as contained in the Form 20-F.

This Form 20-F/A consists of a cover page, this explanatory note, Item 18 (as amended) of the Form 20-F, including the audit opinion described herein, the signature page and the required certifications of the principal executive officer and principal financial officer of the company. Other than as expressly set forth above, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in the Form 20-F or reflect any events that have occurred after the Form 20-F was filed.

(Free translation from the original in Spanish)

(All amounts expressed in thousands of S/ unless otherwise stated)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014, 2015 AND 2016

CONTENTS	Page
Independent auditor’s report		F-1 - 2
Independent auditor’s report		F-3
Consolidated Statement of Financial Position		F-4
Consolidated Income Statement		F-5
Consolidated Statement of Comprehensive Income		F-6
Consolidated Statement of Changes in Equity		F-7
Consolidated Statement of Cash Flows		F-8
Notes to the Consolidated Financial Statements		F-10 -114

S/ = Peruvian Sol

US$ = United States dollar

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Graña y Montero S.A.A. and its subsidiaries

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated statements of financial position of Graña y Montero S.A.A. and its subsidiaries (the “Company”) as of December 31, 2015 and 2016, the related consolidated statements of operations, comprehensive loss, changes in equity and cash flows for each of the years then ended, and the related notes. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2015 and 2016, and the results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2015 and 2016, based on criteria established in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because the following material weaknesses in internal control over financial reporting existed as of those dates:

- Lack of a formally established and documented process for enterprise and fraud risk management.

- Deficiencies in the design and operational effectiveness of controls over segregation of duties to help ensure that personnel with potential conflicts were not involved in incompatible activities.

- Deficiencies in the design and operational effectiveness of the controls established in the accounting closing process with respect to the review of the consolidated and separate financial statements, including controls over the review, approval and documentation related to journal entries.

- Deficiencies in the design and operational effectiveness of controls established with respect to the recognition of revenue and determination of related estimates, including construction contract revenues and contingent revenues, and the accounting for inventory.

- Deficiencies in the design of controls over the timely accounting for signed contracts.

- Deficiencies in design and operational effectiveness of the controls over the review and approval of the valuation of acquired assets and liabilities as part of a step acquisition.

- Lack of adequate supervision, monitoring and follow-up by the Audit Committee regarding the role of the Internal Audit Department.

- Deficiencies in operational effectiveness of controls over SOX compliance.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management Report on Internal Control over Financial Reporting appearing under Item 15. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audits of the 2015 and 2016 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F-1

Emphasis of Certain Matters

As discussed in Note 1 to the financial statements, Peruvian prosecutors included three former executives of the Company in an investigation for the alleged crimes of collusion and money laundering, and included Graña y Montero S.A.A and GyM S.A. as subjects of investigation and as third parties responsible on a civil basis. The Note also describes the results of an independent investigation and estimates that the cases will be resolved in a manner favorable to their interests. We are not able to anticipate the final result of those undertakings and the possible contingencies which may arise.

As discussed in Note 2.30 to the consolidated financial statements, the Company made adjustments to the consolidated financial statements as of December 31, 2015, which were presented in the previous Form 20-F. These adjustments consisted of reversals of estimates of work in progress and impairments of accounts receivable for S/ 44.7 million, as well as corrections in the recording of goodwill for S/ 14.7 million, reversal of deferred tax asset for S/ 23.4 million and other items for S/ 3.3 million.

Basis for Opinion

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the Management’s Report on Internal Control over Financial Reporting referred to above. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

/s/ Moore Stephens SCAI S.A.

Moore Stephens SCAI S.A.

We have served as the Company’s auditor since 2017.

Bogota, Colombia

May 15, 2018

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

April 30, 2015

To Graña y Montero S.A.A. Board of Directors and Shareholders:

In our opinion, the consolidated statements of income, of comprehensive income, of changes in equity and of cash flow for the year ended December 31, 2014 present fairly, in all material respects, the results of operations and cash flows of Graña y Montero S.A.A. and its subsidiaries for the year ended December 31, 2014, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/Gaveglio Aparicio y Asociados Sociedad Civil de Responsabilidad Limitada

Lima, Peru

F-3

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

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

ASSETS
			As at December 31,
	Note		2015		2016
			Restated see Note 2.30
Current assets
Cash and cash equivalents		9		554,002		606,950
Financial asset at fair value through profit or loss				3,153		352
Trade accounts receivables, net		11		1,042,455		1,031,270
Unbilled work in progress, net		12		1,278,227		680,929
Accounts receivable from related parties		13		280,153		181,664
Other accounts receivable		14		820,717		649,516
Inventories, net		15		1,159,154		1,104,293
Prepaid expenses				40,022		51,301
				5,177,883		4,306,275
Non-current assets classified as held for sale				22,511		22,385
Total current assets				5,200,394		4,328,660
Non-current assets
Long-term trade accounts receivable, net		11		621,831		667,519
Long-term unbilled work in progress, net		12		59,754		197,586
Long-term accounts receivable from related parties		13		—		531,384
Prepaid expenses				22,386		23,526
Other long-term accounts receivable		14		65,929		357,952
Available-for-sale financial assets		10		120,134		—
Investments in associates and joint ventures		16		637,005		389,759
Investment property				34,702		49,357
Property, plant and equipment, net		17		1,111,757		1,113,599
Intangible assets, net		18		878,286		960,286
Deferred income tax asset		25		147,845		427,008
Total non-current assets				3,699,629		4,717,976
Total assets				8,900,023		9,046,636

LIABILITIES AND EQUITY
			As at December 31,
	Note		2015			2016
			Restated see  Note 2.30
Current liabilities
Borrowings		19		1,228,020			1,961,043
Bonds		20		37,083			46,091
Trade accounts payable		21		1,635,762			1,276,617
Accounts payable to related parties		13		77,832			80,217
Current income tax				34,116			62,160
Other accounts payable		22		1,066,000			1,096,307
Provisions		23		13,468			14,531
Total current liabilities				4,092,281			4,536,966
Non-current liabilities
Borrowings		19		553,336			419,395
Long-term bonds		20		757,008			921,623
Other long-term accounts payable		22		246,396			512,803
Long-term accounts payable to related parties		13		20,136			65,320
Provisions		23		47,460			26,542
Derivative financial instruments				2,331			1,081
Deferred income tax liability		25		99,163			73,169
Total non-current liabilities				1,725,830			2,019,933
Total liabilities				5,818,111			6,556,899
Equity		24
Capital				660,054			660,054
Legal reserve				132,011			132,011
Optional reserve				29,974			29,974
Share Premium				897,532			882,464
Other reserves				(143,784	)		(167,456	)
Retained earnings				982,987			443,377
Equity attributable to controlling interest in the Company				2,558,774			1,980,424
Non-controlling interest				523,138			509,313
Total equity				3,081,912			2,489,737
Total liabilities and equity				8,900,023			9,046,636

The accompanying notes on pages F-10 to F-114 are part of the consolidated financial statements.

F-4

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT

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

		For the year ended December 31,
	Note	2014			2015			2016
					Restated see Note 2.30
Revenues from construction activities			4,749,159			5,501,537			3,945,599
Revenues from services provided			1,912,646			1,896,678			1,880,634
Revenue from real estate and sale of goods			346,875			417,280			643,373
			7,008,680			7,815,495			6,469,606
Cost of construction activities			(4,336,388	)		(5,342,379	)		(3,751,221	)
Cost of services provided			(1,489,574	)		(1,526,875	)		(1,674,180	)
Cost of real estate and goods sold			(231,150	)		(296,267	)		(440,786	)
	27		(6,057,112	)		(7,165,521	)		(5,866,187	)
Gross profit			951,568			649,974			603,419
Administrative expenses	27		(421,367	)		(413,385	)		(399,402	)
Other income and expenses, net	29		15,136			57,287			(13,270	)
Gain from the sale of investments	6 a) - 10		—			(8,289	)		46,336
Operating profit			545,337			285,587			237,083
Financial expenses	28		(102,816	)		(176,802	)		(231,571	)
Financial income	28		11,462			38,107			20,794
Share of the profit or loss in associates and joint ventures under the equity method of accounting	16		53,445			7,724			(589,710	)
Profit (Loss) before income tax			507,428			154,616			(563,404	)
Income tax	30		(146,196	)		(99,027	)		111,806
Profit (Loss) for the period			361,232			55,589			(451,598	)
Profit (Loss) attributable to:
Equity holders of the Company			299,743			7,097			(509,699	)
Non-controlling interest			61,489			48,492			58,101
			361,232			55,589			(451,598	)
Earnings per share from continuing operations attributable to owners of the Company during the period	35		0.454			0.011			(0.772	)

The accompanying notes on pages F-10 to F-114 are part of the consolidated financial statements.

F-5

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

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

			For the year ended December 31,
	Note		2014			2015			2016
						Restated see Note 2.30
Profit (Loss) for the period				361,232			55,589			(451,598	)
Other comprehensive income:
Items that will not be reclassified to profit or loss
Re-assessment of actuarial gains and losses, net of tax		31		(1,777	)		(3,860	)		(1,531	)
Items that may be subsequently reclassified to profit or loss
Cash flow hedge, net of tax		31		568			723			883
Currency translation adjustment, net of tax				(20,463	)		(59,660	)		14,307
Impairment of available-for-sale financial assets		10		4,649			19,973			(2,220	)
Impairment of financial assets available for sale, net of tax		10		—			—			(41,461	)
Exchange movements on translation of foreign subsidiaries, net of tax		31		—			(5,220	)		7,860
Exchange difference from foreign net investment, net of tax		31		(12,794	)		—			1,563
				(28,040	)		(44,184	)		(19,068	)
Other comprehensive income for the period, net of tax				(29,817	)		(48,044	)		(20,599	)
Total comprehensive income for the period				331,415			7,545			(472,197	)
Comprehensive income attributable to:
Equity holders of the Company				277,912			(25,713	)		(534,492	)
Non-controlling interest				53,503			33,258			62,295
				331,415			7,545			(472,197	)

The accompanying notes on pages F-10 to F-114 are part of the consolidated financial statements.

F-6

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2015 AND 2016

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

	Attributable to the controlling interests of the Company
	Number of shares In thousands		Capital		Legal reserve		Optional reserve		Premium for issuance of shares			Other reserves			Retained earnings			Total			Non-controlling interest			Total
Balances as of January 1, 2014		660,054		660,054		111,657		—		1,027,533			18,423			947,766			2,765,433			431,262			3,196,695
Profit for the year		—		—		—		—		—			—			299,743			299,743			61,489			361,232
Cash flow hedge		—		—		—		—		—			540			—			540			28			568
Adjustment for actuarial gains and losses		—		—		—		—		—			—			(1,332	)		(1,332	)		(445	)		(1,777	)
Foreign currency translation adjustment		—		—		—		—		—			(13,086	)		—			(13,086	)		(7,377	)		(20,463	)
Change in value of available-for-sale financial assets		—		—		—		—		—			4,649			—			4,649			—			4,649
Exchange difference from net investment in a foreign operation		—		—		—		—		—			(12,602	)		—			(12,602	)		(192	)		(12,794	)
Comprehensive income of the year		—		—		—		—		—			(20,499	)		298,411			277,912			53,503			331,415
Transactions with shareholders:
- Transfer to legal reserve		—		—		20,354		—		—			—			(20,354	)		—			—			—
- Dividend distribution (Note 34 and 36 g)		—		—		—		—		—			—			(112,127	)		(112,127	)		(68,062	)		(180,189	)
- Contributions of non-controlling shareholders (Note 36 d)		—		—		—		—		—			—			—			—			47,376			47,376
- Additional acquisition of non-controlling (Note 36 a)		—		—		—		—		(128,222	)		—			—			(128,222	)		(50,109	)		(178,331	)
- Sale to non-controlling interest in GyM Chile Spa (Note 36 b)		—		—		—		—		—			—			—			—			1,627			1,627
- Deconsolidation of subsidiaries (Note 36 e)		—		—		—		—		—			—			—			—			2,284			2,284
- Put option liability from acquisition of non-controlling (Note 22)		—		—		—		—		—			(111,819	)		—			(111,819	)		(2,010	)		(113,829	)
- Purchase of subsidiaries (Note 33 a)		—		—		—		—		—			—			—			—			66,659			66,659
Total transactions with shareholders		—		—		20,354		—		(128,222	)		(111,819	)		(132,481	)		(352,168	)		(2,235	)		(354,403	)
Balances as of December 31, 2014		660,054		660,054		132,011		—		899,311			(113,895	)		1,113,696			2,691,177			482,530			3,173,707
Balances as of January 1, 2015		660,054		660,054		132,011		—		899,311			(113,895	)		1,113,696			2,691,177			482,530			3,173,707
Profit for the period		—		—		—		—		—			—			7,097			7,097			48,492			55,589
Derivative instruments for cashflow		—		—		—		—		—			687			—			687			36			723
Re-assessment of actuarial gains and losses		—		—		—		—		—			—			(2,921	)		(2,921	)		(939	)		(3,860	)
Foreign currency translation adjustment		—		—		—		—		—			(45,411	)		—			(45,411	)		(14,249	)		(59,660	)
Change in value of available-for-sale financial assets		—		—		—		—		—			19,973			—			19,973			—			19,973
Exchange difference from net investment in a foreign operation		—		—		—		—		—			(5,138	)		—			(5,138	)		(82	)		(5,220	)
Comprehensive income of the year		—		—		—		—		—			(29,889	)		4,176			(25,713	)		33,258			7,545
Transactions with shareholders:
- Transfer to legal reserve		—		—		—		29,974		—			—			(29,974	)		—			—			—
- Dividend distribution (Note 34, 36 d)		—		—		—		—		—			—			(104,911	)		(104,911	)		(4,535	)		(109,446	)
- Contributions of non-controlling shareholders (Note 36 d)		—		—		—		—		—			—			—			—			10,329			10,329
- Additional acquisition of non-controlling (Note 36 a)		—		—		—		—		(894	)		—			—			(894	)		(971	)		(1,865	)
- Sale to non-controlling interest (Note 36 b)		—		—		—		—		(885	)		—			—			(885	)		2,527			1,642
Total transactions with shareholders		—		—		—		29,974		(1,779	)		—			(134,885	)		(106,690	)		7,350			(99,340	)
Balances as of December 31, 2015—Restated		660,054		660,054		132,011		29,974		897,532			(143,784	)		982,987			2,558,774			523,138			3,081,912
Balances as of January 1, 2016		660,054		660,054		132,011		29,974		897,532			(143,784	)		982,987			2,558,774			523,138			3,081,912
Loss for the period		—		—		—		—		—			—			(509,699	)		(509,699	)		58,101			(451,598	)
Derivative instruments for cashflow		—		—		—		—		—			839			—			839			44			883
Re-assessment of actuarial gains and losses		—		—		—		—		—			—			(1,121	)		(1,121	)		(410	)		(1,531	)
Foreign currency translation adjustment		—		—		—		—		—			9,885			—			9,885			4,422			14,307
Change in value of available-for-sale financial assets		—		—		—		—		—			(2,220	)		—			(2,220	)		—			(2,220	)
Transfer to profit or loss of available-for-sale financial assets		—		—		—		—		—			(41,461	)		—			(41,461	)		—			(41,461	)
Exchange difference from net investment in a foreign operation		—		—		—		—		—			7,722			—			7,722			138			7,860
Transfer to profit or loss of exchange difference from net investment in a foreign operation, net of tax		—		—		—		—		—			1,563			—			1,563			—			1,563
Comprehensive income of the period		—		—		—		—		—			(23,672	)		(510,820	)		(534,492	)		62,295			(472,197	)
Transactions with shareholders:
- Transfer to Optional reserve		—		—		—		—		—			—			—			—			—			—
- Dividend distribution (Note 34, 36 d)		—		—		—		—		—			—			(30,853	)		(30,853	)		(25,473	)		(56,326	)
- Contributions (devolution) of non-controlling shareholders,net (Note 36 d)		—		—		—		—		—			—			—			—			(19,099	)		(19,099	)
- Additional acquisition of non-controlling (Note 36 a)		—		—		—		—		(15,167	)		—			—			(15,167	)		(35,972	)		(51,139	)
- Sale to non-controlling interest (Note 36 b)		—		—		—		—		99			—			—			99			236			335
- Acquisition of subsidiary Adexus		—		—		—		—		—			—			—			—			4,153			4,153
- Deconsolidation of former subsidiary		—		—		—		—		—			—			2,063			2,063			35			2,098
Total transactions with shareholders		—		—		—		—		(15,068	)		—			(28,790	)		(43,858	)		(76,120	)		(119,978	)
Balances as of December 31, 2016		660,054		660,054		132,011		29,974		882,464			(167,456	)		443,377			1,980,424			509,313			2,489,737

The accompanying notes on pages F-10 to F-114 are part of the consolidated financial statements.

F-7

(Free translation from the original in Spanish)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW

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

			For the year ended December 31,
	Note		2014			2015			2016
						Restated see Note 2.30
CASH FLOW FROM OPERATING ACTIVITIES
Profit (Loss) before income tax				507,428			154,616			(563,404	)
Adjustments to profit not affecting cash flows from operating activities:
Depreciation		17		185,310			217,070			205,522
Amortization of other assets		18		74,730			89,355			82,743
Impairment of inventories		17		62			17			36,353
Impairment of accounts receivable and other accounts receivable		11-12		71			5,806			419,584
Debt forgiveness				—			—			(431,484	)
Impairment of property, plant and equipment		17		2,415			3,796			9,263
Impairment of other assets		18		14,170			—			54,308
Impairment of intangible assets				—			—			—
Recovery of impairment of inventory				(1,169	)					—
Financial expenses-CCDS				—			—			7,004
Expenses for liquidation of work in progress - CCDS				—			—			164
Indemnification for loss of profits				—			—			(33,600	)
Change on fair value of financial asset through profit or loss				—			(2,740	)		31
Change in the fair value of the liability for put option		22		—			(18,627	)		(984	)
Provisions		23		6,559			6,398			9,486
Dividends from available-for-sale financial assets				(9,350	)		(7,215	)		—
Income from return receipt from Morelco				—			—			(6,658	)
Re-assessment of purchase consideration of Morelco		33 b)		—			—			(7,166	)
Financial expense,net				76,102			125,096			106,739
Demobilization provisions in CCDS				—			—			24,915
Share of profit and loss in associates and joint ventures							—			—
under equity method		16 a) b)		(53,445	)		(24,993	)		589,710
Reversal of provisions		23		(9,394	)		(7,796	)		(17,883	)
Disposal of property, plant and equipment				—			5,881			3,951
Disposal on fair value of financial asset through				—
profit or loss				—			2,755			1,227
Profit on sale of property, plant and equipment		16		(4,845	)		(17,385	)		(18,393	)
Loss on financial asset at fair value through profit or loss				—			450			221
Loss on sale of non-current asset held for sale				—			—			22
Profit on sale from available-for-sale financial assets		10		—			—			(46,337	)
Loss on sale of investments in subsidiaries				—			8,289			—
Loss on re-assessment of accounts receivable				—			—			76,864
Loss on re-assesment of investment				—			—			6,832
Increase / (decrease) in assets and liabilities:
Trade accounts receivable and Unbilled work in progress				(594,993	)		(50,150	)		115,263
Other accounts receivable				32,159			(184,180	)		(85,234	)
Accounts receivable from related parties				(15,291	)		(133,286	)		84,448
Inventories				(51,489	)		(220,670	)		33,709
Pre-paid expenses and other assets				(8,634	)		11,667			(99	)
Trade accounts payable				82,051			199,402			(87,553	)
Other accounts payable				(19,731	)		(60,073	)		114,666
Accounts payable to related parties				55,316			14,777			45,902
Provisions				(7,208	)		(6,770	)		(2,756	)
Interest paid				(46,411	)		(110,884	)		(171,572	)
Payments related to Norvial Concession				(82,698	)		(142,575	)		(97,711	)
Payment of income tax				(154,878	)		(150,337	)		(125,619	)
Net cash applied to operating activities				(23,163	)		(292,306	)		332,474

F-8

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOW (continue)

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

	Note	For the year ended December 31,
		2014			2015			2016
					Restated see Note 2.30
CASH FLOW FROM INVESTING ACTIVITIES
Sale of available-for-sale investment			—			5,613			107,341
Sale of a financial asset through profit or loss			—			—			—
Sale of property, plant and equipment			42,968			55,832			66,086
Sale of financial asset at fair value through profit or loss			—			—			1,427
Sale of non-current assets held for sale			—			(13,496	)		117
Refunding for price adjustment			—			—			6,658
Return of contributions			—			481			1,963
Interest received			8,909			32,162			15,370
Dividends received	16 b) 34		46,068			59,175			27,992
Payment for purchase of a non-current asset held for sale			—			—			—
Payment for purchase of investments properties			(1,450	)		(748	)		(17,543	)
Payments for intangible purchase			(60,846	)		(32,883	)		(45,706	)
Payments for purchase and contributions on investment in associates and joint ventures	16 a) b)		(129,859	)		(464,086	)		(389,657	)
Direct cash outflow from acquisition of subsidiaries			(170,372	)		—			—
Purchase of property, plant and equipment			(265,567	)		(193,156	)		(147,732	)
Net cash flow from investing activities			(530,149	)		(551,106	)		(373,684	)
CASH FLOW FROM FINANCING ACTIVITIES
Loans received			2,770,286			4,448,332			3,941,750
Bonds issued	20		—			814,016			178,640
Amortization of loans received			(2,053,422	)		(4,549,000	)		(3,914,570	)
Amortization of bonds issued			—			(16,480	)		(25,281	)
Payment for debt cost transaction			—			(18,516	)		(650	)
Dividends paid to holders of the parent			(112,127	)		(104,911	)		(30,853	)
Dividends paid to non-controlling interest			(63,990	)		(4,535	)		(25,473	)
Cash received from non-controlling shareholders	36 d)		47,376			10,329			(19,099	)
Acquisition or sale of interest in a subsidiary of non-controlling shareholders	36 a)		(177,451	)		(223	)		(19,037	)
Sale of interest in a subsidiary of non-controlling shareholders	36 b)		1,627			—			335
Net cash provided by financing activities			412,299			579,012			85,762
Net increase (net decrease) in cash			(141,013	)		(264,400	)		44,552
Cash and cash equivalents at the beginning of the year			959,415			818,402			554,002
Cash and cash equivalents at the end of the period			818,402			554,002			598,554
NON-CASH TRANSACTIONS:
Debt capitalization			—			—			8,308
Acquisition of assets through finance leases			163,399			92,093			65,336
Recognition of debt as guarantor			—			—			608,247
Change in fair value of available-for-sale financial assets			4,649			19,973			—
Adjustment for deconsolidation of former subsidiaries			2,284			9,298			—
Establishment of joint operation - Panorama Plaza de negocios (net assets)			—			36,180			—
Account payable - acquisition of Morelco			45,684			—			—
Put option liability from acquisition of non-controlling			113,829			—			—

The accompanying notes on pages F-10 to F-114 are part of the consolidated financial statements.

F-9

(All amounts expressed in thousands of S/ unless otherwise stated)

GRAÑA Y MONTERO S.A.A. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014, 2015 AND 2016

1 GENERAL INFORMATION

a) Incorporation and operations

Graña y Montero S.A.A. (hereinafter the Company) was established in Peru on August 12, 1996 as a result of the equity spin-off of Inversiones GyM S.A. (formerly Graña y Montero S.A.). The Company’s legal address is Av. Paseo de la República 4675, Surquillo Lima, Peru and is listed on the Lima Stock Exchange and the New York Stock Exchange (NYSE).

The Company is the parent of the Graña y Montero Group (hereinafter the Group, which includes the Company and subsidiaries) and it is mainly engaged in holding investments in different Group companies. Additionally, the Company provides services of general management, financial management, commercial management, legal advisory and human resources management to the Group companies; it is also engaged in leasing offices to the Group companies.

The Group is a conglomerate of companies with operations including different business activities, the most significant are engineering and construction, infrastructure (public concession ownership and operation), real estate businesses and services. See details of operating segments in Note 7.

b) Authorization for issue of the financial statements

The consolidated financial statements for the year ended December 31, 2016 were prepared and issued with Management and Board of Directors authorization on May 15, 2018 and will be submitted for consideration and approval at the General Shareholders’ Meeting. Management expects that the consolidated financial statements as of December 31, 2016 will be approved with no changes.

c) Current situation of the Company

i) Legal Status

(A) Projects conducted in association with Odebrecht

Our company participated as minority shareholder in certain entities that developed six infrastructure projects in Peru with Odebrecht. In 2016, Odebrecht entered into a Plea Agreement with the authorities of the United States Department of Justice and the Office of the District Attorney for the Eastern District of New York by which it admitted the commission of corrupt acts in connection to two these projects (sections 2 and 3 of the Interoceánica Sur highway (“IIRSA Sur”) and the project to construct the Tren Eléctrico). As a consequence of this agreement, the Peruvian authorities initiated investigations.

(I) IIRSA Sur

With respect to the investigations conducted in relation to IIRSA Sur, the Public Prosecutor’s Office included the former Chairman of the Board of Directors, for bribery; a former Director, and a former executive of the company, for money laundering.

Subsequently, Graña and Montero S.A.A. and GyM S.A. were incorporated as subjects investigated in the case described above. The companies have appealed this judgment and the appeals are pending resolution by the Superior Court.

F-10

(All amounts expressed in thousands of S/ unless otherwise stated)

In addition, the Peruvian authorities has requested incorporation of Graña y Montero S.A.A. as third party responsible on a civil basis and the Company has filed an opposition to the government’s motion. Oral arguments will be made before the court on a hearing that is yet to be scheduled.

The Company believes that it has a solid defense and that therefore, the case would be resolved in its favor.

(II) Electric Train

The Peruvian authorities also requested to incorporate GyM S.A. as a third party responsible on a civil basis in the case related to the project to construct the electric train. The Company has filed an opposition. Oral arguments will be made before the court on a hearing that is yet to be scheduled.

The Company believes that it has a solid defense and that therefore, the case would be resolved in its favor.

(B) The Constructor Club

On July 11, 2017, Commision de libre competence of “Indecopi” initiated an investigation against several construction companies, including GyM S.A., about the existence of an alleged cartel called the Constructor Club, gathering information from the Company. Throughout the investigation, the Company has provided to the Indecopi with all the information requested.

The Company’s former commercial manager is under a criminal investigation, as well as other individuals related to other construction companies. However, the Company is not included in this case.

To the date the result of the case described is uncertain because it is in the preliminary phase and depends on the action of the third parties that have been included in it, However, management believes that the contingency to which the Company is exposed should not have a significant financial impact due to the lack of links I has with the alleged facts.

(C) Anticorruption Law application to the Company

Law 30737 and its regulation issued by Supreme Decree 096-2018-EF has mitigated the Company’s exposure to the cases described in sub sections (A) and (B) above. These rules set clear guidelines to estimate the potential compensation that would be paid by the Company in the improbable case that it would be convicted. Furthermore, these rules have significantly reduced the uncertainty derived from the legal proceedings, by among other things, preventing the imposition of liens or attachments of assets that would impair the ability of the Company to operate.

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

• The obligation to set up a trust that will guarantee any potential payment obligation of an eventual civil compensation and the interests in favor of the Peruvian State;

• The obligation not to transfer funds abroad without the prior consent of the Ministry of Justice;

• The implementation of a compliance program; and

• The obligation to disclose information to the authorities and to collaborate in the investigation.

The Company has designed a robust compliance program which is currently under implementation. In addition, it fully cooperates with the authorities in its investigations of the alleged facts. It is also engaged in preliminary works necessary to set up the trust while it receives from the authorities the amount of the trust. Management estimated that it would need to assign to the trust assets worth approximately USD 41 million and that its potential liability should not exceed USD 51 million.

F-11

(All amounts expressed in thousands of S/ unless otherwise stated)

ii) Independent Investigation related to Company business with Odebrecht S.A.

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

On March 30, 2018, the Board of Directors created a Risk, Compliance and Sustainability Committee who was in charge of the oversight of the investigation independent from management. The investigation was entrusted to Simpson, Thatcher and Bartlett that reported exclusively to the Risk, Compliance and Sustainability Committee to preserve its independence.

The independent investigation concluded on November 2, 2017, and found no evidence that the Group or any of its former or current directors or executives had intentionally or knowingly participated in acts of corruption related to the 6 projects developed in association with Odebrecht.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied in all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IFRIC) applicable to companies reporting under IFRS. The financial statements comply with IFRS as issued by the IASB in force as of 31 December, 2015 and 2016 respectively.

The consolidated financial statements have been prepared under the historical cost convention, except for derivative financial instruments, financial assets at fair value through profit and loss, available-for-sale financial assets measured at fair value. The financial statements are presented in thousands of Peruvian Soles, unless otherwise stated.

The preparation of the consolidated financial statements in conformity with IFRS requires Management to make estimates and assumptions in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.

2.2 Consolidation of financial statements

a) Subsidiaries

Subsidiaries are entities over which the Company has control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group applies the acquisition method to account for business combinations. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

F-12

(All amounts expressed in thousands of S/ unless otherwise stated)

The Group evaluates measurement of the non-controlling interest on an acquisition-by-acquisition basis. At December 31, 2015 and 2016, the measurement of the non-controlling interest in the Group’s acquisitions was made at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets.

Business acquisition-related costs are expensed as incurred.

Any contingent consideration assumed by the Group with the selling party is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration is recognized in accordance with IAS 39 as profit or loss.

Goodwill is initially measured as the excess of the acquisition cost, the fair value at the acquisition date of any interest previously acquired plus the fair value of the non-controlling interest, over the net identifiable assets acquired and liabilities and contingent liabilities assumed. If the acquisition cost is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss at the time of acquisition.

For consolidating subsidiaries, balances, income and expenses from transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognized as assets are also eliminated. If required, accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group.

b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions, in other words as transactions with owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interest, are also recorded in equity at the time of disposal.

c) Disposal of subsidiaries

When the Group ceases to have control over a subsidiary, any retained interest in the entity is re-measured at its fair value at the date when control is lost, with the change in carrying amount recognized in profit or loss at such date. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that the amount previously recognized in other comprehensive income is reclassified to profit or loss.

d) Joint arrangements

Contracts in which the Group and one or more of the contracting parties have joint control on the relevant joint activities are called joint arrangements.

Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be both joint ventures as well as joint operations.

Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition profits or losses and movements in the comprehensive income statement.

F-13

(All amounts expressed in thousands of S/ unless otherwise stated)

The Group assesses on an annual basis whether there is any objective evidence that the investment in the joint ventures and associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the impairment loss in ‘share of profit or loss in associates and joint ventures under the equity method of accounting in the income statement.

Joint operations are joint arrangements whereby the parties that have joint control of the arrangement, have rights over the assets, and obligations for the liabilities, relating to the arrangement. Each party recognizes its assets, liabilities, revenue and cost and its share of any asset or liability jointly held and on any revenue or cost arisen from the joint operation.

In the Group, joint operations mainly relate to consortiums (entities without legal personality) created exclusively for the development of a construction contract. Considering that the only objective of the consortium is to develop a specific construction contract, all costs and revenue are included within revenue from construction activities and cost of construction activities, respectively.

e) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a holding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting (see section d above).

Profits and losses resulting from transactions between the Group and its associates are recognized in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates are changed where necessary to ensure consistency with the policies adopted by the Group.

Impairment losses are measured and recorded in accordance with section d) above.

2.3 Segment reporting

Operating segments are reported in a consistent manner with internal reporting provided to Management of the Group.

If an entity changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change, the Group restates the information for earlier periods unless the information is not available.

2.4 Foreign currency translation

a) Functional and presentation currency

The consolidated financial statements are presented in Peruvian Soles, which is the Company’s functional currency and the Group’s presentation currency. All subsidiaries, joint arrangements and associates use the Peruvian Sol as their functional currency, except for foreign entities, for which the functional currency is the currency of the country in which they operate.

b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the date of the transactions or valuation when items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in the consolidated income statement, except when deferred in other comprehensive income.

Exchange differences arising on loans from the Company to its subsidiaries in foreign currencies are recognized in the separate financial statements of the Parent and individual financial statements of the subsidiaries. In the consolidated financial statements, such exchange differences are recognized in other comprehensive income and are subsequently re-classified in the income statement on the disposal of the subsidiary or debt repayment, to the extent such loans qualify as part of the “net investment in a foreign operation”.

F-14

(All amounts expressed in thousands of S/ unless otherwise stated)

Foreign exchange gains and losses of all monetary items are included in the income statement within financial income or expense.

c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency of the Group are translated into the presentation currency as follows:

i) Assets and liabilities for each statement of financial position presented are translated using the closing exchange rate prevailing at the date of the consolidated statement of financial position;

ii) income and expenses for each income statement are translated at the average exchange rate (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rate on the date of the transaction);

iii) capital is translated by using the historical exchange rate for each capital contribution made; and

iv) all exchange differences are recognized as separate components in other comprehensive income (loss), within foreign currency translations adjustment.

Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing exchange rate. Exchange differences are recognized in other comprehensive income.

2.5 Public services concession agreements

Concession agreements signed between the Group and the Peruvian Government entitle the Group, as a Concessionaire, to assume obligations for the construction or improvement of infrastructure and which qualify as public service concessions are accounted as defined by IFRIC 12, “Service Concession Arrangements”. The consideration to be received from the Government for the services of constructing or improving public infrastructure is recognized as a financial asset or as an intangible asset (bifurcated model), as set forth below.

The Group manages three types of concessions, for which accounting treatment is as follows:

a) Recognizes a financial asset to the extent that it has a contractual right to receive cash or other financial assets either because the Government secures the payment of specified or determinable amounts or because the Government will cover any difference arising from the amounts actually received from public service users in relation with the specified or determinable amounts. These financial assets are recognized initially at fair value and subsequently at amortized cost (the financial model).

b) Recognizes an intangible asset to the extent that the service agreement grants the Group a contractual right to charge users of the public service. The resulting intangible asset is measured at cost and is amortized as described in Note 2.15 (intangible asset model).

c) Recognizes a financial asset and an intangible asset when the Group recovers its investment partially by a financial asset and partially by an intangible asset (the bifurcated model).

2.6 Cash and cash equivalents

In the consolidated statements of financial position and cash flows, cash and cash equivalents include cash on hand, on-demand bank deposits, other highly liquid investments with original maturities of three months or less and bank overdrafts. In the consolidated statement of financial position, bank overdrafts are included in the balance of financial obligations as current liabilities.

F-15

(All amounts expressed in thousands of S/ unless otherwise stated)

2.7 Financial assets

2.7.1 Classification

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, financial assets held-to-maturity, loans and account receivables and financial assets available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

As of the date of the consolidated financial statements, the Group has classified its financial assets in the following three categories:

a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are non-derivatives that are designated by the Group as at fair value upon initial recognition and are held-for-trading. They are included in current assets in the consolidated statement of financial position. The derivative financial instruments policy is included at Note 2.9.

b) Loans and accounts receivable

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those whose maturity is greater than twelve months after the date of the consolidated financial statements. These are classified as non-current assets on the consolidated financial position. The Group’s loans and receivables comprise “trade accounts receivables”, “accounts receivable from related parties”, “other accounts receivable”, “unbilled work in progress” and “cash and cash equivalents”.

c) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets as “Other Financial Assets” unless Management intends to dispose them within 12 months of the date of the statement of financial position.

2.7.2 Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date, the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in profit or loss within “Other income and expenses, net” in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the income statement as part of “Other income and expenses, net” when the Group’s right to receive payments is established.

F-16

(All amounts expressed in thousands of S/ unless otherwise stated)

Changes in the fair value of monetary securities classified as available for sale are recognized in other comprehensive income. When a financial asset classified as available for sale is sold or impaired, the accumulated fair value adjustments recognized in equity are reclassified to profit or loss. Dividends on available-for-sale equity instruments are recognized in the income statement as part of “Other income and expenses, net” when the Group’s right to receive payments is established.

2.8 Impairment of financial assets

a) Assets carried at amortized cost

At the end of each reporting period the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. If a financial asset or a group of financial assets is impaired, the impairment losses are recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

For the loans and receivables category, the amount of any loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the statement of comprehensive income. If a loan or an account receivable has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price.

b) Assets classified as available-for-sale -

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets classified as available-for-sale is impaired.

For equity investments, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss—measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss—is removed from equity and recognized in profit or loss. Impairment losses recognized in the income statement on equity instruments are not reversed through the income statement.

2.9 Derivative financial instruments and hedging activities

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at the end of each reporting period. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group designates certain derivatives as hedges of a particular risk associated with a recognized asset or liability (fair value hedge) or a highly probable forecast transaction (cash flow hedge). Derivatives are initially recognized at fair value on the date of subscription of the contract and are subsequently recognized at their fair value. The method to recognize the gain or loss resulting from changes in the fair values of the derivatives depends on the nature of the item being covered.

The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

F-17

(All amounts expressed in thousands of S/ unless otherwise stated)

The fair values of various derivative instruments used for hedging purposes and changes in the account reserves for hedging in equity are disclosed in Note 8. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity period of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity period of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as fair value hedges is recognized as other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the income statement.

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecasted sale that is hedged takes place).

The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the income statement as “Financial income or Financial expenses”.

However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains or losses previously deferred in equity are transferred from equity and are included in the initial measurement of the cost of the non-financial asset. The deferred amounts are ultimately recognized in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecasted transaction is ultimately recognized in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within “other income and expenses, net”.

2.10 Trade receivables

Trade receivables are amounts due from customers for goods or services sold by the Company’s subsidiaries. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less any provision for impairment, except for receivables of less than one year that are stated at nominal amount which is similar to their fair values since they are short term.

2.11 Unbilled work in progress

Unbilled work in progress comprises the estimation made by the Management of the Engineering and Construction segment related to the unbilled rights receivable for services rendered and not yet approved by the client (valuation based on the percentage of completion).

It also includes the balance of work in progress costs incurred that relates to future activities of the construction contracts and the constructions phase in concessions (see Note 2.25 for detail on Revenue from construction and concession activities).

Changes in estimates of contract revenues and costs can increase or decrease the estimated margin. When a change in the estimate is known, the cumulative impact of the change is recorded in the period in which it is known based on the progress made.

F-18

(All amounts expressed in thousands of S/ unless otherwise stated)

2.12 Inventories

Inventory mainly includes land, work in progress and finished properties which are assigned to the real- estate activity. Land intended to carry out real estate projects is recognized at acquisition cost. Work in progress and finished properties comprise design costs, material, labor costs, financial costs (directly attributable to the acquisition, construction and production of qualified assets), other indirect costs and general expenses related to the construction.

Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The Company reviews annually whether inventories have been impaired identifying three groups of inventories to measure their net realizable value: i) the first group consists of land bought for future real estate projects which are compared to their net appraisal value; if the acquisition value is higher, a provision of impairment is made; ii) the second group consists of land under construction, impairment is measured based on cost projections; if these costs are higher than selling prices of each real estate unit, a provision is made for impairment; and iii) the third group comprises completed real estate units; these inventory items are compared to the selling prices less selling expenses; if these selling expenses are higher, a provision for impairment is made. For the reductions in the carrying amount of these inventories to their net realizable value, a provision is made for impairment of inventories with a charge to profit or loss for the year in which those reductions occur.

It also includes material used in the construction activity. Goods and supplies correspond to goods that the Group trades as part of its IT segment. Materials and supplies used in construction activities and IT equipment are determined under the weighted average cost method. Materials and other supplies are not written down below cost if the finished products in which they will be incorporated are expected to generate margin.

F-19

(All amounts expressed in thousands of S/ unless otherwise stated)

2.13 Investment properties

Investment properties are shown at cost less accumulated depreciation and impairment losses, if any. Subsequent costs attributable to investment properties are capitalized only if it is probable that future economic benefits will flow to the Company and the cost of these assets can be measured reliably; if not, they are recognized as expenses when incurred.

Repair and maintenance expenses are recognized in profit and loss when they are incurred. If the property’s carrying amount is greater than its estimated recoverable amount, an adjustment to reduce the carrying amount to the recoverable amount is recognized.

Depreciation is determined at rates calculated to write off cost, less estimated residual value, of each asset on a straight line basis over its estimated useful life. The estimated useful lives of those properties range from 5 to 33 years.

The investment property held by the Group consists of two Shopping Centers owned by subsidiary Viva GyM S.A. Fair value is estimated to be US$29.5 million, equivalent to S/99 million, at December 31, 2016 (US$16.7 million, equivalent to S/58 million, at December 31, 2015). The sales stores of these properties have been leased as an operating lease with third parties.

2.14 Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of these items.

Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance expense are charged to the income statement during the financial period in which they are incurred.

Assets under construction are capitalized as a separate component. At their completion, the cost of such assets is transferred to their definitive category.

Replacement units are major spare parts in which depreciation starts when the units are installed for use within the related asset.

Depreciation of machinery and equipment and vehicles recognized as “Major equipment” are depreciated based on their hours of use. Under this method, the total number of work hours that machinery and equipment is capable to produce is estimated and a charge per hour is determined. The depreciation of other assets that do not qualify as “Major equipment” is calculated under the straight-line method to allocate their cost less their residual values over their estimated useful lives, as follows:

	Years
Buildings and facilities		Between 3 and 50
Machinery and equipment		Between 4 and 10
Vehicles		Between 2 and 10
Furniture and fixtures		Between 2 and 10
Other equipment		Between 2 and 10

F-20

(All amounts expressed in thousands of S/ unless otherwise stated)

Residual values and useful lives are reviewed and adjusted as appropriate at each date of the statement of financial position. Gains and losses on disposals are recognized in “Other income and expenses, net” in the income statement. Regarding joint operations that carry out construction activities, the difference between the proceeds from disposals of fixed assets and their carrying amount is shown within “revenue from construction activities” and “cost of construction activities”, respectively.

2.15 Intangible assets

i) Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the purchase consideration, the amount of any non-controlling interest and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognized directly in the income statement.

Goodwill acquired in a business combination is allocated to each cash-generating units (CGU), or group of CGUs, that is expected to benefit from the synergies of the combination. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are performed at least annually and when events or changes in circumstances indicate a potential impairment. Any impairment is recognized immediately as an expense in item “Other income and expenses, net” and cannot be reversed later.

ii) Trademarks

Trademarks acquired separately are shown at historical cost. Trademarks acquired in a business combination are recognized at fair value at the acquisition date. Management has determined that these trademarks have indefinite useful lives. These trademarks have a long trajectory (between 24 and 39 years) in each market and the Group is committed to continue investing in the long-term to extend the period over which they are expected to continue to provide economic benefits.

Trademark impairment reviews are performed at least annually and when events or changes in circumstances indicate a potential impairment. Any impairment is recognized immediately as an expense in item “Other income and expenses, net” and cannot be reversed later.

iii) Concession rights

The intangible asset consisting of the right to charge users for the services related to service concessions agreements (Note 2.5 and Note 6.b) is initially recorded at the fair value of construction or improvement services. Before amortization is started, an impairment test is performed; it is amortized under the straight-line method, from the date revenue starts using the lower of its estimated expected useful life or effective period of the concession agreement.

iv) Contractual relationships with customers

Contractual relationships with customers are assets resulting from business combinations that were initially recognized at fair value as determined based on the expected cash flows from those relations over an estimated period of time based on the time period those customers will remain as customers of the Group (the estimation of useful life is based on the contract terms which fluctuate between 5 and 9 years). The useful life and the impairment of these assets are individually assessed.

F-21

(All amounts expressed in thousands of S/ unless otherwise stated)

v) Cost of developing wells

Costs incurred in preparing wells to extract hydrocarbons in Blocks I, III, IV and V, located in Talara, are capitalized as part of intangible assets. These costs are amortized over the useful lives of the wells (10 years for Blocks III, IV and V and 9 years for Block I), when is less than the period of the service agreement signed with Perupetro.

vi) Internally generated software and development costs

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met:

• It is technically feasible to complete the software product so that it will be available for use;

• management intends to complete the software product and use or sell it;

• there is an ability to use or sell the software product;

• it can be demonstrated how the software product will probably generate future economic benefits;

• technical, financial and other resources are available to complete the development and to use or sell the software product; and

• software expense during its development can be reliably measured.

Other development expenditures that do not meet these criteria are expensed as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. Computer software development costs recognized as assets are amortized over their estimated useful lives, which fluctuate between 2 to 8 years.

vii) Rights of use of land

Refers rights maintained by the Promotora Larcomar subsidiary S.A. Rights of use of land are stated at historical cost less amortization and any accumulated impairment losses. The useful life of this asset is based on the agreement signed (60 years) and the effective period may be extended if agreed to the parties. Amortization will begin when it becomes ready for its intended use by Management.

2.16 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortization and are subject to review annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

2.17 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Accounts payable are initially recognized at their fair value and subsequently are amortized at amortized cost using the effective interest method, except for accounts payable less than one year that are recorded at their nominal value that is similar to their fair value due to its expiration in the short term.

2.18 Other financial liabilities

Correspond to loans and bonds issued by the Group, which are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the cash received (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.

F-22

(All amounts expressed in thousands of S/ unless otherwise stated)

Fees paid for entering into loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs.

2.19 Borrowing costs

Borrowing costs are recognized in the income statement in the period in which they are incurred except for intangible assets and inventories (Note 18 and 15) in which the Group proceeds to capitalize borrowing costs.

General and specific borrowing costs directly attributable to acquisitions, construction or development of qualifying assets, which are assets that necessarily take a substantial period of time (over 12 months) to get ready for their intended use or sale, are added to the cost of those assets, until assets are substantially ready for their intended use or sale. The Company suspends capitalization of a qualifying asset during periods in which qualify asset development is interrupted .Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

2.20 Current and deferred income tax

Income tax expense comprises current and deferred tax. Tax expense is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or equity, in which case, it is recognized in the statement of comprehensive income or directly in equity, respectively.

The current income tax is calculated on the basis of the tax laws enacted or substantively enacted at the date of the statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Management, where appropriate, establishes provisions on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority.

F-23

(All amounts expressed in thousands of S/ unless otherwise stated)

2.21 Employee benefits

a) Profit sharing

Peruvian entities of the Group recognize a liability and an expense for statutory workers’ profit sharing under laws and regulations currently in force. Workers’ profit sharing is equivalent to 5% or 8% of the taxable income determined separately by each of the Group’s Peruvian entities, according to the income tax currently in force. The branch based in the Dominican Republic has a similar profit sharing scheme, with a rate of 10% on the taxable income. For Chile, workers’ profit sharing is a component of remuneration (equivalent to 4.75 minimum salary per year) rather than a percentage based on profits. In Colombia and Guyana no such benefits are paid to workers. In Bolivia workers’ profit sharing is equivalent to a one-month salary and the total amount distributed cannot exceed 25% of company’s profits determined under local regulations.

b) Statutory bonuses

Entities of the Group recognize the expense and the related liability for statutory bonuses based on applicable laws and regulations effective in Peru, Chile, Bolivia, Guyana and Colombia.

c) Severance Compensation

Employees’ severance payments for time of service of the Peruvian Group staff comprise their indemnification rights, calculated in accordance with the regulations in force, which have to be deposited on bank accounts designated by workers in May and November each year. The compensation for time of service amounts to one-month’s salary effective at the date of bank deposits. There is no such benefit in Chile and Guyana. The Group does not have any additional payment obligation once the annual deposits are made of the amounts to which workers are entitled.

d) Vacation leave

Annual vacation leave is recognized on an accrual basis. Provision for the estimated obligations of annual vacations is recognized at the date of the statement of financial position and it corresponds to one month for Peruvian employees and fifteen days for Dominican and Colombian employees per year. In Bolivia and Chile vacation leave depends on seniority of a worker and ranges from fifteen to thirty days.

e) Pension plans

The subsidiary CAM has in place a pension plan scheme with its workers. These commitments comprise both defined benefit and defined contribution plans. A defined benefit plan defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognized in the statement of financial position with respect to the defined benefit pension plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used.

Re-measurements arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

F-24

(All amounts expressed in thousands of S/ unless otherwise stated)

f) Restructuring Cost

Group companies recognize the liability and the expense for employees’ severance indemnities when they are incurred. Under Peruvian laws, in the event of an arbitrary termination of a worker, the related indemnities equal an additional one-month salary and a half per each year actually worked by the terminated worker.

Under Colombian laws, this type of indemnities is determined based on the salary. Under Chilean laws, termination indemnities equal an additional 30-day salary per each year actually worked up to a maximum 330 days.

2.22 Other provisions

a) General

Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are reviewed at year - end. If the time value of money is significant, provisions are discounted using a pre-tax rate that reflects, when applicable, the specific risks related to the liability. Reversal of the discount due to the passage of time results in the obligation being recognized with a charge to the income statement as a financial expense. Provisions are not recognized for future operating losses.

Contingent obligations are disclosed for possible obligations that are not yet determined to be probable. Contingent assets are not recognized and only disclosed if it is probable that future economic benefits will flow to the Company.

b) Provision for the closure of production wells -

The subsidiary GMP recognizes a provision for the closure of operating units that correspond to the legal obligation to close oil production wells once the production phase has been completed. At the initial date of recognition, the liability that arises from said obligation is measured at the amount of expected cash flow discounted to present value, the same amount is simultaneously charged to the intangible account in the statement of financial position. Subsequently, the liability will increase in each period to reflect the financial cost considered in the initial measurement of the discount, and the capitalized cost is depreciated based on the useful life of the related asset. When a liability is settled, the Group’s entities will recognize any gain or loss that may arise. The fair value changes estimated for the initial obligation and interest rates are recognized as an increase or decrease of the carrying amount of the obligation and related asset, any decrease in the provision, and any decrease of the asset that may exceed the carrying amount of said asset is immediately recognized in the income statement.

If the review of the estimated obligation results in the need to increase the provision and, accordingly, increase the carrying amount of the asset, the Group’s entities will also take into consideration if said increase corresponds to an indicator that the asset has been impaired and, if so, impairment tests are carried out (Note 2.16).

2.23 Put option arrangement

The Group has written put options over the equity of its subsidiary Morelco SAS (Note 33 b) which permit the holder to put their shares of the subsidiary back to the Group over a 10 -year period. The amount that may become payable under the option upon exercise is initially recognized at the present value of the redemption amount within other accounts payable with a corresponding charge directly to equity. The charge to equity is recognized separately as written put options over non-controlling interests, adjacent to non-controlling interest in the net assets of the consolidated subsidiaries.

F-25

(All amounts expressed in thousands of S/ unless otherwise stated)

Subsequently, the financial liability is updated for changes in the assumptions on which the estimated expected cash outflows were based and a financial component for the passage of time. The effects of this update are recognized in the income statement as Other income/expense. In the event that the option expires unexercised, the liability is derecognized with a corresponding adjustment to equity.

2.24 Capital

Common shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity, as a deduction, net of taxes, of the proceeds.

Where any Group company purchases the Company’s equity shares (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company’s equity holders until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects is included in equity attributable to the Group’s equity holders.

2.25 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. The Group recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of the Group’s activities.

The Group’s revenue recognition policy is described as follows:

i) Revenue from construction activities

Revenues from construction contracts are recognized using the percentage-of-completion method which is based on the completion of a physical proportion of the overall work contract considering total costs and revenues estimated at the end of the project, in accordance with IAS 11, Construction Contracts. Under this method revenues are determined based on the proportion of actual physical completion compared to the total contracted physical construction commitment.

When it is probable that the total costs of the contract will be above the related revenue, the expected loss will be immediately expensed.

When the outcome of a construction contract cannot be estimated reliably, the associated revenue is recognized to the extent costs incurred are recoverable. Revenue is billed once approval is received by the owners of the work in progress.

In the statement of financial position, the Company shows the net position of each contract as an asset or a liability. A contract is considered an asset when the costs incurred plus recognized earnings less the sum of all the recognized losses and assessments exceed work in progress billings; this asset is shown in the statement of financial position as “Unbilled work in progress”; otherwise they are presented as a liability within “Trade accounts payables”.

A change order is an instruction by the customer for a change in the scope of the work to be performed under the contract that may lead to an increase or a decrease in contract revenue. A variation is included in contract revenue when it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and the amount of revenue can be reliably measured.

F-26

(All amounts expressed in thousands of S/ unless otherwise stated)

A claim is an amount that the Group seeks to collect from the customer or third party as reimbursement for costs not included in the contract price. Claims are included in contract revenue only when negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and the amount that it is probable will be accepted by the customer can be measured reliably.

ii) Revenue from engineering, advisory, consulting services and other services

Revenues from service contracts are recognized in the accounting period in which they are performed using the percentage of completion method, calculated based on the percentage of costs incurred. Additionally, there are contracts whereby income is recognized as it is earned, regardless of when the related fees are received.

iii) Sales of real-estate properties

Revenue from sales of real estate properties is recognized in the results of the period when sales occur, that is, when the properties are delivered and the risks and rewards inherent to ownership are transferred to the buyer and the collection of the corresponding receivables is reasonably assured.

iv) Revenue from IT services

The sale of computer equipment includes some services to be provided in a subsequent date to the asset sale as installation and maintenance. When sales agreements include multiple elements, the amount of the revenue is attributed to each element based on their related fair values. The fair value of each element is determined based on the market price prevailing for each element when sold separately. Revenue derived from computer equipment is recognized when the related risks and rewards are transferred to the customer, which occurs upon delivery. Revenue relating to each service element is recognized using the straight line method.

v) Interest income

Interest income is recognized on a time-proportion basis, using the effective interest method.

vi) Revenue for concession services

Revenue from concession services is recognized according to its nature. Construction and restoration activities are accounted for applying the percentage-of-completion method as described above and operation and maintenance services in the accounting period when they are provided (see Note 2.5).

2.26 Construction contract costs

Contract costs include all direct costs such as materials, labor, subcontracting costs, manufacturing and supply costs of equipment, start-up costs and indirect costs. Periodically, the Company evaluates the reasonableness of the estimates used in the determination of the percentage-of-completion. If, as a result of this evaluation, there are modifications to the revenue or cost previously estimated, or if the total estimated cost of the project exceeds expected revenues, an adjustment is made in order to reflect the effect in results of the period in which the adjustment or loss is incurred.

When the outcome of a construction work cannot be estimated reliably, the revenue of the contract is recognized only up to the amount of the contractual costs incurred and that are likely to be recovered.

F-27

(All amounts expressed in thousands of S/ unless otherwise stated)

2.27 Leases

a) The Group as a lessee

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases, including prepayments (net of any incentives received from lessor) are charged to the consolidated income statement under the straight-line method over the lease term. The Group’s major kinds of operating leases are leases of machinery, computer equipment, printing equipment, among others.

Finance leases

Leases in which the Group assumes substantially all the risks and rewards of ownership of an asset are classified as finance leases. Each lease payment is allocated between the liability and finance charges so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The corresponding rental obligations, net of finance charges, are included in other payables, short- and long-term in the consolidated statement of financial position.

The interest element of the finance cost is charged to the consolidated statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the useful life of the asset or the lease term.

b) Group as a lessor

The Group only has operating leases and the leased assets are stated in the statement of financial position based on the nature of the asset. Revenue from operating leases are recognized under the straight-line method over the lease term and the incentives given to lessees reduce the revenue obtained from leases.

2.28 Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders.

2.29 Significant non-operating items

Significant non-operating items are separately shown in the financial statements when they are necessary to provide a more adequate understanding of the Group’s financial performance. These material items are income or expenses shown separately due to their nature or significant amount.

2.30 Restatement of Consolidated Financial Statements

Company Management identified the need to make adjustments to the consolidated financial statements for the year 2015, so proceed to correct and restructure the financial statements as of December 31, 2015 in the items detailed below:

			2015			Adjustment			2015
									Restated See Note 2.30
Asset Restated
Trade accounts receivables, net	(1	)		1,050,791			(8,336	)		1,042,455
Unbilled work in progress, net	(1	)		1,319,187			(40,960	)		1,278,227
Other accounts receivable	(1	)		824,589			(3,872	)		820,717
Investments in associates and joint ventures				646,884			(9,879	)		637,005
Intangible assets, net				881,020			(2,734	)		878,286
Deferred income tax asset	(3	)		173,851			(26,006	)		147,845
Liability Restated
Provisions				35,618			11,842			47,460
Deferred income tax liability	(3	)		101,664			(2,501	)		99,163
Other liabilities				5,671,484			4			5,671,488
Equity Control Entity
Translation Adjustment	(2	)		(129,059	)		(14,725	)		(143,784	)
Profit (loss) for the period				88,153			(81,057	)		7,096
Noncontrolling interest				528,489			(5,350	)		523,138
Gross profit	(1	)		702,805			(52,831	)		649,974
Other expenses / other income, net				(364,382	)		(5	)		(364,387	)
Financial expenses/income				(138,695	)		—			(138,695	)
Share of the profit or loss in associates and joint ventures under the equity method accounting				17,603			(9,879	)		7,724
Income Tax	(3	)		(75,619	)		(23,408	)		(99,027	)
Profit (Loss) for the period				141,712			(86,123	)		55,589
Profit (Loss) attributable to:
Equity holders of the Company				88,154			(81,057	)		7,097
Non-controlling interest				53,558			(5,066	)		48,492
				141,712			(86,123	)		55,589

(1) The Company performed a review of the estimates made of the work in progress, as well as impairments to the accounts receivable, determining the need to make adjustments to the account balances.

(2) The Goodwill of Morelco S.A. during 2015 was recorded using the group the functional currency (soles). In the review conducted in 2016, it was identified that the registration should be made in the currency of the subsidiary, generating a conversion adjustment.

(3) Likewise, a review of deferred tax assets was conducted, determining the need to record adjustments in accordance with the adjustments described above.

As a result of the recording of these adjustments in the consolidated financial statements as of December 31, 2015, the Company’s equity decreased by approximately S / 86 million.

3 ADOPTION OF NEW INTERNATIONAL FINANCIAL INFORMATION REGULATIONS (IFRS), AMENDMENTS AND INTERPRETATIONS

3.1. Standards, amendments and interpretations adopted by the Group

The Company has adopted as of January 1, 2016 the following amendments to the IFRSs and amendments to IFRSs considered for the first time in the preparation of the financial statements:

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(All amounts expressed in thousands of S/ unless otherwise stated)

• Annual improvements to IFRS, 2012-2014 cycles, which has required additional minor disclosures.

• Acquisition of interest in an entity, amendment to IFRS 11 ‘Joint Arrangements’, this amendment clarifies that a joint operator that acquires an asset or group of assets in a joint operation that represents a business in accordance with IFRS 3, applies the principles of IFRS 3 when accounting for the business combinations of the acquisition. This will result in a separate recognition of goodwill, if any arise in the acquisition. If the asset or group of assets acquired does not constitute a business, the principles of IFRS 3 do not apply.

• The amendment also clarifies that a joint operator that increases its interest in an existing joint operation in which the operator retains joint control does not again measure the interest previously held in the joint operation

• Amendments to the disclosure initiatives, IAS 1 ‘Presentation of the financial statements’. The amendments intend to clarify a series of disclosure requirements that cover:

• The disclosure of significant accounting policies;

• The application of materiality to the financial statements;

• Presentation of subtotals;

• Information to be presented in the other comprehensive income section of the performance statement; and

• The structure of financial statements.

The adoption of these changes did not have a material impact on the current year or prior years’ balances and they are not likely to affect future periods; however, the Group will give continuous consideration to the areas addressed in the amendments to help clear and concise information.

3.2. New standards, amendments and interpretations effective for financial statements of annual periods beginning on or after January 1, 2017 which have not been early adopted

• Amendments to IAS 7 “Statement of cash flows” requires the Group to include an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities.

• Amendments to IAS 12 “Income taxes” clarifies i) the requirements for recognizing deferred tax assets on unrealized losses ii) the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base and iii) certain other aspects of accounting for deferred tax assets. These amendments are effective for annual financial periods beginning on or after January 1, 2017 and early application is permitted. The Group does not expect these amendments may have a significant impact on its financial statements.

• IFRS 9, “Financial instruments”, addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 on the classification and measurement of financial instruments.

The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Group does not expect that the changes in IFRS 9 may have a material impact on its criteria of classification and measurement of financial assets and liabilities.

• IFRS 15, “Revenue from contracts with customers”, it replaces IAS 18 “Revenue” and IAS 11 “Construction contracts” and the related interpretations.

The new standard is based on the principle that income is recognized when the control of a good or service is transferred to a customer, in such a way that the notion of control replaces the existing notion of risks and benefits. The new standard establishes a new five-step process that guides the revenue recognition, these are: (i) identify contracts with customers, (ii) identify the performance obligation, (iii) determine the transaction price of the contract, (iv) allocate the transaction price to each of the performance obligations; and, (v) recognize the income as each performance obligation is satisfied

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(All amounts expressed in thousands of S/ unless otherwise stated)

The application of IFRS 15 may have flow-on effects on the entity’s business practices regarding systems, processes and controls, compensation and bonus plans, contracts, tax planning and investor communication.

The standard is effective for annual periods beginning on or after January 1, 2018 and early application is permitted.

The Group is in the process of estimating the effects of the application of IFRS 15; its assessment is being conducted by operating segment: engineering and construction, infrastructure, real estate, technical services and parent company operation. At December 31, 2016, the Group has conducted qualitative assessment to identify impacts.

The Group estimates that the current procedure of revenue recognition defined according to its types of ordinary activities will not be materially different from the current definition of the standard that is based on compliance with performance obligations, whether for a period or a point in time.

The Group is in the process of evaluating the methodology to be used for the transition of IFRS 15. At this point, despite the qualitative evaluation, the Group cannot reasonably estimate the quantitative impacts that this standard would have on the financial statements.

• IFRS 16 “Leases”, this standard replaces the current rules relating to the treatment of leases IAS 17 “Leases” and IFRIC 4 “Contracts may contain a lease” and other related interpretations.

IFRS 16 is effective for financial periods beginning on or after January 1, 2019; early application if permitted provided IFRS 15 is also early adopted. The Group is presently evaluating the impact of these standard on the preparation of its consolidated financial statements.

• IFRIC 22, “Foreign currency transactions and advance consideration”, the new interpretation clarifies which date should be used for translation when a foreign currency transaction involves an advance payment/receipt.

This interpretation will impact all entities that enter into foreign currency transactions for which consideration is paid or received in advance.

This interpretation is effective for financial periods beginning on or after January 1, 2018; early application is permitted. The Group is evaluating whether the changes introduced in IFRIC 22 may have a material impact on the qualifying criteria of “date of transaction” at their engineering and construction segment, which is the one with significant advances balances.

• IFRIC 23 “Uncertainty over income tax treatments”, it clarifies how the recognition and measurement requirements of IAS 12 ‘Income taxes’, are applied on the recognition and measurement of a tax liability or asset in circumstances where there is uncertainty in the application of the tax law in concern.

The Group is required to consider whether it is probable that a taxation authority will accept an uncertain tax treatment. If an entity concludes that it is not probable that the treatment will be accepted, it should reflect the effect of the uncertainty in its income tax accounting in the period in which that determination is made.

This IFRIC is effective for financial periods beginning on or after January 1, 2019 and early application is permitted. The Group is evaluating the impact of this standard on its financial statements.

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(All amounts expressed in thousands of S/ unless otherwise stated)

No other IFRS or IFRIC interpretations not yet effective are expected to have a material impact on the Group’s financial statements.

F-31

(All amounts expressed in thousands of S/ unless otherwise stated)

4 FINANCIAL RISK MANAGEMENT

Financial risk management is carried out by the Group’s Management. Management oversees the general management of risks in specific areas, such as foreign exchange rate risk, price risk, cash flow and fair value interest rate risk, credit risk, the use of derivative and non-derivative financial instruments and the investment of excess liquidity as well as financial risks, and carries out periodic supervision and monitoring.

4.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk.

The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures in one of its subsidiaries and considers the use of other derivatives in the event that it identifies risks that may generate an adverse effect for the Group in the short and medium-term.

a) Market risks

i) Foreign exchange risk

The Group is exposed to exchange rate risk as a result of the transactions carried out locally in foreign currency and due to its operations abroad. As of December 31, 2016 and 2015, this exposure is mainly concentrated in fluctuations of U.S. dollar, the Chilean and Colombian Pesos. The foreign exchange risk of the investments in Bolivia and Panama are not significant due to the volume of operations.

At December 31, 2016, the consolidated statement of financial position includes assets and liabilities in foreign currency (mainly in U.S. dollars) equivalent to S/2,770.9 million and S/2,708.3 million, respectively (S/1,659 million and S/2,404 million, respectively, at December 31, 2015) equivalents to US$826.6 million and US$806 million, respectively (US$486.7 million and US$704.5 million, respectively at December 31, 2015).

During 2016, the Peruvian Sol, the Chilean and Colombian Pesos were exposed against the U.S. dollar. The Group’s exchange gains and losses for 2016 amounted to S/761.8 million and S/774.3 million, respectively (S/427.2 million and S/510.1 million, respectively, in 2015 and S/357.3 million and S/401.6 million, respectively in 2014).

If at December 31, 2016 the Peruvian Sol and the Chilean and Colombian Pesos had strengthened/weakened by 2% against the U.S. dollar, with all other variables held constant, the pre-tax profit for the year would have increased/decreased by S/0.3 million (S/1.7 million in 2015 and S/0.9 million in 2014).

At December 31, 2016 the consolidated statement of changes in equity comprises a foreign currency translation adjustment originated by its subsidiaries. Their financial position includes assets and liabilities in functional currency equivalent to CLP$75,561.3 million and CLP$87,221.1 million, respectively (CLP$85,238 million and CLP$80,378 million, respectively at December 2015), COP$169,774.8 million and COP$166,091.8 million, respectively (COP$265,370 million and COP$309,446, respectively at December 2015).

The Group’s foreign exchange translation adjustment for 2016 amounted to S/0.6 million (expenses for S/44.6 million in 2015 and S/20.5 million in 2014).

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(All amounts expressed in thousands of S/ unless otherwise stated)

ii) Price risk

Management considers that the exposure of the Group to the price risk of its investments in mutual funds, bonds and equity securities is low, since the invested amounts are not significant. Any fluctuation in their fair value will not have any significant impact on the balances reported in the consolidated financial statements.

iii) Cash flow and fair value interest rate risk

The Group’s interest rate risk mainly arises from its long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain most of its borrowings at fixed rate instruments; 52.8% of total debt in 2016 (72.7% in 2015) was contracted at fixed rates and 47.2% at variable rates (27.3% in 2015) which consisted of a 18.0% fixed rate plus VAC (adjusted for inflation) and the remaining 29.2% at a variable rate (23.6% fixed rate + VAC and the remaining 3.7% at a variable rate in 2015).

The debt subject to fixed rate plus VAC is related to a bond issued in Peruvian soles to finance the GyM Ferrovías Project, Metro Line 1 (Note 20). Any increase in the interest rate resulting from higher inflation will have no significant impact on the Group’s profit because these revenues are also adjusted for inflation.

During 2016 and 2015 borrowings at variable rates are denominated in Peruvian Soles and U.S. dollars and the Group’s policy is to manage their cash flow risk by using interest-rate swaps, which are recognized under hedge accounting. However, regarding the variable rate loans related to GSP (Note 19-a), Management decided to assume the risk since it expects to pre-pay them before due. If at December 31, 2016, the libor rate plus 3 months had increased/ decreased by 5%, with all other variables held constant, the pre-tax profit for the year would have increased/ decreased by S/1.4 million (there was not a material effect on the Group’s results in 2015). There was no material ineffectiveness on cash flow hedges occurred in fiscal years 2016 and 2015.

b) Credit risk

Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as customer credit counterparties, including the outstanding balance of accounts receivable and committed transactions. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted.

With respect to loans to related parties, the Group has measures in place to ensure the recovery of these loans through the controls maintained by the Corporate Finance Management and the performance evaluation conducted by the Board.

No credit limits were exceeded during the reporting period, and Management does not expect the Group to incur any losses from performance by these counterparties, except for the ones already recorded at the financial statements.

c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate number of sources of committed credit facilities and the capacity to close out positions in the market. Historically, the Group cash flows enabled it to maintain sufficient cash to meet its obligations. However, as of December 31, 2016, the Group started to experienced liquidity risk due to the early termination of the GSP concession agreement and the obligations assumed (Note 16 a-i). As a consequence, the Group has started a disinvestment plan to be able to meet the obligations resulting from this scenario (Note 37).

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(All amounts expressed in thousands of S/ unless otherwise stated)

Group Corporate Finance monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn borrowing facilities (Note 19), so that the Group does not breach borrowing limits or covenants, where applicable, on any of its borrowing facilities. Less significant financing transactions are controlled by the Finance Management of each subsidiary.

Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal statement of financial position ratio targets and, if applicable, external regulatory or legal requirements; for example, foreign currency restrictions.

Surplus cash held by the operating entities over the balance required for working capital management are invested in interest-bearing checking accounts or time deposits, selecting instruments with appropriate maturities and sufficient liquidity.

The table below analyzes the Group’s financial liabilities into relevant maturity groupings based on the remaining period from the date of the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

	Less than 1 year		From 1 to 2 years		From 2 to 5 years		Over 5 years		Total
At December 31, 2015
Other financial liabilities (except for finance leases)		1,102,855		181,729		223,713		—		1,508,297
Finance leases		157,957		118,311		42,513		10,431		329,212
Bonds		69,823		82,916		217,418		1,445,187		1,815,344
Trade accounts payables		1,635,762		—		—		—		1,635,762
Accounts payables to related parties		77,832		19,728		—		408		97,968
Other accounts payables		181,113		36,456		121,678		—		339,247
Other non-financial liabilities		—		2,331		—		—		2,331
		3,225,342		441,471		605,322		1,456,026		5,728,161
At December 31, 2016
Other financial liabilities (except for finance leases)		1,936,825		128,508		173,145		—		2,238,478
Finance leases		127,496		85,989		26,780		19,506		259,771
Bonds		113,299		180,431		365,697		1,334,485		1,993,912
Trade accounts payables		1,276,617		—		—		—		1,276,617
Accounts payables to related parties		80,217		28,082		37,238		—		145,537
Other accounts payables		303,827		49,064		143,655		—		496,546
Other non-financial liabilities		—		1,081		—		—		1,081
		3,838,281		473,155		746,515		1,353,991		6,411,942

4.2 Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. As described at Note 1, in 2016 the current situation of the Company, has lead Management to monitor deviations that might cause the non-compliance of covenants and may hinder renegotiation of liabilities (Note19-a and Note 37-c).

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including current and non-current borrowings), less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the consolidated statement of financial position plus net debt.

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(All amounts expressed in thousands of S/ unless otherwise stated)

As of December 31, 2016 and 2015, the gearing ratio is presented below indicating the Company’s strategy to keep it in a range from 0.10 to 0.70.

As of December 31, the gearing ratio was as follows:

	2015			2016
Total financial liabilities		2,575,447			3,348,152
Less: Cash and cash equivalents		(554,002	)		(606,950	)
Net debt		2,021,445			2,741,202
Total equity		3,081,912			2,489,737
Total capital		5,103,357			5,230,939
Gearing ratio		0.40			0.52

4.3 Fair value estimation

For the classification of the type of valuation used by the Group for its financial instruments at fair value, the following levels of measurement have been established.

•	Level 1:	Measurement based on quoted prices in active markets for identical assets or liabilities.
•	Level 2:	Measurement based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
•	Level 3:	Measurement based on inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs, generally based on internal estimates and assumptions of the Group).

The table below shows the Group’s assets and liabilities measured at fair value at December 31, 2015 and 2016:

	Level 1		Level 2		Level 3		Total
At December 31, 2015
Financial assets
Financial assets at fair value through profit or loss		10,104		—		—		10,104
Available-for-sale financial assets: TGP S.A. investment (i)		—		—		120,134		120,134
Financial liabilities
Derivatives used for hedging		—		2,331		—		2,331
At December 31, 2016
Financial assets
Financial assets at fair value through profit or loss		6,379		—		—		6,379
Financial liabilities
Derivatives used for hedging		—		1,081		—		1,081

There were no transfers between levels 1 and 2 during the year.

Financial instruments in level 3

The fair value of the investment held in Transportadora de Gas del Perú S.A. (TGP) classified as available-for-sale financial asset was based on observable inputs in the market and unobservable inputs. The Group calculated its fair value based on its discounted cash flows as of the financial statement date. The information used to determine the fair value of this investment corresponds to Level 3 (Note 10).

F-35

(All amounts expressed in thousands of S/ unless otherwise stated)

The following table shows the changes in fair value by the investment held in TGP for the years ended on December 31:

	2014		2015		2016
Opening balance		88,333		93,144		120,134
Unrealized gains (losses) recognized in the period		4,811		26,990		(2,996	)
Derecognition of investment sold:
- Historical cost of investment		—		—		(61,105	)
- Cumulative fair value		—		—		(56,033	)
Final balance		93,144		120,134		—

The carrying amounts of cash and cash equivalents correspond to their fair values. The Company considers that the carrying amount of trade accounts receivable and payable is similar to their fair values since they are short term. The fair value for long-term receivables and liabilities is disclosed in Note 11, Note 12, Note 19-c, Note 20 and Note 22. The fair value of financial liabilities has been estimated by discounting the future contractual cash flows at the interest rate currently prevailing in the market and which is available to the Company for similar financial instruments (Level 2).

5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments used are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

5.1 Critical accounting estimates and assumptions

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

a) Estimated impairment of goodwill and other intangible assets with indefinite useful life

Impairment reviews are undertaken annually to determine if goodwill arising from business acquisitions and other intangible assets with indefinite useful life are impaired, in accordance with the policy described in Note 2.15-i). For this purpose, goodwill is allocated to the different CGUs to which it relates while other intangible assets with indefinite useful life are assessed individually. The recoverable amounts of the CGUs and of other intangible assets with indefinite useful life have been determined based on the higher of their value-in-use and fair value less costs to sell. This evaluation requires the exercise of Management’s professional judgment to analyze any potential indicators of impairment as well as the use of estimates in determining the value in use, including preparing future cash flows, macro-economic forecasts as well as defining the interest rate at which said cash flows will be discounted.

If the Group experiences a significant drop in revenues or a drastic increase in costs or changes in other factors, the fair value of their business units might decrease. If management determines the factors that reduce the fair value of the business are permanent, those economic factors will be taken into consideration to determine the recoverable amount of those business units and therefore, goodwill as well as other intangible assets with indefinite useful life may be deemed to be impaired, which may cause their write-down to be required.

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(All amounts expressed in thousands of S/ unless otherwise stated)

Based on the impairment tests performed by Group Management, no goodwill nor intangible (trademarks) impairment losses were required to be recognized because the recoverable amount of the CGUs subject to testing was substantially higher than their related carrying amounts.

The most significant assumptions used in impairment testing are gross margin, discount rate, terminal growth rate and revenue growth rate which are included in Note 18.

At December 31, 2015 and 2016 the Group has performed a sensitivity analysis increasing or decreasing the assumptions of gross margin, discount rate and revenue and terminal growth rate by a 10%, with all the other variables held constant, as follows:

	Difference between recoverable amount and carrying amounts
	2015			2016
Goodwill
Gross margin:		(10%)	+10%		(10%)	+10%
Mining construction services		68.69%	184.39%		19.18%	71.19%
Engineering and construction		(17.96%)	30.43%		(42.68%)	17.85%
Electromechanical		159.40%	240.58%		32.16%	74.41%
IT equipment and services		92.38%	98.22%		200.93%	289.04%
Telecommunication services		205.49%	619.81%		(110.85%)	176.40%
Discount rate:		(10%)	+10%		(10%)	+10%
Mining construction services		136.90%	116.77%		65.94%	28.99%
Engineering and construction		26.15%	(8.77%)		8.22%	(27.56%)
Electromechanical		234.27%	172.83%		74.42%	36.77%
IT equipment and services		132.94%	98.22%		285.63%	212.65%
Telecommunication services		468.23%	367.15%		70.31%	4.59%
Terminal growth rate:		(10%)	+10%		(10%)	+10%
Mining construction services		123.27%	129.95%		42.92%	47.55%
Engineering and construction		7.90%	13.02%		(16.49%)	(7.84%)
Electromechanical		196.39%	203.75%		51.14%	55.62%
IT equipment and services		—	—		243.21%	247.06%
Telecommunication services		—	—		26.14%	39.94%
Trademarks
Revenue growth rate:		(10%)	+10%		(10%)	+10%
Morelco		46.23%	78.73%		22.37%	42.03%
Vial y Vives - DSD		32.87%	47.60%		17.01%	43.01%
Adexus		—	—		(8.18%)	9.91%
Discount rate:		(10%)	+10%		(10%)	+10%
Morelco		89.07%	42.12%		53.35%	15.66%
Vial y Vives - DSD		61.96%	23.43%		56.88%	10.88%
Adexus		—	—		15.42%	(10.59%)
Terminal growth rate:		(10%)	+10%		(10%)	+10%
Morelco		59.07%	66.12%		29.19%	34.94%
Vial y Vives - DSD		36.06%	44.28%		23.19%	37.83%
Adexus		—	—		(0.12%)	1.89%

In 2016 if the gross margin, the discount rate or terminal growth rate had been 10% below or 10% above Management’s estimates, respectively, the Group would have recognized a provision for impairment of goodwill of the Engineering and Construction CGU and Telecommunication Services CGU (within the Engineering and Construction CGU in 2015).

F-37

(All amounts expressed in thousands of S/ unless otherwise stated)

In 2016 if the revenue growth rate or terminal growth rate had been 10% below Management’s estimates, or the discount rate had been 10% above Management’s estimates, the Group would have recognized a provision for impairment of their trademark Adexus.

At December 31, 2016, as a result of these evaluations, an impairment was identified and recorded in one of the CGU, Vial and Vives DSD (Note 18).

b) Income taxes

Determination of the tax obligations and expenses requires interpretations of the applicable tax laws and regulations. The Company seeks legal and tax counsel before making any decision on tax matters. Although Management considers its estimates to be prudent and appropriate, differences of interpretation may arise with Tax Authorities (mainly Peruvian, Chilean and Colombian Authorities) which may require future tax adjustments.

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

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

The Group’s maximum exposure to tax contingencies amounts to S/11.3 million.

c) Percentage of completion revenue recognition

Revenues from construction contracts are recognized using the percentage-of-completion method which is based on the completion of a physical proportion of the overall work contract considering total costs and revenues estimated at the end of the project (Note 2.25 i).

As of December 31, 2016, 2015 and 2014, a sensitivity analysis was performed considering a 10% increase/decrease in the Group’s gross margins, as follows:

	2014			2015			2016
Sales		4,749,159			5,501,537			3,945,599
Gross profit		412,771			159,158			194,378
%		8.69			2.89			4.93
Plus 10%		9.56			3.18			5.42
Increase in pre-tax profit		41,249			15,787			19,473
		454,020			174,949			213,851
Less 10%		7.82			2.60			4.44
Decrease in pre-tax profit		(41,249	)		(15,787	)		(19,473	)
		371,522			143,371			174,905

F-38

(All amounts expressed in thousands of S/ unless otherwise stated)

d) Provision for well closure costs

At December 31, 2016 the present value of the estimated provision for closure of 144 wells located in Talara amounted to S/17.2 million (S/7.3 million as of December 31, 2015 for closure of 78 wells). The well closure liability is adjusted to reflect the changes that resulted from the passage of time and from reviews of either the date of occurrence or the amount of the present value of the originally estimated obligations (Note 18).

The Group estimates the present value of its future obligation for well closure costs, or well closure liability, and increases the carrying amount of the asset that will be withdrawn in the future and that is shown under the heading of intangibles in the statement of financial position.

The pre-tax discount rate used for the present value calculation was 1.93% for Blocks I and V, and 2.93% for Blocks III and IV, respectively, based on a 5 to 30-year rate used on U.S. bonds effective at December 31, 2016 (2.09% based on the 7-year bond rate at December 2015 for Blocks I and V).

If, at December 31, 2016 and 2015, the estimated rate had increased or decreased by 10%, with all variables held constant, the impact on pre-tax profit would have not been significant.

e) Impairment of investment in Gasoducto Sur Peruano

Based on the termination of the concession agreement, on which Gasoducto Sur Peruano S.A. (GSP) acts as concessionaire (Note 16.a-i and Note 37), the Group identified potential impairment indicators affecting the recoverability of its investment. Consequently, the Group has applied the rules stated in IAS 36, ‘Impairment of assets” to determine the recoverable amount of this investment.

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

With relation to the amount to be recovered by GSP; the Group is assuming a recovery of the minimum amount established in the concession agreement, which is equivalent to 72.25% of the Net Carrying Amount (NCA) of the Concession assets. This amount, in substance, represents a minimum secured payment to be obtained by GSP based on a public auction (liquidation) to be set up for the adequate transfer of the Concession’s assets to a new Concessionaire within a year, under the relevant contractual terms and conditions.

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

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

Depending on the date in which the NCA is actually cashed, the Group may need to take into account additional costs ranging from S/18.95 million (US$5.64 million) to S/42.2 million (US$12.56 million), due to higher financial expense.

F-39

(All amounts expressed in thousands of S/ unless otherwise stated)

f) Impairment of the investment in Consorcio Constructor Ductos del Sur (CCDS)

CCDS was mainly engaged in performing the engineering, procurement and construction work for GSP. Due to the early termination of GSP, the Group applied the rules stated in IAS 36 “Impairment of assets” and IAS 37 “Provisions” to determine the recoverable amounts of the assets and liabilities to be recorded, respectively. As a result, the following adjustments were included at the financial statements:

	S/
Income for debt forgiveness (i)		431,484
Indemnification income		33,600
Unbilled work in progress impairment (ii)		(410,199	)
Other provisions		(24,915	)
Inventories impairment (iii)		(33,824	)
Financial expenses		(7,004	)
Property, plant and equipment impairment		(4,143	)
Other’s (liability) asset, net		(164	)
		( 15,165	)

(i) The extinguished trade accounts payable relates to the recognition of the construction project estimated margin recorded as a liability (Note 2.25.i)

(ii) The recoverable of unbilled work in progress relates to the minimum secured payment to be obtained from GSP.

(iii) Inventories were specialized assets that could not be sold in an active market.

In 2016, the net impact of the early termination of CCDS construction contract is a loss of S/15.2 million.

5.2 Critical judgments in applying the entity’s accounting policies

Consolidation of entities in which the Group holds less than 50%

The Company owns some direct and indirect subsidiaries of which the Group has control even though it has less than 50% of the voting rights. These subsidiaries mainly comprise indirect subsidiaries in the real-estate business owned through Viva GyM S.A., where even though the Group holds interest between 30% and 50%, has the power to affect the relevant activities that impact the subsidiaries’ returns. Additionally, the Group has de facto control over Promotora Larcomar S.A. of which it owns 46.55% of equity interest.

Consolidation of entities in which the Group does not have join control but have rights and obligations over the assets and liabilities

The Group assesses, on an ongoing basis, the nature of the contracts signed with one or more parties. If no control or joint control is determined to be held by the Group but it has rights to assets and obligations for liabilities under the arrangement, then the Group recognizes its assets, liabilities, revenue and expenses and its share of any jointly controlled assets or liabilities and any revenue or expense arising under the arrangement as a joint operation in accordance with IFRS 11—Joint arrangements (Note 2.2-d).

	Percentage of interest
Joint operations	2016			2015
- Consorcio de Gestión de Información		56.00	%		56.00	%
- Consorcio de la Disponibilidad PKI		—			70.00	%
CONCAR S.A.
- Consorcio Ancón-Pativilca		67.00	%		67.00	%
- Consorcio Peruano de Conservación		50.00	%		50.00	%
- Consorcio Manperan		67.00	%		67.00	%
- Consorcio Vial Sierra		—			50.00	%
Viva GyM S.A.
- Consorcio Panorama		—			35.00	%
Cam Holding S.p.A.
- Consorcio Mecam		50.00	%		50.00	%
- Consorcio Seringel		50.00	%		50.00	%

All of the joint arrangements listed above operate in Peru, Chile and Colombia.

The table below provides a description of the major activities carried out by these joint operations:

Joint Operations in	Economic activity
Graña y Montero S.A.A.	Construction, operation and maintenance of La Chira waste water treatment plant south of Lima. The project is aimed to solve Lima’s environmental problems caused by sewage discharged directly into the sea.
GyM S.A.	Theses joint operations carried out activities through the four divisions of the engineering and construction segment (Note 6).
GMP S.A.	Consorcio Terminales and Terminales del Peru provide services for receiving, storing, shipping and transporting liquid hydrocarbons, such as gasoline, jet fuel, diesel fuel and residual among others.
CONCAR S.A.	Joint operations Concar provides rehabilitation service, routine and periodic maintenance of the road; it further provides conservation and supervision services.
GMD S.A.	Outsourcing service of online BPO processes (Business Process Outsourcing).
Viva GyM S.A.	Construction of a five-star hotel with a convention center, a business center and entertainment center.
CAM Holding S.p.A.	Execution of outsourcing services to the electric power sector.

6 INTERESTS IN OTHER ENTITIES

The consolidated financial statements of the Group include the accounts of the Company and its subsidiaries. Additionally, the consolidated financial statements of the Group include its interest in joint operations in which the Company or certain subsidiaries have joint control with their partners (Note 2.2-d).

a) Principal subsidiaries

The following table shows the principal direct and indirect subsidiaries classified by operating segment (Note 7):

F-40

(All amounts expressed in thousands of S/ unless otherwise stated)

Name	Country	Economic activity
Engineering and Construction:
GyM S.A.	Peru, and Colombia	Civil construction, electro-mechanic assembly, buildings management and implementing housing development projects and other related services.
Stracon GyM S.A.	Peru and Panama	Mining contracting activities, providing mining services and carrying out drilling, demolition and any other activity related to construction and electro-mechanics; services in the power sector, as well as mining operations.
GyM Chile S.p.A.	Chile	Electromechanical assemblies and services to energy, oil, gas and mining sector.
Vial y Vives - DSD S.A.	Chile	Electromechanical assemblies and services. Develop activities related to the construction of engineering projects, civil construction projects and electromechanical assemblies, as well as architectural design and installations in general. Construction and electromechanical assemblies and services in the areas of energy, oil, gas and mining.
GMI S.A.	Peru	Advisory and consultancy services in engineering, carrying out studies and projects, managing projects and supervision of works.
Morelco S.A.S	Colombia and Ecuador	Providing construction and assembly services, supplying equipment and material to design, build, assemble, operate and maintain all types of mechanical engineering, instrumentation and civil work.
Infrastructure:
GMP S.A.	Peru	Natural oil and oil by-products extraction services, as well as providing storage and fuel dispatch services.
Oiltanking Andina Services S.A.	Peru	Operation of the gas processing plant of Pisco - Camisea.
Transportadora de Gas Natural Comprimido Andino S.A.C.	Peru	Supply, process and market natural gas and its derivates.
GyM Ferrovías S.A.	Peru	Concession for the operation of the public transportation system (Metro de Lima Metropolitana).
Survial S.A.	Peru	Concession for constructing, operating and maintaining the Section 1 of the “Southern Inter-oceanic” road.
Norvial S.A.	Peru	Concession for restoring, operating and maintaining the “Ancón - Huacho - Pativilca” section of the Panamericana Norte road.
Concesión Canchaque S.A.	Peru	Concession for operating and maintaining the Buenos Aires - Canchaque road.
Concesionaria Vía Expresa Sur S.A.	Peru	Concession for designing, constructing, operating and maintaining the Via Expresa - Paseo de la República in Lima.
Real estate:
VIVA GyM S.A.	Peru	Developing and managing real estate projects directly or together with other partners.

F-41

(All amounts expressed in thousands of S/ unless otherwise stated)

Name	Country	Economic activity
Technical services:
GMD S.A.	Peru	Information technology services.
Gestión de Servicios Digitales S.A.	Peru	Information technology services.
CAM Holding S.p.A.	Chile and Colombia	Electric and technological services for the power industry. Colombia
Concar S.A.	Peru	Operating and maintaining roads.
Coasin Instalaciones Ltda.	Chile	Installing and maintaining network and equipment for telecommunications.
Adexus S.A.	Chile, Peru, Colombia and Ecuador	IT solutions services.
Parent company operation:
Generadora Arabesco S.A.	Peru	Implementing projects related to electric power-generating activities.
Larcomar S.A.	Peru	Exploiting land right to use the Larcomar Shopping Center.
Promotora Larcomar S.A.	Peru	Building a hotel complex on a plot of land located in the district of Miraflores.
Promotores Asociados de Inmobiliarias S.A.	Peru	Operating in the real-estate industry and engaged in the development and selling office facilities in Peru.
Negocios del Gas S.A.	Peru	Construction, operation and maintenance of the pipeline system to transport natural gas and liquids of natural gas.

The following are the Group’s subsidiaries and related interests at December 31, 2016:

	Percentage of common shares directly held by Parent (%)			Percentage of common shares held by Subsidiaries (%)			Percentage of common shares held by the Group (%)			Percentage of common shares held by non- controlling interests (%)
Engineering and Construction:
GyM S.A.		98.23	%		—			98.23	%		1.77	%
- GyM S.A. subsidiaries		—			87.06	%		87.06	%		12.94	%
Stracon GyM S.A.		—			87.59	%		87.59	%		12.41	%
GyM Chile SpA		—			99.99	%		99.99	%		0.01	%
Vial y Vives - DSD S.A.		—			94.49	%		94.49	%		5.51	%
GMI S.A.		89.41	%		—			89.41	%		10.59	%
Morelco S.A.S.		—			70.00	%		70.00	%		30.00	%
Infrastructure:
GMP S.A.		95.00	%		—			95.00	%		5.00	%
Oiltanking Andina Services S.A.		—			50.00	%		50.00	%		50.00	%
Transportadora de Gas Natural
Comprimido Andino S.A.C		—			99.93	%		99.93	%		0.07	%
GyM Ferrovias S.A.		75.00	%		—			75.00	%		25.00	%
Survial S.A.		99.99	%		—			99.99	%		0.01	%
Norvial S.A.		67.00	%		—			67.00	%		33.00	%

F-42

(All amounts expressed in thousands of S/ unless otherwise stated)

Concesión Canchaque S.A.	99.96	%	—		99.96	%	0.04	%
Concesionaria Vía Expresa Sur S.A.	99.98	%	0.02	%	100.00	%	—
Real Estate:
Viva GyM S.A.	63.44	%	36.10	%	99.54	%	0.46	%
- Viva GyM S.A. subsidiaries	—		60.51	%	60.51	%	39.49	%
Services:
GMD S.A.	89.23	%	—		89.23	%	10.77	%
Cam Holding S.p.A.	100.00	%	—		100.00	%	—
Concar S.A.	99.75	%	—		99.75	%	0.25	%
Gestión de Servicios Digitales S.A.	—		100.00	%	100.00	%	—
Coasin Instalaciones Ltda.	—		100.00	%	100.00	%	—
CAM Servicios del Perú S.A.	73.16	%	—		73.16	%	26.84	%
Adexus S.A.	91.03	%	—		91.03	%	8.97	%
Parent company operations:
Generadora Arabesco S.A.	99.00	%	—		99.00	%	1.00	%
Larcomar S.A.	79.66	%	—		79.66	%	20.34	%
Promotora Larcomar S.A.	46.55	%	—		46.55	%	53.45	%
Promotores Asociados de Inmobiliarias S.A.	99.99	%	—		99.99	%	0.01	%
Negocios del Gas S.A.	99.99	%	0.01	%	100.00	%	—
Agenera S.A.	99.00	%	1.00	%	100.00	%	—

In August 2016, the Company acquired additional interest in the share capital of Adexus S.A. to obtained control (Note 33 a).

The following are the Group’s subsidiaries and related interests at December 31, 2015:

	Percentage of common shares directly held by Parent (%)			Percentage of common shares held by Subsidiaries (%)			Percentage of common shares held by the Group (%)			Percentage of common shares held by non- controlling interests (%)
Engineering and Construction:
GyM S.A.		98.23	%		—			98.23	%		1.77	%
- GyM S.A. subsidiaries		—			82.49	%		82.49	%		17.51	%
Stracon GyM S.A.		—			87.59	%		87.59	%		12.41	%
GyM Chile SpA		—			99.99	%		99.99	%		0.01	%
Vial y Vives – DSD S.A.		—			80.79	%		80.79	%		19.21	%
GMI S.A.		89.41	%		—			89.41	%		10.59	%
Morelco S.A.S.		—			70.00	%		70.00	%		30.00	%
Infrastructure:
GMP S.A.		95.00	%		—			95.00	%		5.00	%
Oiltanking Andina Services S.A.		—			50.00	%		50.00	%		50.00	%
Transportadora de Gas Natural
Comprimido
Andino S.A.C		—			99.93	%		99.93	%		0.07	%
GyM Ferrovias S.A.		75.00	%		—			75.00	%		25.00	%
Survial S.A.		99.99	%		—			99.99	%		0.01	%
Norvial S.A.		67.00	%		—			67.00	%		33.00	%
Concesión Canchaque S.A.		99.96	%		—			99.96	%		0.04	%
Concesionaria Vía Expresa Sur S.A.		99.98	%		0.02	%		100.00	%		—
Real Estate:
Viva GyM S.A.		60.62	%		38.97	%		99.59	%		0.41	%
- Viva GyM S.A. subsidiaries		—			53.81	%		53.81	%		46.19	%
Services:
GMD S.A.		89.37	%		—			89.37	%		10.63	%
Cam Holding S.p.A.		100.00	%		—			100.00	%		—
Concar S.A.		99.81	%		—			99.81	%		0.19	%

F-43

(All amounts expressed in thousands of S/ unless otherwise stated)

Gestión de Servicios Digitales S.A.	—		100.00	%	100.00	%	—
Coasin Instalaciones Ltda.	—		100.00	%	100.00	%	—
CAM Servicios del Perú S.A.	73.16	%	—		73.16	%	26.84	%
Parent company operations:
Generadora Arabesco S.A.	99.00	%	—		99.00	%	1.00	%
Larcomar S.A.	79.66	%	—		79.66	%	20.34	%
Promotora Larcomar S.A.	46.55	%	—		46.55	%	53.45	%
Promotores Asociados de
Inmobiliarias S.A.	99.99	%	—		99.99	%	0.01	%
Negocios del Gas S.A.	99.99	%	0.01	%	100.00	%	—
Agenera S.A.	99.00	%	1.00	%	100.00	%	—
GYM Colombia S.A.	66.20	%	33.80	%	100.00	%	—

On November 17, 2015, Cam Holding S.p.A. sold 100% of its shares in Cam Brasil Multiservicos S.A., at a total US$300 thousand; as a result, a loss of S/8.3 million was recorded, which is shown in the statement of income, within “Profit (loss) on sale of investments” (a cash balance of S/0.98 million was presented net of the cash received for the sale of this investment in the statement of cash flow).

All investments in subsidiaries have been included in the consolidation. The percentage of voting rights in those subsidiaries is directly held by the Parent Company and do not significantly differ from the percentage of shares held. There are no restrictions to the access or use of the Group’s assets and liabilities.

The following are the Group’s subsidiaries non-controlling interests at December 31:

	2015		2016
Viva GyM S.A. and subsidiaries		214,260		241,140
Viva GyM S.A.		1,481		1,700
GyM S.A. and subsidiaries		145,699		100,840
GyM S.A.		10,854		9,354
Norvial S.A.		52,993		61,349
CAM Holding S.p.A.		27,652		26,589
GMP S.A.		21,110		20,879
GyM Ferrovias S.A.		24,584		30,548
Promotora Larcomar S.A.		13,609		13,539
Others		10,896		3,375
		523,138		509,313

Summarized financial information of subsidiaries with material non-controlling interests

Set out below is the summarized financial information for each subsidiary that has non-controlling interests that are material to the Group.

Summarized statement of financial position

	Viva GYM S.A. and subsidiaries						GyM S.A. and subsidiaries						Norvial S.A.
	At December 31,						At December 31,						At December 31,
	2015			2016			2015			2016			2015			2016
Current:
Assets		1,109,270			1,117,065			3,140,222			1,849,077			43,513			107,838
Liabilities		(555,148	)		(515,781	)		(2,809,890	)		(2,050,803	)		(79,634	)		(49,721	)
Current net assets (liabilities)		554,122			601,284			330,332			(201,726	)		(36,121	)		58,117
Non-current:
Assets		91,677			113,594			1,144,066			1,326,599			377,392			467,449
Liabilities		(159,583	)		(104,179	)		(628,670	)		(471,424	)		(180,686	)		(339,661	)
Non-current net assets (liabilities)		(67,906	)		9,415			515,396			855,175			196,706			127,788
Net assets		486,216			610,699			845,728			653,449			160,585			185,905

F-44

(All amounts expressed in thousands of S/ unless otherwise stated)

Summarized income statement    

	Viva GYM S.A. and subsidiaries						GyM S.A. and subsidiaries						Norvial S.A.
	For the year ended						For the year ended						For the year ended
	2014		2015		2016		2014		2015		2016		2014		2015		2016
Revenue		224,560		215,764		411,518		4,861,362		5,660,738		4,036,226		178,170		246,231		216,260
Profit (loss) before income tax		37,967		36,985		104,223		239,597		(86,373)		(85,857)		41,998		54,470		63,582
Income tax		(11,452)		(7,649)		(27,054)		(54,657)		(49,304)		(11,228)		(10,908)		(13,611)		(16,262)
Profit (loss) for the period		26,515		29,336		77,169		184,940		(135,677)		(97,085)		31,090		40,859		47,320
Other comprehensive Income		(25)		—		—		( 26,199)		(60,380)		19,486		—		—		—
Total comprehensive Income for the period		26,490		29,336		77,169		158,741		(196,057)		(77,599)		31,090		40.859		47,320
Dividends paid to non-controlling interest Note (36-d)		23,785		3,066		5,050		26,640		—		8,288		8,250		—		7,260

Summarized statement of cash flows

	Viva GYM S.A. and subsidiaries									GyM S.A. and subsidiaries									Norvial S.A.
	For the year ended									For the year ended									For the year ended
	2014			2015			2016			2014			2015			2016			2014			2015			2016
Cash flows from operating activities (used), net		9,916			(68,360	)		44,910			147,249			(303,970	)		224,428			(30,858	)		(111,423	)		(42,051	)
Cash flows from investing activities (used), net		(39,351	)		23,865			( 546	)		(208,314	)		11,884			(29,853	)		( 32	)		—			—
Cash flows from financing activities (used), net		40,677			64,686			(59,931	)		79,432			176,987			(283,296	)		17,262			144,199			99,193
Increase (decrease) in cash and cash equivalents, net		11,242			20,191			(15,567	)		18,367			(115,101	)		(88,721	)		(13,628	)		32,776			57,142
Cash and cash equivalents at the beginning of the year		43,026			54,268			74,459			264,353			282,721			167,620			19,128			5,500			38,276
Cash and cash equivalents at the end of the year		54,268			74,459			58,892			282,720			167,620			78,899			5,500			38,276			95,418

The information above is the amount before inter-company eliminations.

b) Public services concessions

The Group acts as an operator in various public service concessions. When applicable, revenue attributable to the construction or restoration of infrastructure has been accounted for by applying the models set forth in Note 2.5 (financial asset, intangible asset and bifurcated models).

Subsidiary Transportadora de Gas Natural Comprimido Andino S.A.C. (hereinafter TGNCA) held a concession to design, finance, construct, maintain and operate the compressed natural gas supply system to be implemented in certain cities. The Concession was recognized under the financial asset model. In September 2016 the Concession Agreement was terminated on the grounds of counterparty’s failure to meet the required conditions (availability of assets and resources). As a result, TGNCA recognized an impairment loss of receivables amounting to S/6.3 million, which is included in the income statement within “cost of services provided” (Note 27). The balance remaining relates to trade accounts receivable for S/38.7 million, to be received from the Ministry of Energy and Mines. This balance was classified as current assets because Management expects a favorable outcome of the award.

In all the Group concessions’, the infrastructure is returned to grantor at the end of the concession agreement. The concessions held by the Group are as follows at December 31, 2016:

F-45

(All amounts expressed in thousands of S/ unless otherwise stated)

Name of concession	Description	Estimated investment	Consideration	Ordinary shares held			Concession termination		Accounting model
Survial S.A.	This company operates and maintains a 750 km road from the San Juan de Marcona port to Urcos, Peru, which is connected to an interoceanic road. The road has five toll stations and three weigh stations.	US$98.9 million	Transaction secured by the Peruvian Government involving from annual payments for the maintenance and operation of the road, which is in charge of the Peruvian Ministry of Transport and Communications (MTC).		99.9	%		2032		Financial asset
Canchaque S.A.C.	This company operates and periodically maintains a 78 km road from the towns of Buenos Aires to Canchaque, in Peru The road has one toll station.	US$29 million	Transaction secured by the Peruvian Government regardless the traffic volume. Revenue is secured by an annual minimum amount of US$0.3 million.		99.96	%		2025		Financial asset
La Chira S.A.	Designing, financing, constructing, operating and maintaining project called “Planta de Tratamiento de Aguas Residuales y Emisario Submarino La Chira”. The Project will treat approximately 25% of waste waters in Lima.	S/450 million	Transaction secured by the Peruvian Government consisting of anual payment settled by Sedapal S.A.		50.00	%		2036		Financial asset
GyM Ferrovías S.A.	Concession for the operation of Line 1 of the Lima Metro, Peru’s only urban railway system in Lima city, which includes (i) operation and maintenance of the five existing trains, (ii) operation and maintenance and the acquisition of 19 trains on behalf of the Peruvian government and (iii) design and construction of the repair yard and maintenance of railway.	S/548.8 million	Transaction secured by the Peruvian Government involving a quarterly payment received from MTC based on km travelled per train.		75.00	%		2041		Financial asset

F-46

(All amounts expressed in thousands of S/ unless otherwise stated)

Name of concession	Description	Estimated investment		Consideration	Ordinary shares held			Concession termination		Accounting model
Norvial S.A.	The Company operates and maintains part of the only highway that connects Lima to the northwest of Peru. This 183 km road known as Red Vial 5 runs from the cities of Ancón to Pativilca and has three toll stations.	US$	152 million	From users (self-financed concession; revenue is derived from collection of tolls).		67.00	%		2028		Intangible
Vía Expresa Sur S.A.	The Company obtained the concession for designing, financing, building, operating and maintaining the infrastructure associated with the Vía Expresa Sur Project. This project involves the second stage expansion of the Via Expresa—Paseo de la República,between Av. República de Panamá and and Panamericana highway.	US$	196.8 million	Contract give the right of collection from users; however the Peruvian government shall pay the difference when the operating revenue obtained is below US$18 million during the first two years and below US$19.7 million from the third year to the fifteenth year of the effective period of the financing, with a ceiling of US$10 million. In June 2017, the contract was suspended temporarily for one year by agreement between Concessionaire and grantor.		99.98	%		2053		Bifurcated
Recaudo Trujillo S.A.C.	Design, implementation, operation, technological maintenance and renewal (estimate) of the single system of electronic collection. Design, implementation, operation and maintenance of the Clearing house Implementation of the Fleet Control Center, as well as training to personnel.	US$	40.2 million	Economic consideration resulting from applying the “price for validation” considering daily validations input on the system to be managed through a trust.		95.00	%		2036		Intangible

F-47

(All amounts expressed in thousands of S/ unless otherwise stated)

c) Principal Joint Operations

At December 31, 2016, the Group is a partner to 69 Joint Operations with third parties (65 at December 31, 2015). The table below lists the Group’s major Joint Operations.

	Percentage of interest
Joint operations	2015			2016
Graña y Montero S.A.A.
- Concesionaria la Chira S.A.		50.00	%		50.00	%
GyM S.A.
- Consorcio Constructor Alto Cayma		50.00	%		50.00	%
- Consorcio Rio Pallca – Huanza		40.00	%		40.00	%
- Consorcio Alto Cayma		49.00	%		49.00	%
- Consorcio Vial Ayacucho		50.00	%		—
- Consorcio Lima Actividades Comerciales		50.00	%		50.00	%
- Consorcio GyM – COSAPI		50.00	%		50.00	%
- Consorcio Atocongo		40.00	%		40.00	%
- Consorcio Norte Pachacutec		49.00	%		49.00	%
- Consorcio La Chira		50.00	%		50.00	%
- Consorcio Río Urubamba		50.00	%		50.00	%
- Consorcio Vial Quinua		46.00	%		46.00	%
- Consorcio Rio Mantaro		50.00	%		50.00	%
- Consorcio GyM – CONCIVILES		66.70	%		66.70	%
- Consorcio Toromocho		55.00	%		55.00	%
- Consorcio Construcciones y Montajes CCN		25.00	%		25.00	%
- Consorcio HV GyM		50.00	%		50.00	%
- Consorcio Stracon Motta Engil JV		50.00	%		50.00	%
- Consorcio Huacho Pativilca		67.00	%		67.00	%
- Consorcio Constructor Chavimochic		26.50	%		26.50	%
- Consorcio Constructor Ductos del Sur		29.00	%		29.00	%
- Consorcio Italo Peruano		48.00	%		48.00	%
- Consorcio Incolur		50.00	%		50.00	%
- Consorcio Menegua		50.00	%		50.00	%
- Consorcio Energía y Vapor		50.00	%		50.00	%
- Consorcio Ermitaño		—			50.00	%
- Consorcio para la Atención y Mantenimiento de Ductos		—			50.00	%
GMP S.A.
- Consorcio Terminales		50.00	%		50.00	%
- Terminales del Perú		50.00	%		50.00	%
GMD S.A.
- Consorcio Cosapi-Data – GMD S.A.		70.00	%		70.00	%
- Consorcio The Louis Berger Group Inc. - GMD		66.45	%		66.45	%
- Consorcio Procesos digitales		43.65	%		43.65	%
- Consorcio GMD S.A. – Indra S.A.		50.00	%		50.00	%
- Consorcio Fábrica de Software		50.00	%		50.00	%
- Consorcio Gestión de Procesos Electorales (ONPE)		50.00	%		50.00	%
- Consorcio Lima Actividades Sur		50.00	%		50.00	%
- Consorcio Latino de Actividades Comerciales de Clientes Especiales		50.00	%		50.00	%
- Consorcio Latino de Actividades Comerciales		75.00	%		75.00	%
- Consorcio Gestión de Procesos Junta de Gobernadores		45.00	%		45.00	%
- Consorcio Soluciones Digitales		38.00	%		38.00	%
- Consorcio de Gestión de la Información		56.00	%		56.00	%
- Consorcio de la Disponibilidad PKI		—			70.00	%

F-48

(All amounts expressed in thousands of S/ unless otherwise stated)

	Percentage of interest
Joint operations	2015			2016
CONCAR S.A.
- Consorcio Ancón-Pativilca		67.00	%		67.00	%
- Consorcio Peruano de Conservación		50.00	%		50.00	%
- Consorcio Manperan		67.00	%		67.00	%
- Consorcio Vial Sierra		—			50.00	%
Viva GyM S.A.
- Consorcio Panorama		—			35.00	%
Cam Holding S.p.A.
- Consorcio Mecam		50.00	%		50.00	%
- Consorcio Seringel		50.00	%		50.00	%

All of the joint arrangements listed above operate in Peru, Chile and Colombia.

The table below provides a description of the major activities carried out by these joint operations:

Joint Operations in	Economic activity
Graña y Montero S.A.A.	Construction, operation and maintenance of La Chira waste water treatment plant south of Lima. The project is aimed to solve Lima’s environmental problems caused by sewage discharged directly into the sea.
GyM S.A.	Theses joint operations carried out activities through the four divisions of the engineering and construction segment (Note 7).
GMP S.A.	Consorcio Terminales and Terminales del Peru provide services for receiving, storing, shipping and transporting liquid hydrocarbons, such as gasoline, jet fuel, diesel fuel and residual among others.
CONCAR S.A.	Joint operations Concar provides rehabilitation service, routine and periodic maintenance of the road; it further provides conservation and supervision services.
GMD S.A.	Outsourcing service of online BPO processes (Business Process Outsourcing).
Viva GyM S.A.	Construction of a five-star hotel with a convention center, a business center and entertainment center.
CAM Holding S.p.A.	Execution of outsourcing services to the electric power sector.

The Group’s consolidated financial statements do not include any other type of entities in addition to those mentioned above, such as trust funds or special purpose entities.

7 SEGMENT REPORTING

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

The Group’s operating segments are assessed by the activities of the following business units: (i) engineering and construction, (ii) infrastructure, (iii) real estate and (iv) technical services.

F-49

(All amounts expressed in thousands of S/ unless otherwise stated)

As set forth under IFRS 8, reportable segments based on the level of revenue are: ‘engineering and construction’ and ‘technical services’. However, the Group has voluntarily decided to report on all its operating segments as detailed in this Note.

The revenues derived from foreign operations (Chile, Panama, Dominican Republic, Colombia, Bolivia, Ecuador and Guyana) comprise 25.4% of the Group’s total revenue reported in 2016 (27.1% in 2015 and 19.9% in 2014).

Sales between segments are carried out at arm’s length, are no material, and are eliminated on consolidation. The revenue from external parties is measured in a manner consistent with that in the income statement. Sale of goods relate to the real state segment. Revenue from services relate to all other segments.

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

The following segments set forth the principal activities of the Group:

a) Engineering and construction: This segment includes from traditional engineering services such as structural, civil and design engineering, and architectural planning to advanced specialties including process design, simulation, and environmental services at four divisions; i) civil works, such as the construction of hydroelectric power stations and other large infrastructure facilities; (ii) electro mechanic construction, such as concentrator plants, oil and natural gas pipelines, and transmission lines; iii) building construction, such as office buildings, residential buildings, hotels, affordable housing projects, shopping centers and industrial facilities; and iv) services related to mining, such as earthworks, blasting, loading and hauling ore.

b) Infrastructure: The Group has long-term concessions or similar contractual arrangements in Peru for three toll roads, the Lima Metro, a waste water treatment plant in Lima, four producing oil fields, and a gas processing plant.

c) Real Estate: The Group develops and sells homes targeted to low and middle-income population sectors which are experiencing a significant increase in disposable income, as well as, office and commercial space to a lesser extent.

d) Technical Services: The Group provides: (i) operation and maintenance services for infrastructure assets; (ii) information technology (IT) services, including IT outsourcing, systems integration, application and business process outsourcing services; and (iii) electricity networks services (maintenance) in telecommunications.

e) Parent Company Operation corresponds to the services which the Holding company provides, management, logistics and accounting services, among others.

The Executive Committee uses a measurement of adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to assess the performance of operating segments.

Profit before income tax reconciles to EBITDA as follows:

	2014		2015		2016
Profit (loss) before income tax		507,428		154,616		(563,404	)
Financial expense/income, net		91,354		138,696		210,778
Depreciation		185,310		217,070		205,522
Amortization		74,730		89,355		82,743
EBITDA		858,822		599,737		(64,361	)

F-50

(All amounts expressed in thousands of S/ unless otherwise stated)

EBITDA for each segment is as follows:

	2014			2015			2016
Engineering and construction		459,487			220,137			106,106
Infrastructure		272,489			232,954			210,791
Real state		56,502			52,794			121,421
Technical services		63,469			113,276			117,490
Parent company operations		252,312			(35,591	)		(1,026,394	)
Eliminations intercompany		(245,437	)		16,167			406,225
EBITDA		858,822			599,737			(64,361	)

The “Backlog” refers to the expected future revenue under signed contracts and legally binding letters of intent. The breakdown by operating segments as of December 31, 2016, and the dates in which they are estimated to, is shown in the following table:

				ANUAL BACKLOG
	2016			2017			2018			2019+
Engineering and Construction		6,645,729			2,883,254			1,964,435			1,798,041
Infrastructure		2,403,023			678,165			792,616			932,242
Real Estate		322,062			296,077			21,616			4,368
Technical Services		2,882,175			1,281,772			806,966			793,437
Eliminations intercompany		(318,790	)		(108,710	)		(106,097	)		(103,984	)
		11,934,199			5,030,559			3,479,536			3,424,104

F-51

(All amounts expressed in thousands of S/ unless otherwise stated)

The table below shows the Group’s financial statements by operating segments:

Operating segments financial position

Segment reporting

	Engineering		Infrastructure												Parent
	and								Water				Technical		Company
	construction		Energy		Toll roads		Mass transit		treatment		Real estate		services		Operations		Eliminations			Consolidated
As of December 31, 2015
Assets.-
Cash and cash equivalents		172,116		42,638		58,640		111,454		9,094		74,459		60,193		25,408		—			554,002
Financial asset at fair value through profit or loss		3,153		—		—		—		—		—		—		—		—			3,153
Trade accounts receivables, net		614,917		43,260		22,045		55,180		—		59,108		247,945		—		—			1,042,455
Unbilled work in progress, net		1,260,541		—		—		—		17,686		—		—		—		—			1,278,227
Accounts receivable from related parties		316,188		12,145		18,820		301		—		34,724		48,520		132,735		(283,280	)		280,153
Other accounts receivable		595,255		25,857		5,699		25,668		10,250		20,535		102,204		35,249		—			820,717
Inventories, net		159,557		10,025		—		13,678		—		920,092		61,734		389		(6,321	)		1,159,154
Prepaid expenses		12,899		2,207		1,401		10,787		458		349		11,402		519		—			40,022
Non-current assets classified as held for sale		22,511		—		—		—		—		—		—		—		—			22,511
Total current assets		3,157,137		136,132		106,605		217,068		37,488		1,109,267		531,998		194,300		(289,601	)		5,200,394
Long-term trade accounts receivable, net		—		—		—		621,831		—		—		—		—		—			621,831
Long-term unbilled work in progress, net		—		40,727		19,027		—		—		—		—		—		—			59,754
Long-term accounts receivable from related parties		—		—		408		—		—		—		500		256,022		(256,930	)		—
Prepaid expenses		—		3,692		15,584		2,112		998		—		—		—		—			22,386
Other long-term accounts receivable		534		14,214		30,473		2,198		1,589		14,726		—		2,195		—			65,929
Available-for-sale financial assets		—		—		—		—		—		—		—		120,134		—			120,134
Investments in associates and joint ventures		122,717		8,265		—		—		—		28,732		9,228		2,476,689		(2,008,626	)		637,005
Investment property		—		—		—		—		—		34,702		—		—		—			34,702
Property, plant and equipment		606,158		198,774		1,624		217		—		11,303		170,660		130,113		(7,092	)		1,111,757
Intangible assets		288,416		148,972		364,819		311		—		1,043		37,564		23,561		13,600			878,286
Deferred income tax asset		100,544		1,325		3,003		—		—		1,171		39,825		656		1,321			147,845
Total non-current assets		1,118,369		415,969		434,938		626,669		2,587		91,677		257,777		3,009,370		(2,257,727	)		3,699,629
Total assets		4,275,506		552,101		541,543		843,747		40,075		1,200,944		789,775		3,203,670		(2,547,328	)		8,900,023
Liabilities.-
Borrowings		652,974		101,096		55,428		—		—		224,380		91,366		102,776		—			1,228,020
Bonds		—		—		5,537		31,546		—		—		—		—		—			37,083
Trade accounts payable		1,409,984		35,428		3,768		24,498		154		14,334		134,973		12,623		—			1,635,762
Accounts payable to related parties		118,383		3,990		40,578		9,962		10,560		58,790		39,476		79,709		(283,616	)		77,832
Current income tax		19,337		—		753		—		166		26		13,750		84		—			34,116
Other accounts payable		645,648		20,340		2,841		1,682		—		257,616		125,020		12,853		—			1,066,000
Provisions		—		6,341		—		—		—		—		7,127		—		—			13,468
Total current liabilities		2,846,326		167,195		108,905		67,688		10,880		555,146		411,712		208,045		(283,616	)		4,092,281
Borrowings		375,952		83,307		—		—		—		27,562		66,515		—		—			553,336
Long-term bonds		—		—		180,686		576,322		—		—		—		—		—			757,008
Other long-term accounts payable		176,644		—		493		—		—		—		68,045		1,214		—			246,396
Long-term accounts payable to related parties		—		—		—		94,172		24,035		120,083		38,332		—		(256,486	)		20,136
Provisions		24,624		18,876		—		—		—		—		3,960		—		—			47,460
Derivative financial instruments		—		2,331		—		—		—		—		—		—		—			2,331
Deferred income tax liability		52,016		4,250		107		7,222		270		11,937		3,164		20,197		—			99,163
Total non-current liabilities		629,236		108,764		181,286		677,716		24,305		159,582		180,016		21,411		(256,486	)		1,725,830
Total liabilities		3,475,562		275,959		290,191		745,404		35,185		714,728		591,728		229,456		(540,102	)		5,818,111
Equity attributable to controlling interest in the Company		639,194		255,032		198,345		73,751		4,890		158,605		162,550		2,961,763		(1,895,356	)		2,558,774
Non-controlling interest		160,750		21,110		53,007		24,582		—		327,611		35,497		12,451		(111,870	)		523,138
Total liabilities and equity		4,275,506		552,101		541,543		843,737		40,075		1,200,944		789,775		3,203,670		(2,547,328	)		8,900,023

F-52

(All amounts expressed in thousands of S/ unless otherwise stated)

Operating segments financial position

Segment reporting

	Engineering		Infrastructure												Parent
	and								Water				Technical		Company
	construction		Energy		Toll roads		Mass transit		treatment		Real estate		services		Operations		Eliminations			Consolidated
As of December 31, 2016
Assets.-
Cash and cash equivalents		93,543		35,396		110,007		139,414		3,229		58,892		53,521		112,398		550			606,950
Financial asset at fair value through profit or loss		352		—		—		—		—		—		—		—		—			352
Trade accounts receivables, net		334,426		84,996		23,579		56,665		256		83,704		449,848		—		(2,204	)		1,031,270
Unbilled work in progress, net		648,851		—		—		32,078		—		—		—		—		—			680,929
Accounts receivable from related parties		327,385		3,255		19,684		392		12,379		7,284		48,691		50,582		(287,988	)		181,664
Other accounts receivable		398,666		58,235		6,189		25,895		4,841		20,198		93,359		42,133		—			649,516
Inventories, net		76,058		12,561		—		16,862		—		946,657		65,270		387		(13,502	)		1,104,293
Prepaid expenses		9,203		2,614		1,428		17,265		167		329		19,988		307		—			51,301
Non-current assets classified as held for sale		22,385		—		—		—		—		—		—		—		—			22,385
Total current assets		1,910,869		197,057		160,887		288,571		20,872		1,117,064		730,677		205,807		(303,144	)		4,328,660
Long-term trade accounts receivable, net		149		—		—		629,310		—		—		38,060		—		—			667,519
Long-term unbilled work in progress, net		171,752		—		24,165		—		—		—		—		—		1,669			197,586
Long-term accounts receivable from related parties		—		—		408		—		—		—		492		700,614		(170,130	)		531,384
Prepaid expenses		—		—		20,554		2,029		943		—		—		—		—			23,526
Other long-term accounts receivable		42,511		29,533		22,924		225,565		7,347		17,887		1,077		11,108		—			357,952
Investments in associates and joint ventures		116,512		8,516		—		—		—		31,768		9,589		2,358,917		(2,135,543	)		389,758
Investment property		—		—		—		—		—		49,357		—		—		—			49,357
Property, plant and equipment		592,191		176,486		1,243		193		21		13,008		217,727		130,421		(17,691	)		1,113,599
Intangible assets		246,715		139,353		456,000		269		—		950		79,850		22,793		14,356			960,286
Deferred income tax asset		158,168		4,983		1,839		—		—		623		64,408		189,230		7,757			427,008
Total non-current assets		1,327,998		358,871		527,133		857,366		8,311		113,593		411,203		3,413,083		(2,299,582	)		4,717,976
Total assets		3,238,867		555,928		688,020		1,145,937		29,183		1,230,657		1,141,880		3,618,890		(2,602,726	)		9,046,636
Liabilities.-
Borrowings		582,260		82,063		—		—		—		206,456		158,151		932,113		—			1,961,043
Bonds		—		—		25,540		20,551		—		—		—		—		—			46,091
Trade accounts payable		876,849		59,830		2,310		23,882		599		30,617		276,766		6,704		(940	)		1,276,617
Accounts payable to related parties		119,989		3,902		27,757		33,009		237		66,190		44,211		67,685		(282,763	)		80,217
Current income tax		30,576		3,631		44		—		1,064		17,944		8,901		—		—			62,160
Other accounts payable		485,247		11,711		10,512		14,622		27		194,441		190,303		189,444		—			1,096,307
Provisions		6,615		6,441		—		—		—		131		1,344		—		—			14,531
Total current liabilities		2,101,536		167,578		66,163		92,064		1,927		515,779		679,676		1,195,946		(283,703	)		4,536,966
Borrowings		246,315		80,488		—		—		—		16,541		76,051		—		—			419,395
Long-term bonds		—		—		338,143		583,480		—		—		—		—		—			921,623
Other long-term accounts payable		147,839		—		493		246,522		—		32,000		83,516		2,433		—			512,803
Long-term accounts payable to related parties		41,672		—		—		87,200		23,445		40,074		42,667		395		(170,133	)		65,320
Provisions		7,670		17,115		—		—		—		—		1,757		—		—			26,542
Derivative financial instruments		—		1,081		—		—		—		—		—		—		—			1,081
Deferred income tax liability		28,278		3,546		1,518		14,482		283		15,564		9,498		—		—			73,169
Total non-current liabilities		471,774		102,230		340,154		931,684		23,728		104,179		213,489		2,828		(170,133	)		2,019,933
Total liabilities		2,573,310		269,808		406,317		1,023,748		25,655		619,958		893,165		1,198,774		(453,836	)		6,556,899
Equity attributable to controlling interest in the Company		551,652		265,241		220,337		91,643		3,528		234,449		210,542		2,406,573		(2,003,541	)		1,980,424
Non-controlling interest		113,905		20,879		61,366		30,546		—		376,250		38,173		13,543		(145,349	)		509,313
Total liabilities and equity		3,238,867		555,928		688,020		1,145,937		29,183		1,230,657		1,141,880		3,618,890		(2,602,726	)		9,046,636

F-53

(All amounts expressed in thousands of S/ unless otherwise stated)

Operating segment performance

Segment Reporting

	Engineering			Infrastructure																		Parent
	and									Mass			Water			Real			Technical			Company
	construction			Energy			Toll roads			transit			treatment			estate			services			operations			Eliminations			Consolidated
Year 2014 -
Revenue		5,035,674			350,339			338,153			166,951			29,323			224,560			1,208,168			53,241			(397,729	)		7,008,680
Gross profit (loss)		535,360			124,455			76,697			42,109			2,307			62,413			142,342			(7,574	)		(26,541	)		951,568
Administrative expenses		(258,554	)		(17,256	)		(8,035	)		(14,714	)		(317	)		(21,058	)		(122,506	)		(35,444	)		56,517			(421,367	)
Other income and expenses,net		(9,796	)		(3,359	)		33			18			—			(852	)		5,856			22,063			1,173			15,136
Operating profit (loss)
Operating profit (loss)		267,010			103,840			68,695			27,413			1,990			40,503			25,692			(20,955	)		31,149			545,337
Financial expenses		(69,046	)		(11,564	)		(11,321	)		(5,245	)		(55	)		(14,807	)		(27,393	)		(1,725	)		38,340			(102,816	)
Financial income		6,623			120			1,819			727			16			93			1,821			59,893			(59,650	)		11,462
Share of the profit or loss in associates and joint ventures under the equity method of accounting		48,242			29			—			—			—			12,178			590			270,045			(277,639	)		53,445
Profit (loss) before income tax		252,829			92,425			59,193			22,895			1,951			37,967			710			307,258			(267,800	)		507,428
Income tax		(59,252	)		(29,768	)		(16,158	)		(10,842	)		(588	)		(11,452	)		(5,788	)		(12,582	)		234			(146,196	)
Profit (loss) for the year		193,577			62,657			43,035			12,053			1,363			26,515			(5,078	)		294,676			(267,566	)		361,232
Profit (loss) attributable to:
Owners of the Company		164,095			59,010			32,774			9,040			1,363			9,527			(5,342	)		294,948			(265,672	)		299,743
Non-controlling interest		29,482			3,647			10,261			3,013			—			16,988			264			(272	)		(1,894	)		61,489
		193,577			62,657			43,035			12,053			1,363			26,515			(5,078	)		294,676			(267,566	)		361,232

F-54

(All amounts expressed in thousands of S/ unless otherwise stated)

Operating segment performance

Segment Reporting

	Engineering			Infrastructure																		Parent
	and									Mass			Water			Real			Technical			Company
	construction			Energy			Toll roads			transit			treatment			estate			services			operations			Eliminations			Consolidated
Year 2015 -
Revenue		5,829,441			389,377			394,462			206,459			27,994			215,764			1,152,544			70,531			(471,077	)		7,815,495
Gross profit (loss)		312,780			63,530			78,544			40,468			2,225			51,755			178,303			(7,004	)		(70,627	)		649,974
Administrative expenses		(289,149	)		(18,214	)		(10,319	)		(10,529	)		(310	)		(20,521	)		(115,018	)		(29,882	)		80,557			(413,385	)
Other income and expenses,net		30,616			1,365			55			2			—			1,759			15,348			11,114			(2,972	)		57,287
Loss on sales of investments								—			—			—			—			(8,289	)		—			—			(8,289	)
Operating profit (loss)		54,247			46,681			68,280			29,941			1,915			32,993			70,344			(25,772	)		6,958			285,587
Financial expenses		(127,383	)		(19,953	)		(4,713	)		(5,303	)		(45	)		(11,642	)		(32,246	)		(2,818	)		27,301			(176,802	)
Financial income		8,875			158			8,722			2,316			121			746			2,145			56,101			(41,077	)		38,107
Share of the profit or loss in associates and joint ventures under the equity method of accounting		(2,234	)		944			—			—			—			14,888			589			(14,709	)		8,246			7,724
Profit (loss) before income tax		(66,495	)		27,830			72,289			26,954			1,991			36,985			40,832			12,802			1,428			154,616
Income tax		(55,350	)		(7,650	)		(18,794	)		(8,129	)		(520	)		(7,649	)		6,102			(9,208	)		2,171			(99,027	)
Profit (loss) for the year		(121,845	)		20,180			53,495			18,825			1,471			29,336			46,934			3,594			3,599			55,589
Profit (loss) attributable to:
Owners of the Company		(131,181	)		17,072			40,010			14,118			1,471			12,377			40,322			4,337			8,571			7,097
Non-controlling interest		9,336			3,108			13,485			4,707			—			16,959			6,612			(743	)		(4,972	)		48,492
		(121,845	)		20,180			53,495			18,825			1,471			29,336			46,934			3,594			3,599			55,589

F-55

(All amounts expressed in thousands of S/ unless otherwise stated)

Operating segment performance

Segment Reporting    

	Engineering			Infrastructure																		Parent
	and									Mass			Water			Real			Technical			Company
	construction			Energy			Toll roads			transit			treatment			estate			services			operations			Eliminations			Consolidated
Year 2016 -
Revenue		4,159,538			382,211			264,384			247,040			18,459			411,518			1,401,781			62,070			(477,395	)		6,469,606
Gross profit (loss)		224,621			42,129			75,780			42,473			5,698			136,540			171,842			(171	)		(95,493	)		603,419
Administrative expenses		(258,568	)		(17,260	)		(10,185	)		(12,952	)		(786	)		(28,430	)		(119,003	)		(35,740	)		83,522			(399,402	)
Other income and expenses,net		(9,250	)		542			128			10			—			838			4,228			(5,843	)		(3,923	)		(13,270	)
Gain on sales of investments		—			—			—			—			—			—			—			46,336			—			46,336
Operating profit (loss)		(43,197	)		25,411			65,723			29,531			4,912			108,948			57,067			4,582			(15,894	)		237,083
Financial expenses		(65,138	)		(10,801	)		(6,478	)		(2,810	)		(38	)		(14,388	)		(30,989	)		(115,225	)		14,296			(231,571	)
Financial income		11,216			1,040			1,145			8,037			86			2,816			4,220			18,688			(26,454	)		20,794
Share of the profit or loss in associates and joint ventures under the equity method of accounting		16,501			1,615			—			—			—			6,850			360			(1,036,889	)		421,853			(589,710	)
Profit (loss) before income tax		(80,618	)		17,265			60,390			34,758			4,960			104,226			30,658			(1,128,844	)		393,801			(563,404	)
Income tax		(12,828	)		(5,308	)		(15,490	)		(10,904	)		(1,433	)		(27,054	)		(15,835	)		193,425			7,233			111,806
Profit (loss) for the year		(93,446	)		11,957			44,900			23,854			3,527			77,172			14,823			(935,419	)		401,034			(451,598	)
Profit (loss) attributable to:
Owners of the Company		(87,710	)		9,370			29,284			17,891			3,527			22,106			15,918			(934,508	)		414,423			(509,699	)
Non-controlling interest		(5,736	)		2,587			15,616			5,963			—			55,066			(1,095	)		(911	)		(13,389	)		58,101
		(93,446	)		11,957			44,900			23,854			3,527			77,172			14,823			(935,419	)		401,034			(451,598	)

F-56

(All amounts expressed in thousands of S/ unless otherwise stated)

Segments by geographical area

	2014		2015		2016
Revenue:
- Peru		5,611,844		5,690,160		4,826,738
- Chile		1,011,822		944,198		707,364
- Colombia		125,929		778,333		570,203
- Panama		139,666		206,137		346,065
- Guyana		49,525		111,924		717
- Brazil		68,045		39,253		—
- Ecuador		—		—		3,682
- Bolivia		1,849		45,490		14,837
		7,008,680		7,815,495		6,469,606
Non-current assets:
- Peru		2,461,288		3,230,288		3,995,453
- Chile		359,686		320,094		446,998
- Colombia		272,543		124,820		260,732
- Bolivia		1,890		15,043		13,043
- Ecuador		—		—		888
- Guyana		2,974		8,800		862
- Brazil		8,398		—		—
- Panama		—		584		—
		3,106,779		3,699,629		4,717,976

Until March 2017, the subsidiary Concar belonged to the ‘technical services’ segment, on April 2017, the Company transferred its subsidiary to the ‘infrastructure’ segment.

8 FINANCIAL INSTRUMENTS

8.1 Financial instruments by category

At December 31 the classification of financial assets and liabilities by category is as follows:

	2015		2016
Assets according to the statement of financial position
Loans and accounts receivable:
- Cash and cash equivalents		543,898		600,923
- Trade accounts receivable and other accounts receivable not including advances to suppliers, net		1,292,081		1,329,262
- Unbilled work in progress		1,337,981		878,515
- Financial assets related to concession agreements		699,056		685,975
- Accounts receivable from related parties		280,153		713,048
		4,153,169		4,207,723
Available-for-sale financial asset (Note 10)		120,134		—
Financial asset at fair value through profit or loss
- Cash and cash equivalents (Mutual funds)		10,104		6,027
- Other financial asset		3,153		352
		13,257		6,379

Financial assets related to concession agreements are recorded in the statement of financial position within the line items of short-term trade accounts receivable and long-term trade accounts receivable.

F-57

(All amounts expressed in thousands of S/ unless otherwise stated)

	2015		2016
Financial liabilities according to the statement of financial position
Other financial liabilities at amortized cost
- Other financial liabilities		1,480,071		2,140,297
- Finance leases		301,285		240,141
- Bonds		794,091		967,714
- Trade and other accounts payable (excluding non-financial liabilities)		1,967,270		1,769,444
- Accounts payable to related parties		97,968		145,537
		4,640,685		5,263,133
Hedging derivatives:
- Derivative financial instruments		2,331		1,081

8.2 Credit quality of financial assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external risk ratings (if available) or to historical information about counterparty default rates.

At December 31 the credit quality of financial assets is shown as follows:

	2015		2016
Cash and cash equivalents (*)
Banco de Crédito del Perú (A+)		237,870		147,759
Banco Continental (A+)		43,074		136,805
Banco Scotiabank (A+)		38,345		121,480
Citibank (A)		82,471		105,812
Banco de la Nación (A)		64,456		30,007
Banco Santander—Perú (A)		21,660		17,480
Banco Interbank (A)		17,145		6,344
Banco de Chile (AAA)		1,523		4,822
Banco Interamericano de Finanzas (A)		—		4,035
Banco Bogotá (A)		4,124		3,756
Larrain Vial de Chile (A)		3,368		3,514
GNB		—		2,080
Banco Santander - Chile (AAA)		7,181		1,941
Scotiabank Chile (AAA)		6,758		1,117
Banco de Crédito e Inversiones - Chile (AA+)		6,331		937
Banco Scotiabank de Guyana (A)		5,462		125
Others		5,064		5,061
		544,832		593,075

The ratings in the above table “A and AAA” represent high quality credit ratings. For banks located in Peru, the ratings were derived from risk rating agencies authorized by the Peruvian banking and insurance regulator “Superintendencia de Banca, Seguros y AFP” (SBS). For banks located in Chile, the ratings were derived from risk rating agencies authorized by the Chilean stock and insurance regulator “Superintendencia de Valores y Seguros” (SVS).

(*) The difference between the balances shown above with the balances shown in the statement of financial position corresponds to cash on hand and in-transit remittances (Note 9).

F-58

(All amounts expressed in thousands of S/ unless otherwise stated)

The credit quality of customers is assessed in three categories (internal classification):

A: New customers/related parties (less than 6 months),

B: existing customers/related parties (with more than 6 months of trade relationship) with no previous default history; and

C: existing customers/related parties (with more than 6 months of trade relationship) with previous default history.

	2015		2016
Trade accounts receivable (Note 11 and Note 12)
Counterparties with no external risk rating
A		540,573		117,797
B		2,119,217		2,052,356
C		342,477		407,151
		3,002,267		2,577,304
Receivable from related parties (Note 13)
B		280,153		713,048

The total balance of trade accounts receivable and receivable from related parties is in compliance with contract terms and conditions; none of them have been re-negotiated.

With respect to available-for-sale financial assets, the counterparty held an external credit rating of AAA at December 31, 2015.

9 CASH AND CASH EQUIVALENTS

At December 31 this account comprises:

	2015		2016
Cash on hand		6,116		5,944
In-transit remittances		3,054		7,931
Bank accounts		411,695		475,025
Time deposits		123,033		112,023
Mutual funds		10,104		6,027
		554,002		606,950

At December 31, 2016, short-term deposits were mainly derived from subsidiaries GyM S.A., GyM Ferrovías, Viva GyM S.A., and GMP S.A. for S/43.7 million, S/24.7 million, S/19.6 million and S/16.4 million respectively and interest rates ranged from 0.10% to 4.95% (GyM S.A., Viva GyM S.A., GyM Ferrovías and Concar S.A. for S/36.7 million, S/33 million, S/23 million and S/11.1 million respectively, at interest rates ranging from 0.10% and 4.70%, at December 31, 2015).

(i) Reconciliation to cash flow statement

The above figures reconcile to the amount of cash shown in the statement of cash flows at the end of the financial year as follows:

	2015		2016
Cash and Cash Equivalent on Balance Sheet		554,002		606,950
Bank overdrafts (Note 19)		—		(8,396	)
Balances per statement of cash flows		554,002		598,554

F-59

(All amounts expressed in thousands of S/ unless otherwise stated)

10 OTHER FINANCIAL ASSETS

On April 2016, the Company sold their 1.64% of interest held in Transportadora de Gas del Perú S.A. (TGP) for S/107.3 million, resulting in a net profit of S/46.3 million, as shown in the income statement, within “Profit (loss) on sale of investments”. The balance of its investment at the date of sale was S/117.1 million.

The cumulative amount of fair values at the date of sale amounting to S/41.5 million (S/56 million of gain on fair value and S/14.6 million of income tax), as recognized in the statement of other comprehensive income was transferred to profits for the period.

At December 31, 2015 the fair value of the Group’s interest in TGP equals S/120.1 million based on the discounted cash flow method. The information used in the calculation was as follows:

• Discounted cash flows from operating activities of TGP net of cash flows from investment activities (CAPEX).

• Cash flows were estimated for a 30-year term.

• The discount rate used was 7.5% corresponding to estimated TGP’s WACC.

• The interest of the Company in TGP was 1.64%.

The fluctuation in the fair value of this investment in 2015 amounted to S/19.9 million (S/4.6 million in 2014) net of its income tax effect amounting to S/7 million (S/1.3 million in 2014), which was recognized in the statement of other comprehensive income.

In 2015 dividends from this investment were received for a total S/7.2 million (S/9.3 million in 2014) included within Other income (Note 29).

The most significant assumptions are the discount rate and cash flows affected by the U.S. Wholesale Price Index; the Group performed a sensitivity analysis of this assumptions: if the discount rate were adjusted down by 5% the fair value would be 7.4% lower; and if the discount rate were adjusted up by 5% the fair value would be 7.1% higher; if the cash flows were adjusted down by 5% the fair value would be 9.1% lower and if the cash flows were adjusted up by 5% the fair value would be 8.8% higher.

11 TRADE ACCOUNTS RECEIVABLE, NET

At December 31 this account comprises:

	2015			2016
Invoices receivable		1,548,669			1,556,817
Collection rights		135,267			164,645
		1,683,936			1,721,462
Impairment of receivables		(19,650	)		(22,673	)
		1,664,286			1,698,789
Less: non-current portion
Invoices receivable		(610,695	)		(652,939	)
Collection rights		(11,136	)		(14,580	)
Total non-current		(621,831	)		(667,519	)
Total current		1,042,455			1,031,270

Invoices receivable are related to estimated percentages of completion approved by customers.

The fair value of current receivables is similar to their carrying amount since their average collection turnover is less than 60 days. These current receivables do not bear interest and have no specific guarantees.

F-60

(All amounts expressed in thousands of S/ unless otherwise stated)

The non-current portion of the trade accounts receivable is related to the financial asset model (Note 2.5) of subsidiary GyM Ferrovías S.A.

At December 31, 2016 the fair value of non-current accounts receivable amounted to S/606 million (S/514 million at December 31, 2015), which was calculated under the discounted cash flows method, using rates of 7.14% (8.98% at December 31, 2015).

At December 31, 2016, collection rights primarily relate to GyM Ferrovías S.A., GMD S.A., GMI S.A., Concar S.A., CAM Servicios del Perú S.A. and Survial amounting to S/68 million, S/49 million, S/19 million, S/13 million, S/12 million and S/11 million, respectively (GyM Ferrovías S.A., GMD S.A., GMI S.A. and Survial S.A. for S/65 million, S/37 million, S/22 million and S/16 million, respectively in 2015).

Aging of trade accounts receivable is as follows:

	At December 31,
	2015		2016
Current		1,245,266		1,396,040
Past due up to 30 days		256,743		103,617
Past due from 31 days up to 180 days		122,948		113,825
Past due from 181 days up to 360 days		16,988		29,506
Past due over 360 days		41,991		78,474
		1,683,936		1,721,462

At December 31, 2016 trade accounts receivables with maturity greater than 31 days for S/221.8 million (S/182 million in 2015) are not fully impaired. For 2016 the Group recognized impairment of S/3.1 million (S/5.8 million in 2015) in the consolidated income statement (Note 27).

The maximum exposure to credit risk at the reporting date is the carrying amount of the accounts receivable and of unbilled work in progress (Note 12).

12 UNBILLED WORK IN PROGRESS, NET

At December 31 this account comprises:

	2015			2016
Unbilled rights receivable		1,092,877			1,143,634
Rights for concessions in progress		77,440			57,912
Cost of work in progress		167,664			87,168
		1,337,981			1,288,714
Impairment of work in progress (Note 5.1-f)		—			(410,199	)
		1,337,981			878,515
Less: non-current portion
Unbilled rights receivable		—			(171,752	)
Rights for concessions in progress		(59,754	)		(25,834	)
Total non-current		(59,754	)		(197,586	)
Total current		1,278,227			680,929

Unbilled rights receivable are the rights that were not billed by the Engineering and Construction segment. Until that revenue is billed, they are stated as unbilled rights receivable. At December 31, 2016, the book value of non-current unbilled rights receivable is similar to its fair value since it was recorded using the discounted cash flow method, using a 1.71% rate.

Rights for concessions in progress include rights of future collections from public services concessions that are in pre-operational stage.

F-61

(All amounts expressed in thousands of S/ unless otherwise stated)

Deferred costs of work in progress include all those expenses incurred by the Group comprising future activities to be carried out under construction contracts currently effective. The Group estimates that all incurred cost will be billed and collected.

At December 31, 2016 and 2015 work in progress that remained to be billed are shown net of any advances received from customers for S/10.58 million and S/42.5 million, respectively under the terms and conditions set forth in each specific agreement. These advances are mostly related to subsidiary GyM S.A.

13 TRANSACTIONS WITH RELATED PARTIES AND JOINT OPERATORS

a) Transactions with related parties

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

	2014		2015		2016
Revenue from sales of goods and services:
- Associates		6,040		1,400		—
- Joint operations		43,897		52,384		36,901
		49,937		53,784		36,901
Purchase of goods and services:
- Associates		42		18		—
- Joint operations		715		489		3,228
		757		507		3,228

Inter-company transactions are based on the price lists in force and terms and conditions that would be agreed with third parties.

b) Key management compensation

Key management includes directors (executives and non-executives), members of the Executive Committee and Internal Audit Management. The compensation paid or payable to key management in 2016 amounted to S/106.9 million (S/111.7 million in 2015) and only relates to short-term benefits.

c) Balances at the end of the year were:

	At December 31, 2015				At December 31, 2016
	Receivable		Payable		Receivable		Payable
Joint operations:
Consorcio Constructor Ductos del Sur		154,383		—		62,834		37,238
Consorcio GyM Conciviles		57,679		—		61,006		—
Consorcio Rio Urubamba		10,856		2,819		9,072		—
Consorcio Peruano de Conservación		6,270		—		8,784
-Consorcio Vial Quinua		1,036		89		4,198		738
Consorcio Italo Peruano		465		21,907		4,174		17,325
Consorcio La Gloria		3,116		3,077		3,521		3,080
Terminales del Perú		9,459		—		3,215		259
Consorcio Rio Mantaro		6,021		15,941		3,191		6,886
Consorcio Vial Sierra		—		—		940		5,400
Consorcio Constructor Chavimochic		2,558		6,422		915		2,471
Consorcio Energía y Vapor		3,328		—		491		3,203
Consorcio Ermitaño		—				83		6,372
Consorcio Menegua		1,910		—		30		3,803
Consorcio para la Atención y Mantenimiento de Ductos -		—		—				21,790
Consorcio Huacho Pativilca		80		5,041		—		3,434
Ingeniería y Construcción Sigdo Koppers-Vial		2,659		3,900		—		—
Complementarios Ltda.		84		6,956		—		—
Other minors		11,728		7,390		10,134		2,472

F-62

(All amounts expressed in thousands of S/ unless otherwise stated)

	At December 31, 2015					At December 31, 2016
	Receivable		Payable			Receivable			Payable
Carried forward:		271,632		73,542			172,588			114,471
Brought forward:		271,632		73,542			172,588			114,471
Other related parties:
Adexus S.A.		8,521		—			—			—
Gaseoducto Sur Peruano S.A		—		—			531,383			—
Perú Piping Spools S.A.C.		—		—			9,077			—
Ferrovias Participaciones		—		20,136			—			20,813
Ferrovias Argentina		—		—			—			2,835
Arturo Serna		—		4,290			—			7,418
		8,521		24,426			540,460			31,066
		280,153		97,968			713,048			145,537
Less non-current portion:
Gaseoducto Sur Peruano S.A		—		—			(531,384	)		—
Consorcio Constructor Ductos del Sur		—		—			—			(37,238	)
Ferrovias Participaciones		—		(20,136	)		—			(20,813	)
Ferrovias Argentina		—		—			—			(2,835	)
Arturo Serna		—		—			—			(4,434	)
Non-current portion		—		(20,136	)		(531,384	)		(65,320	)
Portion current		280,153		77,832			181,664			80,217

Receivables and payables are mainly of current maturity and do not have specific guarantees, except for the receivable account from GSP. Accounts receivable from related parties have maturity periods of 60 days and arise from sales of goods and services. These balances are non-interest-bearing due to their short-term maturities and are not impaired.

This balance relates to the commitments that resulted from the early termination of GSP project (Note 16.a-i). At December 31, 2016 the non-current account receivables from related parties is similar to its fair value since it was accounted for using the discounted cash flow method with a 1.71% rate which originated a discount value of US$25.8 million. View events after the date of the statement of financial position in Note 37.

Accounts payable to related parties have maturity periods of 60 days and arise from engineering, construction, maintenance and other services received. These balances are not interest-bearing due to their short-term maturities.

Transactions with non-controlling interest are disclosed in Note 36.

14 OTHER ACCOUNTS RECEIVABLE

At December 31 this account comprises:

	2015		2016
Advances to suppliers (a)		170,126		305,022
Income tax on-account payments (b)		165,705		202,045
Fiscal credit (c)		146,785		132,316
Guarantee deposits (d)		125,269		95,916
Claims to third parties		17,846		59,198
Petróleos del Perú S.A.- Petroperú S.A.		8,891		46,413
Temporary tax on net assets		20,051		21,204
Taxes receivable		42,404		13,954
Claims to SUNAT (pre-paid taxes)		19,544		16,479
Restricted funds		—		14,067
Rental and sale of equipment		9,919		13,640
Receivables from personnel		8,168		10,726
Advances pending liquidation		3,478		2,447
Loans to third parties		83,657		1,065
Other		64,803		72,976
Carried forward:		886,646		1,007,468

F-63

(All amounts expressed in thousands of S/ unless otherwise stated)

	2015			2016
Brought forward:		886,646			1,007,468
Less non-current portion:
Advances to suppliers		(2,200	)		(225,567	)
Fiscal credit		(55,663	)		(52,225	)
Claims to third parties		—			(32,669	)
Petróleos del Perú S.A.- Petroperú S.A.		(7,948	)		(29,534	)
Other		(118	)		(17,957	)
Non-current portion		(65,929	)		(357,952	)
Current portion		820,717			649,516

Other receivables are neither past due nor impaired. Other non-current accounts receivable have maturities between 2 and 5 years.

The fair value of the short-term receivables approximates their carrying amount due to their short-term maturities. The non-current portion mainly comprises non-financial assets such as advances to suppliers and fiscal credit; the remaining balance is not significant for any period shown in the financial statements.

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of above-mentioned other receivables. The Group does not demand guarantees.

The following paragraph contains a description of major accounts receivable:

(a) Advances to suppliers

In 2016, the balance mainly comprises advances that subsidiary GyM Ferrovias S.A. gave to Alsthom Transporte for S/230 million. In 2015 the balance mainly comprises advances that subsidiary GyM S.A. gave for importing equipment to be used in Consorcio Río Mantaro Project amounting to S/76 million.

(b) Income tax on-account payment

This balance mainly consists of income tax on-account payments made by GyM S.A., GMP S.A., Graña y Montero S.A.A., CAM Holding S.p.A., Viva GyM S.A., GMI S.A. and GMD S.A. for S/133 million, S/17 million, S/16 million, S/16 million, S/5 million, S/4 million and S/4 million, respectively (GyM S.A., Graña y Montero S.A.A., GMP S.A., CAM Holding S.p.A., Concar S.A. and Viva GyM S.A. for S/95 million, S/16 million, S/12 million, S/8 million, S/5 million and S/4 million, respectively in 2015).

(c) Fiscal credit

This item is related to subsidiaries GyM S.A., Viva GyM S.A., Norvial S.A., Negocias del Gas S.A., La Chira S.A. and Concesionaria Vía Expresa Sur S.A. amounting to S/55 million, S/25 million, S/15 million, S/8 million, S/5 million and S/5 million, respectively (GyM S.A., Viva GyM S.A., Norvial S.A., Survial S.A., GyM Ferrovías S.A., La Chira and GMP S.A. for S/41 million, S/22 million, S/15 million, S/14 million, S/13 million, S/12 million and S/3 million, respectively in 2015). Management considers that this VAT fiscal credit will be recovered in the normal course of future operations of these subsidiaries.

(d) Guarantee deposits -

Guarantee deposits are the funds retained by customers for work contracts assumed basically by subsidiary GyM S.A. These deposits are retained by the customers to secure the Subsidiary’s compliance with its obligations under the contracts. The amounts retained will be recovered once the contracted work is completed.

F-64

(All amounts expressed in thousands of S/ unless otherwise stated)

15 INVENTORIES, net

At December 31 this account comprises:

	2015			2016
Land		361,082			398,120
Work in progress - Real estate		415,538			289,775
Finished properties		136,621			244,240
Construction material		162,538			114,919
Merchandise and supplies		87,643			97,860
		1,163,422			1,144,914
Impairment of inventories (Note 5.1-f)		(4,268	)		(40,621	)
		1,159,154			1,104,293

Land -

At December 31, land comprises properties for the implementation of the following projects of subsidiary Viva GyM:

	2015		2016
Lurín (a)		92,071		95,634
Miraflores (b)		79,971		80,552
San Miguel (c)		69,859		70,556
San Isidro (d)		—		46,606
Ancón (e)		33,068		35,934
Nuevo Chimbote		15,834		17,054
Huancayo		11,324		11,618
Villa el Salvador		19,143		—
San Martín de Porres		12,978		—
Others		26,834		40,166
		361,082		398,120

(a) Plot of land of 750 hectares located in the district of Lurín, province of Lima, for industrial development and public housing.

(b) Plot of land located in Av. El Ejército, Urbanización. Santa Cruz, Miraflores, province of Lima, a development complex consisting of a 5-star hotel, convention center, business, cultural, commercial and residential building center.

(c) Plot of land located in the district San Miguel of 1.4 hectares to develop a traditional multi-family building of 1,004 apartments in 4 stages.

(d) A plot of land in the district of San Isidro in which a 15-storey building will be built with 28 apartments and 121 parking spaces.

(e) A 108-hectare land property in which a mega housing-project will be implemented, including apartments ranging from 55 m² to 75 m², as well as houses of 75 m².

F-65

(All amounts expressed in thousands of S/ unless otherwise stated)

Land properties maintained from 2015 consist of assets of projects, the construction of which have not begun. Changes in these balances over 2016 primarily reflects higher costs of project engineering, license paperwork and other smaller costs. Construction in these land properties is expected to begin in late 2017 and the first quarter of 2019. The land property located in San Martín de Porres was reclassified to “Finished properties” since the construction started and finished at December 31, 2016. The plot of land in Villa El Salvador was sold in 2016.

Real estate - work in progress

At December 31, real state work in progress comprises the following projects:

	2015		2016
Klimt		67,910		100,751
Los Parques de Comas		77,346		89,074
Los Parques del Callao		57,672		51,613
Real 2		7,497		17,181
Villa El Salvador 2		9,918		12,674
El Rancho		166,256		—
Los Parques de San Martín (2nd phase)		19,063		—
Others		9,876		18,482
		415,538		289,775

During 2016 the Company has capitalized financing costs of these construction projects amounting to S/12.2 million at interest rates between 6.75% and 8.90% (S/4 million in 2015 at interest rates between 5.3% and 9.5%; and S/9 million in 2014 at interest rates between 3.12% and 8.5%).

Finished properties -

At December 31, the balance of finished properties consists of the following investment properties:

	2015		2016
El Rancho		—		121,302
Panorama		70,951		33,443
Los Parques de San Martín de Porres		21,557		30,724
Los Parques del Callao		—		19,736
Rivera Navarrete		14,085		11,966
Los Parques de Carabayllo 2nd phase		9,848		7,497
Los Parques de Comas		4,115		7,336
Los Parques de Villa El Salvador II		12,604		5,951
Others		3,461		6,285
		136,621		244,240

Construction materials

At December 31, 2016 and 2015, construction materials relates mainly to GSP project for S/54.8 million and S/68.3 million, respectively, of which S/33.8 million corresponding to Consorcio Constructor Ductos del Sur (CCDS) were impaired in 2016 (Note 5.1-f).

At December 31, 2016 borrowings are secured with land properties and work in progress comprising the following projects: Los Parques de Callao, Ancón and El Rancho. The total amount of the guarantee is S/101.2 million (S/175 million in 2015).

F-66

(All amounts expressed in thousands of S/ unless otherwise stated)

16 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

At December 31 this account comprises:

	2015		2016
Associates		490,702		286,403
Joint ventures		146,303		103,356
		637,005		389,759

The amounts recognized in the income statement are as follows:

	2014		2015		2016
Associates		29,132		22,800		(584,801	)
Joint ventures		24,313		2,193		(4,909	)
		53,445		24,993		(589,710	)

a) Investment in associates

Set out below are the associates of the Group at December 31, 2015 and 2016. The associates listed below have share capital solely consisting of common shares, which are held directly by the Group. None of the associates are listed companies; therefore, there is no quoted market price available for their shares.

							Carrying amount
	Class		Interest in capital				At December 31,
Entity	of share		2015		2016		2015		2016
			%		%
Gasoducto Sur Peruano S.A.		Common		20.00		20.00		437,494		218,276
Promoción Inmobiliaria del Sur S.A.		Common		22.50		22.50		28,733		31,768
Concesionaria Chavimochic S.A.C.		Common		26.50		26.50		17,202		32,394
Betchel Vial y Vives Servicios
Complementarios Ltda.		Common		40.00		40.00		6,187		69
Others								1,086		3,896
								490,702		286,403

The most significant associates are described as follows:

i) Gasoducto Sur Peruano S.A. -

In November 2015, the group acquired a 20% interest in Gasoducto Sur Peruano (hereinafter GSP) and obtained a 29% interest in the Ductos del Sur Consortium (CCDS) through its subsidiary GyM. GSP signed on July 22, 2014 a concession contract with the Peruvian government (Grantor) to build, operate and maintain the transportation system by natural gas pipelines to meet the demand of the cities of the Peruvian southern region. Additionally, GSP signed an engineering, procurement and construction (EPC) contract with the Ductos del Sur Consortium (CCDS). The Group made an investment of US $ 242.5 million (S / 811 million), and was required to assume 20% of the performance guarantee established in the Concession contract for US $ 262.5 million (equivalent to S / 882 million) and 20% of the guarantee for the bridge loan obtained by GSP for US $ 600 million (equivalent to S / 2,016 million) See subsequent events after the date of the statement of financial position in Note 37.

ii) Promoción Inmobiliaria del Sur S.A.

An entity engaged in purchasing land properties to obtain gains from their subsequent appreciation and disposal in the long term. Major assets consist of plots of land of 891.08 hectares in Lurín and 2.07 hectares in Punta Hermosa, both in Lima. Based on recent appraisals of the properties,

F-67

(All amounts expressed in thousands of S/ unless otherwise stated)

Management believes that the commercial value of these properties is higher than their carrying amount.

iii) Concesionaria Chavimochic S.A.C.

An entity that was awarded with the implementation of the Chavimochic irrigation Project, including: a) design and construction of the work required for the third-phase of the Chavimochic irrigation project in the province of La Libertad; b) operation and maintenance of works; and c) water supply to the Project users. Construction activities started in 2015; the concession effective period is 25 years and the total investment amounts US$647 million.

F-68

(All amounts expressed in thousands of S/ unless otherwise stated)

The following table shows financial information of the principal associates:

Summarized financial information for associates -

	Gaseoducto Sur Peruano S.A.						Promoción Inmobiliaria del Sur S.A.						Chavimochic S.A.C.
	At December, 31						At December, 31						At December, 31
	2015			2016			2015			2016			2015			2016
Current
Assets		303,219			375,547			124,887			149,300			171,400			120,342
Liabilities		(3,357,508	)		(6,747,492	)		(32,072	)		(187,380	)		(110,799	)		(3,160	)
Non-current
Assets		4,943,392			8,522,099			47,699			193,127			8,608			8,282
Liabilities		(7,442	)		—			(13,090	)		(13,855	)		(2,547	)		(1,918	)
Net assets		1,881,661			2,150,154			127,424			141,192			66,662			123,546

	Gasoducto Sur Peruano S.A.						Promoción Inmobiliaria del Sur S.A.									Chavimochic S.A.C.
	2015			2016			2014			2015			2016			2014			2015			2016
Revenues		3,007,799			3,323,410			88,870			90,970			65,071			67,473			376,124			264,386
Profit (loss) from continuing operations		69,191			(1,372,594	)		82,080			80,372			42,281			175			22,995			(2,994	)
Income tax		(19,828	)		—			(24,521	)		(25,373	)		(11,839	)		(57	)		(6,656	)		921
Profit (loss) from continuing operations after income tax		49,363			(1,372,594	)		61,402			65,245			30,442			118			16,339			(2,073	)
Other comprehensive income		—			—			—			—			—			—			—			—
Total comprehensive income		49,363			(1,372,594	)		61,402			65,245			30,442			118			16,339			(2,073	)

F-69

(All amounts expressed in thousands of S/ unless otherwise stated)

The movement of the investments in associates is as follows:

	2014			2015			2016
Opening balance		28,209			82,494			490,702
Contributions		—			—			390,506
Acquisition of Gasoducto Sur Peruano (Note 16 a-i)		—			437,494			—
Acquisitions		51,244			—			—
Change in corporate structure of
Panorama Project (Note 16 a-ii)		—			(39,180	)		—
Dividends received		(25,191	)		(9,838	)		(10,149	)
Equity interest in results		29,132			22,800			8,304
Impairment of GSP		—			—			(593,105	)
Decrease in capital		—			—			(166	)
Derecognition of investments		—			(2,755	)		—
Conversion adjustment		(900	)		(313	)		311
Final balance		82,494			490,702			286,403

In addition to the GSP acquisition described in Note 16 a-i); in 2014, 2015 and 2016 the following significant movements were noted:

• During 2016 cash contributions were made principally to Gasoducto Sur Peruano S.A. and Concesionaria Chavimochic amounting to S/373.9 million and S/15.7 million, respectively.

• In 2016 the Group obtained dividends mainly from Betchel Vial y Promoción Inmobiliaria del Sur S.A. amounting to S/6.3 million and S/3.8 million, respectively. In 2015 the Group received dividends from Promoción Inmobiliaria del Sur S.A. amounting to S/9.8 million (from Promoción Inmobiliaria del Sur S.A., Ingeniería y Construcción Vial y Vives OGP -1 Limitada y Betchel Vial y Vives Servicios Complementarios Ltda. for S/3.4 million, S/16.6 million and S/4.9 million, respectively in 2014).

• In 2016, the Group included an impairment provision of GSP for S/593.1 million (US$176.49 million). See subsequent events after the date of the statement of financial position in Note 37.

• In 2015, the “share of the profit or loss in associates and joint ventures under the equity method” shown in the income statement includes S/17.3 million as expenses that subsidiary GyM S.A. had to pay for the execution of the letter of guarantee in JV Panama.

• In March 2014, Constructora Norberto Odebrecht S.A. and Odebrecht Partipacoes e Investimentos S.A. formed Concesionaria Chavimochic S.A.C., in which the Company had a 26.5% interest based on a capital contribution of S/13.3 million.

• In December 2014, subsidiary Viva GyM S.A. made a capital contribution of S/37.8 million, by which it joined the Panama Project initially carried out by a third party and the Group and by which a 35% interest was obtained. On December 17, 2015 the business operating structure was decided to be changed, which resulted in the extinguishment of the association and the formation of a consortium by which the partners would have joint control of the business, with no effect on their percentage share in profit distribution. From that date onwards, the Group ceased to use the equity method of accounting to recognize the investment and began to use the joint operation accounting treatment.

F-70

(All amounts expressed in thousands of S/ unless otherwise stated)

b) Investment in Joint Ventures -

Set out below are the joint ventures of the Group as of December 31:

Entity	share		2015		2016		2015		2016
			%		%
Tecgas N.V.		Common		51.00		51.00		79,450		84,100
Sistemas SEC		Common		49.00		49.00		9,228		9,591
Logistica Químicos del Sur S.A.C.		Common		50.00		50.00		8,265		8,515
G.S.J.V. SCC		Common		50.00		50.00		8,800		861
Constructora SK-VyV Ltda.		Common		50.00		50.00		3,287		59
Adexus S.A. (Note 33 a)		Common		44.00		—		37,034		—
Others		Common						239		230
								146,303		103,356

i) Tecgas N.V. -

This entity provides services of operations and maintenance of oil pipelines and related activities, its activities are focused in the service agreement of operations and maintenance of oil pipelines of the concession of Transportadora de Gas del Perú S.A.A. - TGP (its largest customer).

ii) Sistemas SEC -

The company’s activities include the renovation and automation of the electrical system and signaling of railways and communications within the Santiago - Chillán - Bulnes - Caravans and Conception areas. The contract was awarded in 2005 for a period of 16 years.

iii) Adexus S.A. -

It is mainly engaged in providing specialized technological IT services and communications solutions, including system integration to companies in a wide range of industries, such as financial services, telecommunications, manufacturing, mining, retail, among others. The Group acquired control of this company since August 2016, going from a joint venture to a subsidiary (Note 33-a).

The following table shows the financial information of the principal joint ventures:

Summarized financial information for joint ventures -

	Tecgas N.V.						Adexus S.A.
	At December 31,						At December 31,
	2015			2016			2015
Current
Cash and cash equivalents		71,903			67			13,626
Other current assets		41,219			92,843			128,616
Total current assets		113,122			92,910			142,242
Financial liabilities (excluding trade payables)		—			—			(100,618	)
Other current liabilities		(103,941	)		(87,780	)		(68,116	)
Total current liabilities		(103,941	)		(87,780	)		(168,734	)
Non-current
Total non-current assets		192,360			33,336			174,159
Total non-current liabilities		(47,686	)		(7,367	)		(63,397	)
Net assets		153,855			31,099			84,270

F-71

(All amounts expressed in thousands of S/ unless otherwise stated)

	Tecgas N.V.						Adexus S.A.
	At December 31,						At December 31,
	2015			2016			2015
Revenue		426,487			457,554			334,376
Depreciation and amortization		(11,749	)		(2,266	)		(18,387	)
Interest income		138			215			47
Interest expense		(122	)		—			(23,026	)
Profit (loss) from continuing operations		1,876			(3,209	)		(35,573	)
Income tax expense		(892	)		(4,078	)		2,391
Post-tax profit (loss) from continuing operations		984			(7,287	)		(33,182	)
Other comprehensive income		—			—			—
Total comprehensive income		984			(7,287	)		(33,182	)

The movement of the investments in joint ventures was as follows:

	2014			2015			2016
Opening balance		59,758			147,069			146,303
Debt capitalization		—			—			8,308
Contributions		—			—			6,889
Equity interests in profits		24,313			2,193			(4,909	)
Acquisitions		78,615			44,145			—
Transfer of Adexus from acquisition of control		—			—			(35,870	)
Dividends received		(11,527	)		(42,122	)		(17,843	)
Decrease in capital		—			(3,364	)		(1,798	)
Translation adjustment		(4,090	)		(1,618	)		2,276
Final balance		147,069			146,303			103,356

In 2016, 2015 and 2014 the following significant movements were carried out:

• The Group obtained dividends in 2016 principally from Consorcio G.S.J.V.SCC and Constructora SK - VyV Ltda. for S/13.1 y S/3.3 million (S/41.1 million in 2015 and S/11.5 million in 2014 from Constructora SK - VyV Ltda.).

• In February and December 2016 a debt with Adexus was capitalized and a cash contribution was made to Tecgas N.V. for S/8.3 million and S/6.9 million, respectively.

• In August 2015 the Company acquired a 44% interest in the share capital of Adexus S.A. amounting to S/44.1 million. This investment includes goodwill arising from the acquisition for S/20.7 million. In February 2016 the Group acquired 8% of additional interest by capitalizing debt for S/8.3 million. In August 2016, the Group obtained control over Adexus S.A. and the balance of the investment at that date was transferred to investments in subsidiaries for S/35.9 million. Since that date, the Company consolidated the financial statements of Adexus S.A (Note 33 a).

• In December 2014, the Company acquired 51% of the share capital of Tecgas N.C. current strategic partner of Transportadora de Gas del Perú, which holds 100% the share capital of Compañía Operadora de Gas del Amazonas (hereinafter COGA) for a total of S/75.8 million. This investment included goodwill resulting from the above-mentioned acquisition amounting to S/68.2 million.

F-72

(All amounts expressed in thousands of S/ unless otherwise stated)

17 PROPERTY, PLANT AND EQUIPMENT, NET

The movement in property, plant and equipment accounts and its related accumulated depreciation for the year ended December 31, 2014, 2015 and 2016 is as follows:

													Furniture and			Other			Replacement			In-transit			Work
	Land			Buildings			Machinery			Vehicles			fixtures			equipment			units			units			in progress			Total
At January 1, 2014
Cost		29,342			110,456			855,084			361,876			37,675			149,438			10,646			21,829			98,043			1,674,389
Accumulated depreciation		—			(26,130	)		(380,281	)		(180,793	)		(23,906	)		(110,305	)		(68	)		—			—			(721,483	)
Net carrying amount		29,342			84,326			474,803			181,083			13,769			39,133			10,578			21,829			98,043			952,906
Net opening carrying amount		29,342			84,326			474,803			181,083			13,769			39,133			10,578			21,829			98,043			952,906
Additions		17			19,349			133,230			87,958			8,434			40,125			98			19,982			119,773			428,966
Acquisition of subsidiary - Morelco (Note 33 b)		1,993			8,869			53,942			1,844			254			1,653			—			—			526			69,081
Acquisition of subsidiary - Coasin (Note 33 c)		—			—			—			—			—			711			—			—			—			711
Reclassifications		—			67,454			24,523			(3,048	)		468			(3,316	)		(2,043	)		(31,415	)		(52,623	)		—
Transfers to intangibles (Note 18)		—			—			—									—			—			—			(66,604	)		(66,604	)
Deduction for sale of assets		—			(3,066	)		(61,508	)		(52,364	)		(2,514	)		(3,087	)		(851	)		(830	)		—			(124,220	)
Disposals - cost		—			(2,327	)		(10,404	)		(1,402	)		(585	)		(8,319	)		(605	)		—			801			(22,841	)
Depreciation charge		—			(11,996	)		(89,463	)		(52,697	)		(6,896	)		(22,100	)		(7	)		—			—			(183,159	)
Depreciation for transfers		—			(2,222	)		375			(3,036	)		958			3,925			—			—			—			—
Depreciation for sale deductions		—			2,959			45,001			33,458			2,214			2,394			71			—			—			86,097
Disposals - accumulated depreciation		—			1,910			8,339			1,253			351			5,753			—			—			—			17,606
Translations adjustments		(677	)		(285	)		( 8,380	)		(787	)		(586	)		(336	)		—			(389	)		(85	)		(11,525	)
Net final carrying amount		30,675			164,971			570,458			192,262			15,867			56,536			7,241			9,177			99,831			1,147,018
At December 31, 2014
Cost		30,675			200,450			986,487			394,077			43,146			176,869			7,245			9,177			99,831			1,947,957
Accumulated depreciation and impairment		—			(35,479	)		(416,029	)		(201.815	)		(27,279	)		(120,333	)		(4	)		—			—			(800,939	)
Net carrying amount		30,675			164,971			570,458			192,262			15,867			56,536			7,241			9,177			99,831			1,147,018

F-73

(All amounts expressed in thousands of S/ unless otherwise stated)

													Furniture and			Other			Replacement			In-transit			Work
	Land			Buildings			Machinery			Vehicles			fixtures			equipment			units			units			in progress			Total
At January 1, 2015
Cost		30,675			200,450			986,487			394,077			43,146			176,869			7,245			9,177			99,831			1,947,957
Accumulated depreciation and impairment		—			(35,479	)		(416,029	)		(201,815	)		(27,279	)		(120,333	)		(4	)		—			—			(800,939	)
Net carrying amount		30,675			164,971			570,458			192,262			15,867			56,536			7,241			9,177			99,831			1,147,018
Net initial carrying amount		30,675			164,971			570,458			192,262			15,867			56,536			7,241			9,177			99,831			1,147,018
Additions		—			9,021			105,575			86,923			12,684			22,802			—			16,018			44,933			297,956
CAM Brazil deconsolidation		—			(839	)		( 1,462	)		( 633	)		(70	)		—			—			—			—			(3,004	)
Reclassifications		—			36,180			32,389			9,300			1,245			7,272			10,529			(23,092	)		(73,823	)		—
Transfers to intangibles (Note 18)		—			—			68			—			—			—			—			—			(36,785	)		(36,717	)
Transfers to accounts receivable		—			(3,635	)		—			—			(777	)		(4,442	)		—			—			(5,168	)		(14,022	)
Deduction for sale of assets		(2,001	)		(1,235	)		( 35,118	)		(42,464	)		(1,491	)		(7,979	)		—			—			(14,185	)		(104,473	)
Disposals - cost		—			(5,057	)		( 10,224	)		( 362	)		(2,299	)		(1,810	)		(2,326	)		(89	)		(1,206	)		(23,373	)
Depreciation charge		—			(13,598	)		(116,993	)		(54,808	)		(5,156	)		(24,225	)		—			—			—			(214,780	)
Depreciation for sale deductions		—			1,003			23,907			32,566			799			7,751			—			—			—			66,026
Disposals - accumulated depreciation		—			3,060			4,373			323			503			1,331			—			—			—			9,590
Translations adjustments		(265	)		(306	)		( 8,288	)		( 2,221	)		(128	)		(506	)		—			(197	)		(553	)		(12,464	)
Net final carrying amount		28,409			189,565			564,685			220,886			21,177			56,730			15,444			1,817			13,044			1,111,757
At December 31, 2015
Cost		28,409			231,029			1,074,195			443,239			52,225			191,238			15,448			1,817			13,044			2,050,644
Accumulated depreciation and impairment		—			(41,464	)		(509,510	)		(222,353	)		(31,048	)		(134,508	)		(4	)		—			—			(938,887	)
Net carrying amount		28,409			189,565			564,685			220,886			21,177			56,730			15,444			1,817			13,044			1,111,757

F-74

(All amounts expressed in thousands of S/ unless otherwise stated)

	Land			Buildings			Machinery			Vehicles			Furniture and fixtures			Other equipment			Replacement units			In-transit units			Work in progress			Total
At January 1, 2016
Cost		28,409			231,029			1,074,195			443,239			52,225			191,238			15,448			1,817			13,044			2,050,644
Accumulated depreciation and impairment		—			(41,464	)		(509,510	)		(222,353	)		(31,048	)		(134,508	)		(4	)		—			—			(938,887	)
Net carrying amount		28,409			189,565			564,685			220,886			21,177			56,730			15,444			1,817			13,044			1,111,757
Net initial carrying amount		28,409			189,565			564,685			220,886			21,177			56,730			15,444			1,817			13,044			1,111,757
Additions		6,238			12,126			81,378			50,574			4,423			24,870			553			19,312			13,594			213,068
Acquisition of subsidiary – Adexus (Note 33 a)		—			13,913			—			420			1,525			26,130			—			—			—			41,988
Reclassifications		—			588			1,927			( 1,172	)		4,456			13,156			2,583			(17,349	)		(4,189	)		—
Transfers from inventories		2,941			—			—			—			—			—			—			—			—			2,941
Transfers to intangibles (Note 18)		—			—			—			—			—			—			—			—			(1,257	)		(1,257	)
Deduction for sale of assets		(5,256	)		(14,333	)		( 60,374	)		(48,521	)		(1,724	)		(5,766	)		—			—			—			(135,974	)
Disposals - cost		—			( 1,232	)		( 15,149	)		( 1,354	)		(1,579	)		(4,364	)		(661	)		(2	)		—			(24,341	)
Depreciation charge		—			(14,842	)		(104,638	)		(48,041	)		(7,548	)		(28,127	)		(5	)		—			—			(203,201	)
Impairment loss		—			( 73	)		( 5,190	)		( 317	)		(3,301	)		(382	)		—			—			—			(9,263	)
Depreciation for sale deductions		—			8,113			48,266			29,536			1,026			1,907			—			—			—			88,848
Disposals - accumulated depreciation		—			939			14,430			886			1,540			3,991			—			—			—			21,786
Translations adjustments		282			130			5,987			922			176			(344	)		—			—			94			7,247
Net final carrying amount		32,614			194,894			531,322			203,819			20,171			87,801			17,914			3,778			21,286			1,113,599
At December 31, 2016
Cost		32,614			241,150			1,088,229			443,641			59,593			246,102			17,923			3,778			21,286			2,154,316
Accumulated depreciation and impairment		—			(46,256	)		(556,907	)		(239,822	)		(39,422	)		(158,301	)		(9	)		—			—			(1,040,717	)
Net carrying amount		32,614			194,894			531,322			203,819			20,171			87,801			17,914			3,778			21,286			1,113,599

F-75

(All amounts expressed in thousands of S/ unless otherwise stated)

In 2016 and 2015 additions to the carrying amount correspond to the acquisition of fixed assets under finance leases or by direct acquisition.

The balance of work in progress at December 31, 2016 relates mainly to investments made by the subsidiary GMP S.A. for S/19 million (S/3 million at December 31, 2015) for the activities of oil drilling in order to increase the volume of exploitation of oil and gas. Additionally, the balance includes the construction work of Proyecto Hotel Larcomar for S/14.4 million (S/11 million in 2015).

In 2016 fixed asset sales amounted to S/70.5 million (S/55.8 million and S/42.4 million in 2015 and 2014, respectively) resulting in profits of S/18.4 million (profits of S/17.4 and S/4.3 million in 2015 and 2014, respectively) that are shown in the statement of income within “other income and expenses, net” (Note 29), the difference between the income proceeds from disposals of fixed assets and their profit are shown within “revenue from construction activities” and “gross profit”, respectively.

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

	2014		2015		2016
Cost of services and goods		168,634		196,725		191,113
Administrative expenses		14,525		18,055		12,088
Total depreciation related to property, plant and equipment		183,159		214,780		203,201
(+) Depreciation related to investment property		2,151		2,290		2,321
Total depreciation charged to expenses		185,310		217,070		205,522

The Group determined indicators of impairment of items of property, plant and equipment relating to: i) early termination of the GSP concession in respect of Consorcio Constructor Ductos del Sur (CCDS) and ii) assets under stand-by status. Management calculated the recoverable amount of those assets as the fair value; fair value was determined taking into account appraisals performed by independent experts. The recognized impairment loss is mainly related to Consorcio Constructor Ductos del Sur (CCDS) for a total of S/4.1 million (Note 5.1-f), GyM for S/2.39 million and Stracon GyM S.A. for S/2.34 million, which are shown within “Expenses by nature” (Note 27).

The net carrying amount of machinery and equipment, vehicles and furniture and fixtures acquired under finance lease agreements is broken down as follows:

	At December 31,
	2015			2016
Cost of acquisition		735,591			800,927
Accumulated depreciation		(327,465	)		(386,411	)
Net carrying amount		408,126			414,516

Other financial liabilities are secured with items of property, plant and equipment for S/617.9 million (S/440.8 million in 2015).

At December 31, 2016 the Group have fully depreciated property, plant and equipment items that are still in use for S/151.6 million (S/155.8 million, at December 31, 2015).

F-76

(All amounts expressed in thousands of S/ unless otherwise stated)

18 INTANGIBLE ASSETS, NET

The movement of intangible assets and that of their related accumulated amortization, as of December 31, 2014, 2015 and 2016, is as follows:

	Goodwill			Trade- marks			Concession rights			Contractual relations with clients			Internally generated software and development costs			Costs of development of wells			Development costs			Land use right		Other assets			Totals
At January 1, 2014
Cost		95,342			75,812			438,167			57,791			27,547			217,214			3,623			13,288		11,636			940,420
Accumulated amortization		(21,995	)		(2,868	)		(258,172	)		(28,256	)		(23,450	)		(118,612	)		(3,623	)		—		(2,559	)		(459,535	)
Net carrying amount		73,347			72,944			179,995			29,535			4,097			98,602			—			13,288		9,077			480,885
Net initial carrying amount		73,347			72,944			179,995			29,535			4,097			98,602			—			13,288		9,077			480,885
Additions		—			—			135,502			—			2,804			—			—			—		5,238			143,544
Acquisition of subsidiary - Morelco (Note 33 b)		103,055			33,326			847			30,318			—			—			—			—		—			167,546
Acquisition of subsidiary - Coasin (Note 33 c)		6,413			—			6			—			1,371			—			—			—		—			7,790
Transfers from assets under construction (Note 17)		—			—			1,845			—			1,677			64,759			—			—		(1,677	)		66,604
Reclassifications		—			—			920			—			180			(251	)		—			—		(849	)		—
Derecognition - cost		—			—			(16,016	)		—			(29	)		—			—			—		(91	)		(16,136	)
Amortization charge		—			—			(26,823	)		(14,987	)		(3,013	)		(31,780	)		—			—		(778	)		(77,381	)
Derecognition - accumulated amortization		—			—			15,491			—			1			—			—			—		—			15,492
Amortization reversal (Vial y Vives)		—			2,651			—			—			—			—			—			—		—			2,651
Translations adjustments		(2,666	)		(6,303	)		(88	)		(1,876	)		(1,319	)		—			—			—		—			(12,252	)
Net final carrying amount		180,149			102,618			291,679			42,990			5,769			131,330			—			13,288		10,920			778,743
At December 31, 2014
Cost		202,144			102,835			561,183			86,233			32,231			281,722			3,623			13,288		14,257			1,297,516
Accumulated amortization		(21,995	)		(217	)		(269,504	)		(43,243	)		(26,462	)		(150,392	)		(3,623	)		—		(3,337	)		(518,773	)
Net carrying amount		180,149			102,618			291,679			42,990			5,769			131,330			—			13,288		10,920			778,743

F-77

(All amounts expressed in thousands of S/ unless otherwise stated)

	Goodwill			Trade- marks			Concession rights			Contractual relations with clients			Internally generated software and development costs			Costs of development of wells			Development costs			Land use right		Other assets			Totals
At January 1, 2015
Cost		202,144			102,835			561,183			86,233			32,231			281,722			3,623			13,288		14,257			1,297,516
Accumulated amortization		(21,995	)		(217	)		(269,504	)		(43,243	)		(26,462	)		(150,392	)		(3,623	)		—		(3,337	)		(518,773	)
Net carrying amount		180,149			102,618			291,679			42,990			5,769			131,330			—			13,288		10,920			778,743
Net initial carrying amount		180,149			102,618			291,679			42,990			5,769			131,330			—			13,288		10,920			778,743
Additions		5,418			—			165,149			—			9,141			11,842			—			—		3,429			194,979
CAM Brazil Deconsolidation		—			—			—			—			(129	)		—			—			—		—			(129	)
Transfers from assets under construction (Note 17)		—			—			—			(68	)		1,562			33,396			—			—		1,827			36,717
Transfers to accounts receivable		—			—			(2,278	)		—			—			—			—			—		—			(2,278	)
Transfers to pre-paid expenses		—			—			(10,923	)		—			—			—			—			—		(3,684	)		(14,607	)
Reclassifications		—			—			—			—			188			(188	)		—			—		(3	)		(3	)
Amortization charge		—			—			(25,683	)		(14,697	)		(6,033	)		(42,117	)		—			—		(825	)		(89,355	)
Translations adjustments		(15,335	)		(6,084	)		(51	)		(4,031	)		(280	)		—			—			—		—			(25,781	)
Net final carrying amount		170,232			96,534			417,893			24,194			10,218			134,263			—			13,288		11,664			878,286
At December 31, 2015
Cost		192,227			96,751			716,125			82,134			42,761			326,723			3,623			13,288		15,425			1,489,057
Accumulated amortization		(21,995	)		(217	)		(298,232	)		(57,940	)		(32,543	)		(192,460	)		(3,623	)		—		(3,761	)		(610,771	)
Net carrying amount		170,232			96,534			417,893			24,194			10,218			134,263			—			13,288		11,664			878,286

F-78

(All amounts expressed in thousands of S/ unless otherwise stated)

	Goodwill			Trade- marks			Concession rights			Contractual relations with clients			Internally generated software and development costs			Costs of development of wells			Development costs			Land use right		Other assets			Totals
At January 1, 2016
Cost		192,227			96,751			716,125			82,134			42,761			326,723			3,623			13,288		15,425			1,489,057
Accumulated amortization		(21,995	)		(217	)		(298,232	)		(57,940	)		(32,543	)		(192,460	)		(3,623	)		—		(3,761	)		(610,771	)
Net carrying amount		170,232			96,534			417,893			24,194			10,218			134,263			—			13,288		11,664			878,286
Net initial carrying amount		170,232			96,534			417,893			24,194			10,218			134,263			—			13,288		11,664			878,286
Additions		—			—			118,222			—			16,477			17,772			—			—		19,255			183,568
Acquisition of subsidiary – Adexus (Note 33 a)		930			9,088			6,090			12,822			—			—			—			—		4,203			33,133
Transfers from assets under construction (Note 17)		—			—			—			—			—			—			—			—		1,257			1,257
Reclasifications		—			—			5,258			—			345			—			—			—		(5,603	)		—
Disposals – net cost		—			—			(1,395	)		—			—			(2,395	)		—			—		—			(3,790	)
Amortization charge		—			—			(28,206	)		(4,376	)		(8,043	)		(40,918	)		—			—		(1,200	)		(82,743	)
Impairment loss		(38,680	)		(15,628	)		—			—			—			—			—			—		—			(54,308	)
Translations adjustments		12,038			3,672			(102	)		171			1,024			—			—			—		(78	)		2,149
Net final carrying amount		144,520			93,666			517,760			32,811			20,021			108,722			—			13,288		29,498			960,286
At December 31, 2016
Cost		205,195			109,511			844,213			95,127			60,607			342,100			3,623			13,288		34,294			1,707,958
Accumulated amortization and impairment		(60,675	)		(15,845	)		(326,453	)		(62,316	)		(40,586	)		(233,378	)		(3,623	)		—		(4,796	)		(747,672	)
Net carrying amount		144,520			93,666			517,760			32,811			20,021			108,722			—			13,288		29,498			960,286

F-79

(All amounts expressed in thousands of S/ unless otherwise stated)

a) Goodwill -

Management reviews the results of its businesses based on the type of economic activity carried out.

At December 31 goodwill allocated to cash-generating units (CGU) are:

	2015		2016
Engineering and construction		125,514		98,587
Electromechanical		20,737		20,737
Mining and construction services		13,366		13,366
IT equipment and services		4,172		5,102
Telecommunications services		6,443		6,728
		170,232		144,520

As a result of the impairment testing on goodwill performed by Management on an annual basis, the recoverable amount of the related cash-generating unit is determined based on the higher of its value in use and fair value less cost of disposal. Value in use is determined based on the future cash flows expected to be generated by the assessed CGU.

As a result of these assessments an impairment was identified in one of the CGU’s, Vial y Vives—DSD, and was accounted as of December 31st, 2016. The loss to impairment was generated due to the decrease in the expected flows, as a result of the reduction of the contracts linked to the Backlog. The amount of the impairment it impacted the total amount of goodwill was S/38.7 million.

Major assumptions used by the Group in determining the fair value less cost of disposal and the value in use were as follows:

	Engineering and construction		Electro- mechanical		Mining and construction		IT equipment and services		Telecommunication services
	%		%		%		%		%
2015 -
Gross margin		10.80 to 11.50		10.33		11.81		24.31		14.39
Terminal growth rate		3.00		2.00		2.00		—		—
Discount rate		9.66 to 12.72		11.01		11.71		21.74		10.02
2016 -
Gross margin		9.50 to 12.99		11.10		12.04		15.00 to 23.19		11.75
Terminal growth rate		3.00 to 4.00		2.00		2.00		2.00 to 3.00		3.00
Discount rate		9.87 to 11.85		11.48		11.31		14.64 to 24.10		10.80

These assumptions have been used for the analysis of each CGU included in the operating economic activities for a period of 5 years.

Management determines the budgeted gross margins based on past results and market development expectations. Average growth rates are consistent with those prevailing in the industry. Discount rates used are pre-tax or post-tax as appropriate and reflect the specific risk related to the assessed CGUs.

b) Trademarks -

This item mainly comprises the trademarks acquired in the business combination processes with Vial y Vives S.A.C. (S/75.4 million) in October 2012; Morelco S.A.S. (S/33.33 million) in December 2014; and Adexus S.A. (S/9.1 million) in August 2016. Management determined that the brands obtained from Vial y Vives, Morelco and Adexus have indefinite lives; consequently, annual impairment tests are performed on these intangibles, as described in paragraph a) above.

F-80

(All amounts expressed in thousands of S/ unless otherwise stated)

As a result of these tests, at December 31, 2016, the Vial y Vives - DSD trademark was partially impaired, the amount of the impairment was S/15.6 million. No provision for impairment was considered necessary to be recorded for 2015.

Major assumptions used by the Group in determining the fair value less cost of disposal are as follows:

	Engineering and construction and				IT equipment services
	Morelco %		Vial y Vives - DSD %		Adexus %
2015 -
Average revenue growth rate		13.65		44.49		—
Terminal growth rate		3.00		3.00		—
Discount rate		12.72		9.66		—
2016 -
Average revenue growth rate		14.39		24.53		12.60
Terminal growth rate		3.00		4.00		3.00
Discount rate		11.85		9.87		16.05

c) Concessions -

The Concession’s intangibles at December 31, 2016 mainly consist of: i) EPC contract for S/405 million (S/317.5 million at December 31, 2015) comprising the construction of the second section of “Ancón-Huacho-Pativilca” highway; ii) improvement of highway for S/18.1 million (S/19.6 million at December 31, 2015), and iii) Borrowing costs that were capitalized for a total of S/22.5 at an interest rate ranging from 7.14% y 8.72% (S/7.7 million in 2015 at an interest rates ranging from 6.75% to 8.375%). By those contracts, the Concessionaire should perform activities to construct, improve and remediate road infrastructure during the Concession effective period.

d) Costs of development of wells -

Through one of its subsidiaries, the Group operates and extracts oil from two oil fields (Block I and Block V) located in the province of Talara in northern Peru. Both oil fields are operated under long-term service agreements by which the Group provides hydrocarbon extraction services to Perupetro.

On December 10, 2014 the Peruvian Government granted subsidiary GMP S.A. a right of exploiting for 30 years the oil blocks III and IV (owned by the Peruvian government-run entity- Perupetro) located in Talara, Piura, 230 wells and 330 wells respectively. The total investment expected to be made in both wells is estimated to be US$560 million; operations began in April 2015 in both blocks.

As part of the Group’s obligations under the relevant service agreements, certain costs will be incurred in preparing the wells in Blocks I, III, IV and V. These costs are capitalized as part of intangible assets at a carrying amount of S/80 million at December 31, 2016 (S/118.4 million at December 31, 2015).

All blocks are amortized on the basis of the useful lives of the wells (estimated to be 5 years for Blocks I and V and 10 years for Blocks III and IV), which is less than the total effective period of the service agreement with Perupetro.

e) Amortization of intangible assets -

Amortization of intangibles is broken down in the income statement as follows:

	2014		2015		2016
Cost of sales and services (Note 27)		68,089		81,841		74,849
Administrative expenses (Note 27)		6,641		7,514		7,894
		74,730		89,355		82,743

F-81

(All amounts expressed in thousands of S/ unless otherwise stated)

19 OTHER FINANCIAL LIABILITIES

At December 31 this account comprises:

	Total				Current				Non-current
	2015		2016		2015		2016		2015		2016
Bank overdrafts		—		8,396		—		8,396		—		—
Bank loans		1,480,071		2,131,901		1,082,860		1,835,340		397,211		296,561
Finance leases		301,285		240,141		145,160		117,307		156,125		122,834
		1,781,356		2,380,438		1,228,020		1,961,043		553,336		419,395

a) Bank loans -

At December 31, 2016 and 2015, this item comprises bank borrowings contracted in local and foreign currency intended for working capital. These obligations are subject to fixed interest rates ranging between 1.0% and 14.4% in 2016 and between 1.0% and 13.1% in 2015.

					Current				Non-current
	Interest		Date of		At December 31				At December 31
	rate		maturity		2015		2016		2015		2016
Graña y Montero S.A.A.		Libor USD 3M + from 4.9% to 5.5%		2016 / 2020		102,776		932,114		—		—
GyM S.A.		1.00% / 7.80%		2016 / 2020		535,776		492,910		286,671		187,029
Viva GyM S.A.		6.75% / 8.90%		2016 / 2017		220,423		201,609		8,372		—
GMP S.A.		3.65% / 6.04%		2016 / 2020		95,824		77,857		70,220		71,453
CAM Holding S.A.		1.30% / 14.43%		2016 / 2018		42,534		69,702		31,948		24,889
Adexus S.A.		5.9%		2019		—		42,782		—		13,190
GMD S.A.		6.20% / 7.47%		2016 / 2017		30,107		14,746		—		—
Norvial S.A.		8.37%		2016		54,706		—		—		—
Others		5.56% / 7.18%		2016		714		3,620		—		—
						1,082,860		1,835,340		397,211		296,561

i) Credit Suisse Syndicated Loan -

In December 2015, the Group entered into a medium term loan credit agreement for up to US$200 million (equivalent to S/672 million), with Credit Suisse AG, Cayman Islands Branch, Credit Suisse AG, Cayman Islands Branch and Credit Suisse Securities (USA) LLC. The initial term of the loan was set at five years, with quarterly installments starting to be paid on the 18th month. The loan accrued interest at a rate of three months Libor plus 3.9% per year. The proceeds were used to finance the equity interest in GSP. As of December 31, 2016, the outstanding balance amounted to US$148.5 million (equivalent to S/498.8 million), and it is included within the current portion.

On June 27, 2017, the Group renegotiated the terms of this loan to clear breaches related to the termination of the GSP concession. The new terms require repayment by December, 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year of the amendment. The syndicated loan accrues interest at LIBOR plus 4.90% per year. Under the amendment, the Group is prohibited from paying dividends until the loan is fully repaid. The loan is secured by (i) a lien on Concar’s shares; (ii) a lien on Almonte’s shares; (iii) a mortgage over certain real estate properties in Miraflores and Surquillo; (iv) liens on certain accounts; (v) a lien on GyM’s share; (vi) a second lien on CAM Holding SPA’s shares; (vii) a second lien on CAM Servicios del Perú S.A.’s shares; and (viii) a first lien on cash flows from the sale of certain assets.

The agreement contains certain covenants, including the obligation by the Company to maintain the following financial ratios during the term of the agreement: (1) the Consolidated EBITDA to Consolidated Interest Expense Ratio shall not be less than 3.5:1.0 commencing on April 1, 2018 and thereafter; (2) the Consolidated Leverage Ratio (as defined therein) shall not be greater than 3.5:1.0 at any time during the period commencing on December 31, 2016 and ending on March 31, 2017; 3.5:1.0 at any time during the period commencing on July 1, 2017 and ending on September 30, 2017; and no greater than 2.5:1.0 at any time thereafter; and (3) the Debt Service Coverage Ratio as of the last day of any fiscal quarter of the borrower, falling on or after the first anniversary of the closing date, shall not be less than 1.5:1.0, commencing on April 1, 2018 and thereafter.

F-82

(All amounts expressed in thousands of S/ unless otherwise stated)

As of the date of this annual report, we are under continuing default in this financing due to the non-delivery of the audited consolidated financial statements of Graña y Montero and GyM for the 2016 and 2017 fiscal years. The syndicated loan required that we provide the financial statements for the 2016 and 2017 fiscal years no later than April 30, 2018. We are in the process of obtaining waivers from the lenders.

As of to date, the outstanding balance of the loan capital is US$81.1 million (equivalent to S/264.9 million).

ii) GSP Bridge Loan -

At December 31, 2016, the current balance includes US$129 million (equivalent to S/433.3 million) of the corporate guarantee issued by the Company to secure the bridge loan given to GSP, which was enforceable at that date. On June, 2017, the Company has reached a new term loan with Natixis, BBVA, SMBC and MUFJ for US$78.7 million (equivalent to S/264.8 million), the proceeds of which were used to repay the GSP bridge loan.

The maturity is June, 2020, with required prepayments to be made with the proceeds of asset sales of 40% in the first year and an additional 30% in the second year. The new term contains the following covenant: the consolidated leverage ratio shall not be more than 3.5:1.0 at any time, and accrues interest at LIBOR plus 4.50% per year, which increases to 5.00% during the second year and 5.50% during the third year. Under the new term, the Group is prohibited from paying dividends until the loan is fully repaid. Also, the new term is secured by (i) a first lien on rights to receive the termination payment derived from the GSP termination (the “VCN”), (ii) a second lien on our shares of GyM and Concar; (iii) a second lien on our shares of Almonte; (iv) a second lien on certain real estate properties in Miraflores and Surquillo; (v) a second lien on our shares of CAM Holding SPA; (vi) a second lien on our shares of CAM Servicios del Perú S.A.; and (vii) a first lien on cash flows from the sale of certain assets.

As of the date of this annual report, we are under certain continuing defaults under the term loan with respect to certain financial ratios and the non-delivery of the audited consolidated financial statements of Graña y Montero for the 2016 and 2017 fiscal years. The term loan required that we provide the financial statements for the 2016 and 2017 fiscal years no later than April 30, 2018. As of March 2018, (a) our Consolidated Leverage Ratio (as defined therein) was 2.62, rather than no more than 2.50 as required under the syndicated loan and (b) [●]. We are in the process of obtaining waivers from the lenders.

b) Finance lease obligations -

					Current				Non-current
	Interest		Date of		At December 31				At December 31
	rate		maturity		2015		2016		2015		2016
GyM S.A.		1.90% / 8.96%		2016 / 2023		116,205		80,570		88,715		58,937
GMD S.A.		4.99% / 7.00%		2016 / 2020		10,474		10,404		20,024		12,099
Adexus S.A.		3.36% / 18.00%		2016 / 2020		—		9,884		—		12,287
Viva GyM S.A.		7.30% / 8.95%		2018 / 2022		3,957		4,847		19,190		16,541
GMP S.A.		2.65% / 7.20%		2016 / 2018		5,272		4,206		13,087		9,035
CAM Holding S.A.		7.19% / 9.27%		2016 / 2020		4,633		3,729		12,382		10,590
Others		3.23% / 7.75%		2016 / 2019		4,619		3,667		2,727		3,345
						145,160		117,307		156,125		122,834

The minimum payments to be made by maturity and present value of the finance lease obligations are as follows:

	At December 31,
	2015			2016
Up to 1 year		157,957			127,496
From 1 to 5 years		160,824			112,769
Over 5 years		10,431			19,506
		329,212			259,771
Future financial charges on finance leases		(27,927	)		(19,630	)
Present value of the obligations for finance lease contracts		301,285			240,141

F-83

(All amounts expressed in thousands of S/ unless otherwise stated)

The present value of finance lease obligations is broken down as follows:

	At December 31,
	2015		2016
Up to 1 year		145,160		117,307
From 1 year to 5 years		146,316		105,978
Over 5 years		9,809		16,856
		301,285		240,141

c) Fair value of borrowings -

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

	Carrying amount				Fair value
	At December 31,				At December 31,
	2015		2016		2015		2016
Bank overdrafts		—		8,396		—		8,396
Loans		1,480,071		2,131,901		1,493,981		2,142,890
Leases		301,285		240,141		308,202		240,089
		1,781,356		2,380,438		1,802,183		2,391,375

Fair values are determined based on discounted expected cash flows using borrowing rates between 1.3% and 14.3% (between 4.8% and 13.1% in 2015) that corresponds to level 2 of the fair value hierarchy.

20 BONDS

At December 31 this account comprises:

	Total				Current				Non-current
	2015		2016		2015		2016		2015		2016
GyM Ferrovías		607,868		604,031		31,546		20,551		576,322		583,480
Norvial		186,223		363,683		5,537		25,540		180,686		338,143
		794,091		967,714		37,083		46,091		757,008		921,623

GyM Ferrovías S.A. -

In February 2015, subsidiary GyM Ferrovías carried out an international issue of corporate bonds under the U.S. Regulation S. The issue was carried out in Soles VAC (the Spanish acronym for constant value update) for a total amount of S/629 million. The costs of issue in this transaction were S/22 million. Maturity of these bonds is November 2039 and interest is accrued at a rate of 4.75% (plus VAC adjustment); they have a risk rating of AA+ (local level) granted by Apoyo & Asociados Internacionales Clasificadora de Riesgo and a guarantee scheme that includes a mortgage on the concession to which GyM Ferrovías is the concessionaire, security interest over the shares of GyM Ferrovías, Cession of the Collection Rights of the Administration Trust, a Flow and Reserve Account Trust for the Debt, Operation and Maintenance Service and Capex currently in progress. At December 31, 2016 the Group amortized a total of S/38.4 million (S/16 million in 2015).

At December 31, 2016 the balance included accrued interest and VAC adjustments payable for S/34.5 million (S/17.3 million at December 31, 2015).

As part of the process of bond structuring, GyM Ferrovías engaged to report on and verify the following covenants measured on the basis of the individual financial statements:

• Maintaining debt service coverage ratio of not less than 1.2 times.

F-84

(All amounts expressed in thousands of S/ unless otherwise stated)

• Mantaining a constant minimum balance of trust equal to a quarter of operating and maintenance costs (including VAT)

• Maintaining a constant minimum balance of trust equal to two coupons as per schedule.

Norvial S.A. -

In July 2015, Norvial S.A. issued the First Corporate Bond Program on the Lima Stock Exchange for a total S/365 million. The first issue was for S/80 million at 5 years, bearing an interest rate of 6.75% and funds drawdown performed on July 23, 2015. The second issue was for S/285 million at 11.5 years, bearing an interest rate of 8.375%, structured in 3 disbursements: the first disbursement of S/105 million was on July 23, 2015; the second disbursement of S/100 million was on January 25, 2016; and the third disbursement of S/80 million will be made effective in July 25, 2016. The issues costs corresponding to the first issue and the first disbursement of the second issue were for S/3.9 million. Risk rating agencies Equilibrium y Apoyo & Asociados Internacionales graded this debt instrument AA.

This financing transaction has been secured by (i) a cash flow trust, related to the consideration and the regulatory rate; (ii) a mortgage on the concession in which Norvial S.A. is a concessionaire; (iii) a security on shares; (iv) collection rights and (v) in general, all those additional collaterals given to the secured creditors.

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

At December 31, 2016 the balance included interest payables for S/4.9 million (S/2.7 million at December 31, 2015).

As part of the process of bond structuring, Norvial engaged to report on and verify periodically the compliance of the following covenants:

• Debt service coverage ratio of not less than 1.3 times.

• Proforma gearing ratio lower than 4 times.

As of December 31, 2015 and 2016 both Companies have complied with their covenants.

Fair value of the bonds of both Companies at December 31, 2016 amounted to S/1,055 million (S/769.5 million at December 31, 2015), which was calculated under discounted cash flows method, using rates between 4.20% and 7.99% (between 4.88% and 8.89% at December 31, 2015), which are within level 2 of the fair value hierarchy.

21 TRADE ACCOUNTS PAYABLE

At December 31 this account comprises:

	2015		2016
Unbilled services received		703,801		924,025
Invoices payable		911,793		350,559
Bills of exchange payable		20,168		2,033
		1,635,762		1,276,617

Unbilled services received include the estimate made by Management of the valuation of the percentage of completion, amounting to S/127.2 million at December 31, 2016 (S/164.1 million at December 31, 2015).

F-85

(All amounts expressed in thousands of S/ unless otherwise stated)

22 OTHER ACCOUNTS PAYABLE

At December 31, this account comprises:

	2015			2016
Advances received from customers		607,097			810,755
Salaries and profit sharing payable		232,102			176,022
GSP performance guarantee (Note 37-a-i)		—			176,401
Put option liability on Morelco acquisition (Note 29 and 33-b)		111,349			110,604
Third-party loans		94,553			69,991
VAT payable		77,461			51,607
Other taxes payable		51,893			50,548
Supplier funding		59,992			40,612
Acquisition of non-controlling interest (Note 36-a,i)		—			32,102
Guarantee deposits		26,806			16,799
VAT payable - Fractional		—			14,170
Post-retirement benefits		9,043			9,088
Interest payable to Oiltanking Perú S.A.C.		9,015			—
Other accounts payables		33,085			50,411
		1,312,396			1,609,110
Less non-current portion:
Advances received from customers		(80,936	)		(300,388	)
Put option liability - Morelco acquisition		(111,349	)		(110,604	)
Third-party loans		—			(32,000	)
Supplier funding		(33,031	)		(14,086	)
VAT payable - Fractional		—			(12,099	)
Post-retirement benefits		(9,043	)		(9,088	)
Others		(12,037	)		(34,538	)
		(246,396	)		(512,803	)
Current portion		1,066,000			1,096,307

Advances received from customers relate mainly to construction projects and are discounted from billing under the terms of the relevant agreements.

The fair value of the short-term payables approximates their carrying amount due to their short-term maturities. The non-current portion, mainly comprises non-financial liabilities such as advances received from customers; the remaining balance is not significant for any period shown in the financial statements.

23 PROVISIONS

At December 31 this account comprises:

	2015			2016
Legal claims		15,000			15,732
Contingent liabilities from the acquisition of Morelco		15,374			5,182
Contingent liabilities from the acquisition of Coasin and Vial yVives - DSD		7,586			1,815
Contingent liabilities from the acquisition of Adexus		—			1,128
Contingent liabilities from CAM acquisition		3,819			—
Provision for well closure (Note 5.1 d)		19,149			17,216
		60,928			41,073
Less:
Non-current portion		(47,460	)		(26,542	)
Current portion		13,468			14,531

F-86

(All amounts expressed in thousands of S/ unless otherwise stated)

At December 31, 2016, legal claims mainly comprise provisions for labor liabilities and tax claims for S/14.7 million (S/8 million at December 31, 2015). Claims with the tax authority have been accounted for based on management estimates of the amounts the Group would most likely be required to pay in regard of these current court actions. Due to the fact those amounts will depend on the tax authority, the Group does not have an estimated timing of when these cash outflows would be required.

This legal claims balance also includes court actions brought against the Group by the Peruvian energy regulator (OSINERGMIN) resulting from the storage of hydrocarbons and the applicable environmental laws and regulations for S/6.3 million (S/6.1 million at December 31, 2015).

The gross movement of other provisions is broken down as follows:

Other provisions	Legal claims			Contingent liabilities resulting from acquisitions			Provision for well closure			Total
At January 1, 2015		13,056			45,349			7,210			65,615
Additions		6,297			—			11,943			18,240
Reversals		—			(7,796	)		—			(7,796	)
Offsetting		—			(1,216	)		—			(1,216	)
Deconsolidation of CAM Brazil		(2,353	)		—			—			(2,353	)
Payments		(1,580	)		(5,186	)		(4	)		(6,770	)
Translation adjustments		(420	)		(4,372	)		—			(4,792	)
At December 31, 2015		15,000			26,779			19,149			60,928
At January 1, 2016		15,000			26,779			19,149			60,928
Additions		9,486			—			462			9,948
Acquisition of subsidiaries		1,926			1,149			—			3,075
Reversals		(10,569	)		(17,883	)		(2,395	)		(30,847	)
Payments		(298	)		(2,458	)		—			(2,756	)
Translation adjustments		187			538			—			725
At December 31, 2016		15,732			8,125			17,216			41,073

The reverses relate mainly to contingent liabilities in 2016 from subsidiaries Morelco, Vial y Vives - DSD and CAM Chile for S/10.1 million, S/4.0 million and S/3.8 million, respectively (from subsidiaries CAM Chile for S/7.8 million in 2015).

24 EQUITY

a) Capital -

At December 31, 2016 and 2015, the authorized, subscribed and paid-in capital, according to the Company’s by laws, and its amendments, comprises 660,053,790 common shares at S/1.00 par value each.

At December 31, 2014 a total of 253,635,480 shares were represented by ADS, equivalent to 50,727,096 ADS at a ratio of 5 shares per ADS; a total of 250,860,370 shares were represented by ADS, equivalent to 50,172,074 ADSs at December 31, 2015 and a total of 264,809,545 shares were represented by ADS, equivalent to 52,961,909 ADSs at December 31, 2016

F-87

(All amounts expressed in thousands of S/ unless otherwise stated)

As of December 31, 2016 the Company’s shareholding structure was as follows:

Percentage of individual interest in capital	Number of shareholders		Total percentage of interest
Up to 1.00		1,988		15.77
From 1.01 to 5.00		9		21.13
From 5.01 to 10.00		1		5.12
Over 10		2		57.98
		2,000		100.00

As of December 31, 2016 the year-end quoted price of the Company’s shares was S/4.7 per share, with a trading frequency of 97.60% (quoted price of S/1.97 per share and a trading frequency of 91.94% at December 31, 2015).

b) Other reserves -

This item comprises legal reserve exclusively. In accordance with Peruvian Company Law, the Company’s legal reserve is formed by the transfer of 10% of the annual net profits, up to a maximum of 20% of the paid-in capital. In the absence of profits or freely available reserves, this legal reserve can be applied to offset losses but it has to be replenished with the profits to be obtained in subsequent years. This reserve can also be capitalized but its subsequent replenishment is equally mandatory. At December 31, 2016 and 2015 the legal reserve balance reached the above-mentioned limit.

c) Voluntary reserve -

At December 31, 2016 and 2015 the balance of this reserve of S/29.97 million correspond to the excess legal reserve, which is above the limit established of 20% of paid-in capital.

d) Share premium -

This item comprises the excess of the total proceeds obtained for the issuance of common shares in 2013 in comparison with the nominal value of those for S/1,055,488.

Also, this balance shows the difference between the par value and transaction value of the non-controlling interest acquired. A detail of this transactions is disclosed in Note 36.

e) Retained earnings -

Dividends to be distributed to shareholders other than legally resident entities are subject to a 4.1% rate (based on 2014’s profits), 6.8% (based on 2015’s and 2016’s profits) and 5.00% (on profits for 2017 and onwards) of income tax payable by these shareholders; this tax rate should be withheld and settled by the Company. Dividends were distributed over 2016 and 2015 (Note 34).

F-88

(All amounts expressed in thousands of S/ unless otherwise stated)

25 DEFERRED INCOME TAX

Deferred income tax is broken down by its estimated reversal period as follows:

	At December 31,
	2015			2016
Deferred income tax asset:
Reversal expected in the following 12 months		76,469			86,990
Reversal expected after 12 months		71,376			340,018
Total deferred tax asset		147,845			427,008
Deferred income tax liability:
Reversal expected in the following 12 months		(10,551	)		(166	)
Reversal expected after 12 months		(88,612	)		(73,003	)
Total deferred tax liability		(99,163	)		(73,169	)
Deferred income tax (liability) asset, net		48,682			353,839

The gross movement of the deferred income tax item is as follows:

	2014			2015			2016
Deferred income tax asset (liability), net as of January 1		(3,033	)		58,723			48,682
Credit to income statement (Note 29)		57,689			(175	)		263,806
Adjustment for changes in rates of income tax		2,746			(2,008	)		17,105
Credit (charge) to other comprehensive income		(1,328	)		(7,298	)		15,004
Tax charged to equity		—			—			159
Acquisition of a subsidiary		6,172			—			10,363
Acquisition of joint operation		—			1,476			—
Other movements		(3,523	)		(2,036	)		(1,280	)
Total as of December 31		58,723			48,682			353,839

F-89

(All amounts expressed in thousands of S/ unless otherwise stated)

The movement of deferred tax assets and liabilities in the year, without taking into account the offsetting of balances, is as follows:

Deferred income tax liability	Non-taxable income			Difference in depreciation rates		Fair value gains			Outstanding work in progress			Difference in depreciation rates of assets leased			Receivables from local Government		Borrowing costs recognized as assets		Purchase price allocation			Others			Total
At January 1, 2014		14,190			13,121		27,857			86,774			10,500			—		—		—			3,628			156,070
Charge (credit) to P&L		—			9,936		(8,585	)		(72,488	)		219			—		—		—			5,754			(65,164	)
Charge (credit) to OCI		—			—		—			—			—			—		—		—			1,328			1,328
Reclassification of prior years		—			13,458		(5,540	)		82			(274	)		—		—		—			7,777			15,503
Other		—			—		—			—			—			—		—		—			3,047			3,047
At December 31, 2014		14,190			36,515		13,732			14,368			10,445			—		—		—			21,534			110,784
Charge (credit) to P&L		—			2,791		15,338			16,393			—			9,986		15,178		—			1,347			61,032
Charge (credit) to OCI		—			—		7,016			—			—			—		—		—			281			7,297
Reclassification of prior years		(14,190	)		5,849		(5,402	)		(6,038	)		(10,445	)		15,557		—		—			(11,354	)		(26,020	)
At December 31, 2015		—			45,155		30,684			24,723			—			25,543		15,178		—			11,808			153,093
Charge (credit) to P&L		—			16,595		13,587			(16,481	)		—			3,324		6,240		—			2,619			25,883
Charge (credit) to OCI		—			—		(15,348	)		—			—			—		—		—			—			(15,348	)
Reclassification of prior years		—			—		(28,923	)		—			—			—		—		30,187			(1,264	)		—
Acquisition of Adexus		—			—		—			—			—			—		—		(3,069	)		—			(3,069	)
At December 31, 2016		—			61,750		—			2,452			—			28,867		21,418		27,118			13,163			160,559

F-90

(All amounts expressed in thousands of S/ unless otherwise stated)

Deferred income tax asset	Provisions			Accelerated tax depreciation			Tax losses		Outstanding work in progress			Provision for unpaid vacations			Investments in subsidiaries			Impairment		Tax goodwill		Others			Total
At January 1, 2014		23,887			8,343			52,880		51,645			7,294			—			—		—		8,990			153,039
Credit (charge) to P&L		1,579			9,054			2,492		(24,886	)		4,083			5,613			—		—		(2,664	)		(4,729	)
Acquisition of Coasin (Note 32-c)		16			—			—		—			—			—			—		—		—			16
Acquisition of Morelco (Note 32-b)		—			—			—		—			—			6,156			—		—		—			6,156
Others		—			—			—		—			—			—			—		—		(473	)		(473	)
Reclassification of prior years		324			5,953			3,664		(2,818	)		5,596			—			—		—		2,783			15,502
At December 31, 2014		25,806			23,350			59,036		23,941			16,973			11,769			—		—		8,636			169,511
Credit (charge) to P&L		342			4,076			26,661		18,623			772			(13,832	)		—		17,522		4,646			58,810
Acquisition of joint operation		—			—			—		—			—			1,476			—		—		—			1,476
Others		—			—			—		—			—			—			—		—		(1,895	)		(2,002	)
Reclassification of prior years		(5,199	)		(12,534	)		5,615		(19,544	)		(2,768	)		2,063	)		—		—		5,263			(26,020	)
At December 31, 2015		20,973			14,892			91,313		24,103			14,977			1,476			—		17,522		16,463			201,775
Charge (credit) to P&L		84,571			1,489			51,163		(6,486	)		(2,005	)		(312	)		172,052		3,003		3,322			306,794
Charge (credit) to equity		159			—			—		—			—			—			—		—		—			159
Charge (credit) to OCI		—			—			—		—			—			—			—		—		(343	)		(343	)
Acquisition of Adexus (Note 32-a)		—			—			10,607		—			—			—			—		—		(3,313	)		7,294
Others		—			—			—		—			—			(556	)		—		—		(724	)		(1,280	)
At December 31, 2016		105,679			16,381			153,083		17,614			12,972			608			172,052		20,525		15,487			514,398

At December 31, 2016, total tax losses amounted to S/507.3 million of which S/22.28 million are expected to be applied in 2017, S/57.55 million in 2018 and the remaining balance in the following fiscal years (S/334.5 million in 2015, of which S/53.6 were expected to be applied in 2016, S/56.9 million in 2017 and the remaining balance in the following fiscal years).

Tax goodwill arose from a tax credit balance resulting from the reorganization of Chilean subsidiaries in 2014 under Chilean tax laws and regulations. In 2016, the arbitration process relating to Project Collahuasi was completed and an additional payment was determined to be paid to the Chilean subsidiary selling party; which resulted in a higher balance in this item.

F-91

(All amounts expressed in thousands of S/ unless otherwise stated)

26 WORKERS’ PROFIT SHARING

Worker’s profit sharing is broken down in the income statement as of December 31 as follows:

	2014		2015		2016
Cost of sales of goods and services		27,396		27,618		15,234
Administrative expenses		9,541		7,263		1,297
		36,937		34,881		16,531

27 EXPENSES BY NATURE

For the years ended December 31 this item comprises the following:

	Goods and		Administrative
	services		expenses
2014:
Inventories, materials and consumables used		1,148,533		52
Wages, salaries and fringe benefits		1,864,053		210,028
Services provided by third-parties		2,105,226		120,714
Taxes		11,356		6,212
Other management charges		686,593		63,124
Depreciation		170,785		14,525
Amortization		68,089		6,641
Impairment of inventories		62		—
Impairment of accounts receivable		—		71
Impairment of property, plant and equipment		2,415		—
		6,057,112		421,367
2015:
Inventories, materials and consumables used		1,094,836		—
Wages, salaries and fringe benefits		2,128,130		215,101
Services provided by third-parties		2,953,247		137,980
Taxes		37,129		1,919
Other management charges		651,057		30,225
Depreciation		199,015		18,055
Amortization		81,841		7,514
Impairment of inventories		62		—
Impairment of accounts receivable		13,118		—
Impairment of property, plant and equipment		7,086		2,591
		7,165,521		413,385
2016:
Inventories, materials and consumables used		942,354		—
Wages, salaries and fringe benefits		1,544,128		234,474
Services provided by third-parties		2,358,699		118,293
Taxes		13,922		1,771
Other management charges		273,601		24,882
Depreciation		193,434		12,088
Amortization		74,849		7,894
Impairment of inventories		36,353		—
Impairment of accounts receivable (Note 5.1-f)		419,584		—
Impairment of property, plant and equipment		9,263		—
		5,866,187		399,402

F-92

(All amounts expressed in thousands of S/ unless otherwise stated)

For the years ended December 31 wages, salaries and fringe benefits comprise the following items:

	2014		2015		2016
Salaries		1,579,515		1,792,723		1,312,968
Social contributions		133,760		177,307		107,340
Statutory bonuses		134,892		135,980		147,311
Employee’s severance indemnities		91,100		98,604		72,608
Vacations		69,417		79,354		66,305
Worker’s profit sharing (Note 26)		36,937		34,881		16,531
Others		28,460		24,382		55,539
		2,074,081		2,343,231		1,778,602

28 FINANCIAL INCOME AND EXPENSES

For the years ended December 31 these items comprise the following:

	2014			2015			2016
Financial income:
Interest on short-term bank deposits		8,010			12,413			9,229
Interest on loans to third parties		899			19,749			6,142
Commissions and collaterals		969			3,026			4
Others		1,584			2,919			5,419
		11,462			38,107			20,794
Financial expenses:
Interest expense:
- Bank loans		21,307			55,027			99,730
- Bonds		—			6,370			25,352
- Financial lease		12,872			15,243			13,847
- Commissions and collaterals		4,927			9,368			10,168
- Loans from third parties		2,432			6,335			4,681
- Interest on loans from related parties		3,026			814			3,452
- Multilateral loans		5,022			—			—
Exchange difference loss, net		44,282			82,851			12,527
Derivative financial instruments		1,819			1,691			1,248
Lost by Measurement of Financial Asset VR		—			—			76,864
Other financial expenses		9,992			12,256			18,402
Less capitalized interest		(2,863	)		(13,153	)		(34,700	)
		102,816			176,802			231,571

F-93

(All amounts expressed in thousands of S/ unless otherwise stated)

29 OTHER INCOME AND EXPENSES, NET

For the years ended December 31 these items comprise the following:

	2014		2015		2016
Other income:
Sales of fixed assets		33,711		25,690		40,146
Reversal of legal and tax provisions (Note 23)		9,394		7,796		18,778
Legal indemnities		—		—		8,957
Sales of investments		7,481		60		46
Dividends received from TGP (Note 10)		9,350		7,215		—
Disposal of non-current assets classified as held for sale		—		8,775		—
Present value of the liability from put option		—		18,627		—
Others		7,509		14,467		18,792
		67,445		82,630		86,719
Other expenses:
Impairment of goodwill and trademarks		—		—		54,308
Net cost of fixed assets disposal		29,367		15,669		31,339
Loss on remeasurement of previously held interest (Note 33-a)		—		—		6,832
Present value of the liability from put option		—		—		984
Cost of sales of non-current assets classified as held for sale		—		8,945		—
Others		22,942		729		6,526
		52,309		25,343		99,989
		15,136		57,287		( 13,270	)

30 TAX SITUATION

a) In accordance with current legislation in Peru, Chile, Brazil, Colombia, Ecuador, Bolivia, Guyana and Panama, each company in the Group is individually subject to the applicable taxes. Management considers that it has determined the taxable income under general income tax laws in accordance with the tax legislation current effective of each country.

b) Changes in the Peruvian Income Tax Law -

By means of Law No.30296 enacted on December 31, 2014 amendments to Income Tax Law have been made, which are effective starting in fiscal year 2015 onwards. Among these amendments, it should be noted the progressive reduction in the corporate income tax rate (on the Peruvian third-category income earners) from 30% to 28% for fiscal years 2015 and 2016; then a reduction to 27% for fiscal years 2017 and 2018; and a final reduction to 26% from fiscal year 2019 onwards. Tax on dividends and other forms of profit distribution, agreed on by any legal entities to individuals and non-domiciled legal persons is to be progressively increased from 4.1% to 6.8% for distributions that are agreed on or paid during fiscal years 2015 and 2016; then an increase to 8.8% for fiscal years 2017 and 2018 will be effective; and a final increase to 9.3% will be effective from fiscal year 2019 onwards. The distribution of retained earnings until December 31, 2015 will continue to be subject to a 4.1% tax even when the distribution is to be made in the subsequent years.

By means of Legislative Decree No. 1261, enacted on December 10, 2016 the Peruvian income tax law was amended to be effective from fiscal 2017 onwards. This amendment sets forth a corporate income tax rate of 29.5%. It also sets forth an income tax rate on dividends of 5% applicable to non-domiciled legal entities and individuals effective from fiscal 2017 onwards. Undistributed profits up to December 31, 2016 will continue to be affected to a 6.8% income tax rate regardless of whether the distribution is agreed or occurs in subsequent periods.

c) Amendments to Income Tax Law in Chile -

On September 29, 2014, Law No 20780 was enacted by which certain changes are made to the Chilean tax system, such as: changes in the Income Tax Law, VAT Law and Tax Code. Also, on February 1, 2016 Law No 20899 was enacted to simplify and define the application of the above-mentioned tax reform. With respect to income tax, two systems have been established:

F-94

(All amounts expressed in thousands of S/ unless otherwise stated)

i) Attributable income system: the tax rate of first-category applicable on entities will be progressively increased, 21% in 2014, 22.5% in 2015, 24% in 2016, up to 25% in 2017. Its choice is being restricted to companies whose partners are individuals domiciled or resident in Chile or individuals or legal persons non-domiciled and non-resident in Chile. This system levies the shareholders of Chilean entities with taxes on an annual basis regardless of any effective distribution of profits from the local entity; and entitles them to use the total taxes paid as income tax fiscal credit.

ii) Partially integrated system: of first-category taxes applicable on entities will be progressively increased, 21% in 2014, 22.5% in 2015, 24% in 2016, 25.5% in 2017, up to 27% in 2018. Subject to this system are corporations and entities in which at least one of its owners is not an individual (whether domiciled or not) or non-domiciled legal entity. This system levies the shareholders of Chilean entities that distribute dividends and entitle them to use such distribution as a fiscal credit at a 65% of the total taxes paid. This limit does not apply to investors with whom Chile had signed double taxation agreements, such as Peru.

d) Changes in the Income Tax Law in Colombia -

In December 2014 Law No 1739 was enacted amending the Tax Code and introducing diverse temporary changes in Income Tax, CREE (Tax on income for equity) and includes the tax on wealth (Impuesto a la Riqueza). Major changes are as follows:

• Setting the CREE tax rate at 9% and creating an incremental additional overrate effective until 2018, as follows: for fiscal 2015, 2016, 2017 and 2018 the applicable CREE tax overrate will be 5%, 6%, 8% and 9%, respectively.

• Starting 2015 tax losses can be offset to the CREE taxable amount.

• The tax on wealth levies the wealth owned by an individual or legal entity that are income taxpayers; this is determined on the basis of the gross equity less current debts that are equal to or higher than a 1,000 million Colombian pesos (S/1.1 million approximately) at January 01, 2015.

• The tax on wealth rates are marginal and cascaded in ranges of taxable base ranging from 0.2% to 1.15% in 2015, from 0.15% to 1% in 2016 and from 0.05% to 0.4% in 2017.

In December 2016 Law No.1819 was published with another amendment to the tax laws, effective from fiscal 2017. Major changes are as follows:

• Income tax rates effective until 2016 (Income tax + CREE+ Overrate + Wealth) are now simplified with one single rate, i.e. 34% income tax rate and a temporary overrate of 6% for fiscal 2017 and an income tax rate of 33% and a temporary overrate of 4% for fiscal 2018 and onwards on a taxable income of above S/895 thousand (equivalent to COP800 million).

• The Colombian taxable income, applicable when there are tax losses, will be subject to a tax base of 4% of the liquid equity (formerly 3%) and will be considered as a “on-account payment” of the taxable income.

• Tax losses can be offset in the following eight (8) years from the date they were generated.

• The special rate on dividends and interests obtained by non-domiciled foreign legal entities and individuals will be 5%

• VAT rate changes from 18% to 19%

e) The income tax expense shown in the consolidated income statement comprises:

	2014			2015			2016
Current income tax		212,569			138,164			176,894
Deferred income tax (Note 25)		(60,435	)		2,222			(280,911	)
PPUA		(5,938	)		(41,359	)		(7,789	)
Income tax expense		146,196			99,027			(111,806	)

F-95

(All amounts expressed in thousands of S/ unless otherwise stated)

Under Chilean Legislation, when a Company reports tax losses, it can apply for a refund of first-category taxes paid in prior years up to an amount that equals the taxes that would be levied on the tax losses, provided that no dividends have been distributed on the income obtained from the refund. The amount to be refunded by the Chilean Tax Authorities is called “provisional payment on absorbed profits - PPUA”. The Company recognizes income from income tax and an account receivable when applying for this tax refund.

In 2016 the PPUA-derived income is related to the tax losses reported by of subsidiary VyV-DSD. In 2015 this item was related to the tax losses reported by CAM Chile Spa and VyV-DSD, amounting to S/19.4 million and S/21.9 million, respectively.

f) The Group’s income tax differs from the theoretical amount that would have resulted from applying the weighted-average income tax rate applicable to the profit reported by of the consolidated companies, as follows:

	2014			2015			2016
Pre-tax profit		507,428			154,616			(563,404	)
Income tax by applying local applicable tax rates on profit generated in the respective countries		146,113			54,631			(157,276	)
Tax effect on:
- Non-taxable income		(14,420	)		(31,266	)		(1,068	)
- Equity method (profit) loss		1,790			2,171			3,673
- Non-deductible expenses		25,967			9,831			57,044
- Unrecognized deferred tax asset income (expense)		13,922			31,432			(4,535	)
- Adjustment for changes in rates of income tax		(2,746	)		2,008			(17,105	)
- Tax goodwill		(20,542	)		—			—
- PPUA adjustment for changes in tax rates		(5,938	)		15,296			4,871
- Change in prior years estimations		3,891			12,762			(181	)
- Others, net		(1,841	)		2,162			2,771
Income tax charge		146,196			99,027			(111,806	)

g) The theoretical tax disclosed resulted from applying the income tax rate stipulated in the tax laws of the country in which a Group company is legally resident. Accordingly, for fiscal 2016, companies that are legally resident in Peru, Chile and Colombia applied income tax rates of 28%, 24% and 40% respectively (28%, 22.5% and 39% for 2015; 28%, 21% and 34% for 2014). Norvial, GyM Ferrovías, Vesur and GMP (Blocks III and IV) have legal stability agreements with Peruvian Government, in force for all years preserved. In this sense, the consolidated theoretical amount is obtained as a weighted average pre-tax profit or loss and the applicable income tax rate.

F-96

(All amounts expressed in thousands of S/ unless otherwise stated)

Country	Statutory tax rate			Pre - tax profit			Tax at statutory tax rate
	(A)			(B)			(A)*(B)
2016
Perú		28.00	%		(1,071,663	)		(300,066	)
Perú - Norvial		27.00	%		63,583			17,167
Perú - GyM Ferrovías		30.00	%		34,760			10,428
Perú – Vesur		30.00	%		888			267
Perú – GMP		30.00	%		8,602			2,581
Chile		24.00	%		(86,151	)		(20,676	)
Colombia		40.00	%		(25,555	)		(10,222	)
Bolivia		25.00	%		(703	)		(176	)
Unrealized gains					512,836			143,421
Total					(563,404	)		(157,276	)
2015
Perú		28.00	%		174,432			48,841
Perú - Norvial		27.00	%		54,471			14,707
Perú - GyM Ferrovías		30.00	%		26,954			8,086
Perú – Vesur		30.00	%		2,336			701
Perú – GMP		30.00	%		15,007			4,502
Chile		22.50	%		(95,284	)		(21,439	)
Colombia		39.00	%		40,900			15,951
Bolivia		25.00	%		(57,382	)		(14,345	)
Unrealized gains					(6,817	)		(2,045	)
Total					154,616			54,631
2014
Perú		30.00	%		288,917			86,675
Perú - Norvial		27.00	%		41,999			11,340
Perú - GyM Ferrovías		30.00	%		22,894			6,868
Perú – Vesur		30.00	%		96			29
Perú – GMP		30.00	%		92,425			27,728
Chile		21.00	%		49,484			10,392
Colombia		34.00	%		1,290			439
Bolivia		25.00	%		484			121
Others - elimination					9,839			2,521
Total					507,428			146,113

h) Peruvian tax authorities have the right to examine, and, if necessary, amend the income tax determined by the Company in the last four years - from January 1 of the year after the date when the tax returns are filed (years subject to examination). Therefore, years 2012 through 2016 are subject to examination by the tax authorities. Since differences may arise over the interpretation by the tax authorities of the regulations applicable to the Company, it is not possible at present to estimate if any additional tax liabilities will arise as a result of any eventual examinations. Any additional tax, fines and interest, if they occur, will be recognized in the results of the period when such differences with the tax authorities are resolved. Management considers that no significant liabilities will arise as a result of these possible tax examinations. Additionally, income tax returns for fiscal years 2013 to 2014 and those to be filed for fiscal year 2016 remain open for examination by the Chilean tax authorities who have the right to carry out said examination within the three years following the date the income tax returns have been filed. Fiscal years 2014 and 2015 are open for tax audit by Colombian tax authorities; fiscal 2016 will also be open for audit. Colombian tax authorities are entitled to audit two consecutive years following the date the income tax returns were filed.

i) As established under regulations in force in Peru, for purposes of determining income tax and the general sales tax, transfer pricing must be taken into account for transactions with related parties and/or tax havens, which must be supported with the relevant documentation and information on the methods and valuation criteria applied in their determination. Peruvian tax authorities are entitled to request such information from the taxpayer.

F-97

(All amounts expressed in thousands of S/ unless otherwise stated)

j) Temporary tax on net assets -

The temporary tax on net assets is applied by the companies which operate in Peru, to third category income generators subject to the Peruvian Income Tax General Regime. Effective in the year 2012, the tax rate is 0.4%, applicable to the amount of the net assets exceeding S/1 million.

The amount effectively paid may be used as a credit against payments on account of income tax under the General Regime or against the provisional tax payment of the income tax of the related period.

k) The weighted average rate applicable is 19.84% (64.05% in 2015 and 28.8% in 2014). The decrease in the effective tax rate , as compared to that one effective in the previous year, primarily to the following:

• CCDS. In 2016, expenses related to manager cost and expenses provisions did not meet the requirements of the Peruvian tax legislation.

• Morelco. In 2016, assets were written off because their supporting documentation did not meet the requirements of the Colombia tax legislation.

• GyM. In 2016, a provision of taxes, fines and interests related to an appeal of Tax Court process (VAT and Income Tax 2001) was registered. This provision of expense is not deductible for tax purposes.

• CAM SPA. In 2015 a deduction was obtained in the base of the taxable income resulting from the disposal of CAM Brazil, in respect of which the tax cost was higher than the accounting cost.

l) At December 31, 2015 deferred income tax asset was not recognized on tax losses mainly of Consorcio Rio Mantaro, Graña y Montero Construcciones y Montajes S.A., Consorcio Norte Pachacutec y Consorcio Urubamba, since of some no taxable profits are expected to be obtained . The deferred income tax asset not recognized was for S/30.6 million. At 2016, Consorcio Río Mantaro obtained a profit applied to tax losses and adjust the deferred income tax asset no recognized for S/5 millon.

m) The current income tax payable, after applying the corresponding tax credits and whose due date arrives until the first week of April of the following year, includes mainly:

• CCDS, S/14.9 million in 2016

• Consorcio AMDP, S/9.3 million in 2016

• Terminales del Perú, S/3.6 million in 2016

• Concar, S/3.3 million in 2016

31 ACCUMULATED OTHER COMPREHENSIVE INCOME

The analysis of the movement is as follows:

										Exchange
				Foreign			Increase in			difference from
				currency			fair value of			net investment
	Cash flow			translations			available-for			in a foreign
	hedge			adjustment			sale assets			operation			Total
At January 31, 2014		(2,153	)		(5,944	)		26,520			—			18,423
(Charge) credit for the year		750			(13,086	)		4,811			(17,030	)		(24,555	)
Tax effects		(210	)		—			(1,251	)		4,428			2,967
Adjustment for changes in rates of income tax		—			—			1,089			—			1,089
Other comprehensive income of the year		540			(13,086	)		4,649			(12,602	)		(20,499	)
At December 31, 2014		(1,613	)		(19,030	)		31,169			(12,602	)		(2,076	)
(Charge) credit for the year		954			(45,411	)		26,991			(6,942	)		(24,408	)
Tax effects		(267	)		—			(7,018	)		1,804			(5,481	)
Other comprehensive income of the year		687			(45,411	)		19,973			( 5,138	)		(29,889	)
At December 31, 2015		(926	)		(64,441	)		51,142			(17,739	)		(31,965	)
(Charge) credit for the year		1,190			9,885			(3,149	)		10,965			18,891
Tax effects		(351	)		—			929			(3,243	)		(2,665	)
Transfer to profit or loss (Note 10)		—			—			(41,461	)		1,562			(39,899	)
Other comprehensive income of the year		839			9,885			(43,681	)		9,284			(23,673	)
At December 31, 2016		(87	)		(54,556	)		7,461			(8,455	)		(55,638	)

F-98

(All amounts expressed in thousands of S/ unless otherwise stated)

Amounts in the table above represent only amounts attributable to the Company’s controlling interest net of taxes. Below is the movement in Other Comprehensive Income for each year:

	2014			2015			2016
Controlling interest		(20,499	)		(29,889	)		(23,673	)
Non-controlling interest		(7,986	)		(15,235	)		4,191
Adjustment for actuarial gains and losses, net of tax		(1,332	)		(2,921	)		(1,119	)
Total value in OCI		( 29,817	)		(48,045	)		(20,601	)

32 CONTINGENCIES, COMMITMENTS AND GUARANTEES

a) Tax contingencies -

• For fiscal 2016 an appeal is in progress with the Peruvian Tax Court and another administrative action with the Judiciary involving the results of tax audits of VAT (IGV) and Income Tax returns performed by the Peruvian tax authorities for fiscal years 1999 to 2002. The maximum exposure amount is S/5.2 million.

• With respect to our subsidiary GyM S.A., as a result of the tax audits of fiscal 1999, 2001 and 2010, SUNAT issued tax determination and tax penalties resolutions amounting to approximately S/19.1 million (S/24.5 million as of December 31, 2015):

In fiscal year 2017, the tax litigation process related to 2001 was resolved, where the Tax Court orders SUNAT to recalculate the observations, determining an amount lower than initially claimed. Our subsidiary has decided to accept the conclusions of this resolution and submit fractionation requests for the payment of the debt in reference amounting to S/14.1 million

Likewise, at the end of fiscal year 2017, the contentious-administrative process related to the 1999 fiscal year was resolved, where the Judicial Branch rejected our arguments and confirmed what was stated by SUNAT. Regarding this process, there was already a contingency provision of S/5 million.

An administrative tax process related to the 2010 fiscal year is still underway, however, its resolution will not imply economic damage since it corresponds to a greater refund of the balance in favor in 2011, already audited by the Tax Administration

• Consortiums in which subsidiary GyM S.A takes part, brought claims with SUNAT against the results of the tax inspection, which had a maximum exposure at December 31, 2016 of S/2.8 million (S/0.8 million at December 31, 2015).

• GMD and its subsidiaries have tax claims currently in progress involving fiscal years 2002, 2011 and 2012 with a maximum exposure of S/2.7 million at December 31, 2016.

F-99

(All amounts expressed in thousands of S/ unless otherwise stated)

Management expects the outcome of the other court actions will be favorable to the Company considering their nature and characteristics as well as the opinion of its legal advisor.

b) Other contingencies -

Year 2016 -

i) Civil-court lawsuits mainly related to indemnities for damages, contract termination and workplace accidents amounting to S/0.61 million (S/0.15 million attributable to GyM; S/0.19 million attributable to Concar; S/0.17 million attributable to Viva GyM while the remaining S/0.1 million attributable to GMP and CAM Peru).

ii) Contentious administrative lawsuits for S/4 million, of which, S/3.4 million is related to 14 processes of GMP S.A. and Consorcio Terminales, S/0.5 million resulting from an action brought against GyM Ferrovías for alleged noncompliance with OSITRAN’s General Rules of Oversight. In addition, it includes S/0.1 million GyM S.A. related to a contentious administrative process.

iii) Administrative lawsuits for S/3.29 million, S/0.85 million is related to 24 processes of GMP S.A., Consorcio Terminales and Terminales del Perú; S/2 million involving GyM Ferrovías resulting from an action brought by OSITRAN, the Municipalities of Villa María del Triunfo and San Juan de Miraflores comprising the property tax; S/0.24 million against Viva GyM for a claim made by the Asociación Peruana de Consumidores y Usuarios before Indecopi in relation to the Parques del Agustino project; and S/0.2 million involving an action brought against Concesionaria Canchaque for alleged contractual noncompliance with OSITRAN).

iv) Labor lawsuits for a total S/6.12 million (S/5 million comprising actions brought against GyM, S/0.35 million against STRACON GyM; S/0.65 million against GMP, S/0.2 million against GMD S.A., and the remaining balance of S/0.1 million comprising actions brought against Concar, CAM Colombia and CAM Perú S.A.).

v) Two securities class action have been filed against the Company, an executive and a former executive officers in the Eastern District of New York during the first quarter of 2017. Both complaints allege false and misleading statements during the class period. In particular, they allege that the Company failed to disclose, among other things, that a) the company knew that its partner Odebrecht was engaged in illegal activities, and b) the Company profited from such activities in violation of its own corporate governance standards. All parties have agreed to unify the two lawsuits and appoint a single lead plaintiff, with one single council to control the class action. On March 6, 2018, the court appointed Treasure Finance Holding Corp. as the plaintiffs’ representative. In addition, the court has established the following schedule: i) on May 4, 2018, consolidation of files; ii) on July 3, 2018, presentation of the request for dismissal; iii) September 4, 2018, presentation of the opposition to the request for dismissal; and iv) October 3, 2018, submission of allegations by GyM. After this, the court could dismiss the claim or admit it. Management believe that both of those actions would likely be dismissed by the court for failure to adequately file a claim. Therefore, at the reporting date, we consider the risk of a material loss to the company is not probable.

vi) On March 30, 2017, the minority interest holders of Adexus (Sistemas y Redes S.A. and Asesorías e Inversiones Busso Ltda.) filed three lawsuits against Graña y Montero S.A.A., GMD, Adexus and their major executives, related to: a) the unenforceability of the Investment Agreement and Shareholders’ Agreement under the provisions of Law 18.046 (“Ley de Sociedades Anónimas” in Chile), for a total amount claimed of US$11.4 million (equivalent to S/38.3 million); b) the declaration of nullity because of fraud of the Investment Agreement and other acts and damages and the order of forced execution of the Investment Agreement, plus damages for a total amount claimed of US$50 million (equivalent to S/168 million); c) the declaration of nullity of the Shareholders’ Agreement and its amendments. The parties have responded and counterclaimed and up to date we are waiting for the date of the Conciliation Hearing. The probability of loss of the present litigations is classified as remote.

F-100

(All amounts expressed in thousands of S/ unless otherwise stated)

Year 2015 -

vii) Civil court actions mainly involving costs and damages and contract terminations as well as work accidents amounting to S/1.1 million (S/0.5 million for GyM S.A., S/0.3 million for Viva GyM and S/0.3 million for Concar SA.).

viii) Arbitration processes amounting to S/122.3 million related to an action brought by Contugas S.A.C. and IMECON S.A. against the court action brought by GyM S.A. involving recognition of expenses and indemnification for costs and damages for S/112.3 million and S/10 million, respectively.

ix) Administrative challenge actions amounting to S/4.1 million, of which, S/4 million comprising an action brought by the Peruvian mining and energy regulator—OSINERMIN for an alleged noncompliance by GMP S.A. and Consorcio Terminales. Also included is S/.0.1 million to be assumed by GyM S.A.as a result of an actions brought by the Peruvian Ministry of Labor.

x) Administrative actions amounting to S/3.1 million (S/2 million comprising an action brought by the Peruvian Mining and Energy regulator (OSINERMIN) for the alleged noncompliance of GMP S.A., Consorcio Terminales and Terminales del Peru; S/0.9 million of GyM Ferrovías S.A. comprising an action brought by Municipality of La Victoria, Lima, Villa María del Triunfo and San Juan de Luriganch o for property tax; and S/.0.2 million compromising action brought against Morelco S.A.S.)

xi) Labor-related court actions amounting to S/3.7 million (S/1.4 million were actions against Vial y Vives-DSD S.A., S/0.9 million against GMP S.A., S/0.6 million against GyM S.A, S/0.2 million against GMD S.A, S/0.2 million against Concar S.A, S/0.1 million against Stracon GyM S.A. and S/0.1 million against CAM Perú S.A.).

c) Performance Bonds and Guarantees -

At December 31, 2016, the Group holds current performance bonds and guarantees with a number of financial institutions to secure transactions for US$1,258.5 million and US $330.5 million, respectively (US$820.2 million and US$27.4 million, respectively, as of December 31, 2015).

33 BUSINESS COMBINATIONS

a) Acquisiton of Adexus S.A. -

In June 2015 the Company acquired 44% interest in the capital stock of Chilean entity Adexus S.A., which is mainly engaged in providing IT solutions services. At December 31, 2015 the Company arrived at the conclusion that joint control existed and that the joint arrangement qualified as a joint venture; therefore, the investment was recorded under the equity method of accounting in the consolidated financial statements of the Group (Note 16-b).

In January 2016 the Group acquired an additional interest of 8%, totaling 52% of total interest; the consideration agreed totaled S/8.3 million which was settled through debt capitalization. This larger interest did not affected the investment classification as a joint venture.

Subsequently, in August 2016, the Group acquired an additional interest of 39.03% to obtain total interest in its capital stock of 91.03%; thus gaining control over this entity. The consideration agreed totaled S/14 million which was initially stated as debt and then capitalized in the same period.

F-101

(All amounts expressed in thousands of S/ unless otherwise stated)

Upon obtaining control, the Company accounted for the transaction using the acquisition method of accounting set forth in IFRS 3 “Business Combination” and determined goodwill resulting from the acquisition. The balance at December 31, 2016 was stated at provisional values.

The table below itemizes the provisional determination of the fair value of the identifiable assets acquired, liabilities assumed, non-controlling interest held and goodwill at the acquisition date:

	Provisional fair values
	S/			US$000
Purchase consideration		14,040			4,179
Fair value of previously held interest		29,039			8,643
Total consideration (a)		43,079			12,822
Carried forward:		43,079			12,822
	Provisional fair values
	S/			US$000
Brought forward:		43,079			12,822
Fair value of assets and liabilities of Adexus S.A.:
Cash and cash equivalents		7,737			2,303
Trade receivables		107,426			31,972
Receivables from related parties		2,610			777
Other receivables		1,160			345
Inventories		1,647			490
Prepaid expenses		11,587			3,449
Long-term trade receivables		26,886			8,195
Other long-term receivables		2,063			614
Property, plant and equipment		41,988			12,496
Intangibles		32,204			9,585
Deferred income tax assets		18,115			5,198
Borrowings		(108,808	)		(32,383	)
Trade payables		(59,399	)		(17,678	)
Payables to related parties		(15,683	)		(4,667	)
Current income tax		(2,763	)		(822	)
Other payables		(10,291	)		(3,063	)
Other provisions		(1,926	)		(573	)
Contingent liabilities		(1,149	)		(342	)
Deferred income tax liabilities		(7,102	)		(2,114	)
Fair value of net identifiable assets		46,302			13,782
Non-controlling interest (8.97%)		(4,153	)		(1,236	)
Fair value of net assets attributable to the Group (b)		42,149			12,546
Goodwill (Note 18) (a) - (b)		930			276

Losses arising from the re-measurement at fair value of the previously held interest amounted to S/6.8 million, which was recognized in the statement of income within “Other income and expenses, net”, at the date of acquisition of that additional interest (Note 29).

Acquisition transaction costs amounting to S/1.4 million were charged to profit or loss within administrative expenses.

Revenue and net losses obtained for the period from the acquisition date to December 31, 2016 were S/113.2 million and S/3.7 million, respectively. If Adexus had been consolidated from January 1, 2016, the balances of revenue and net losses would have been S/272.7 million and S/20.2 million, respectively.

F-102

(All amounts expressed in thousands of S/ unless otherwise stated)

Provided that the distribution of the consideration is divided between the fair values on a provisional basis for the 2016 financial statements, the Group will complete the distribution process over a period that should not exceed one year as of the acquisition date of Adexus.

During such review period, additional assets and liabilities will be recognized as they may arise from updated data that may be obtained in relation with the information that existed at the acquisition date and that does not comprise new incidents occurred after the acquisition date; that is, if the Group were to adjust initial amounts recognized at the business combination dates.

b) Acquisition of Morelco S.A.S. -

In December 23, 2014, through subsidiary GyM S.A. the Company obtained control of Morelco S.A.S. (Morelco) by acquiring 70.00% of its capital shares. Morelco is an entity domiciled in Colombia that is mainly engaged in providing construction and assembly services. This acquisition is part of the Group’s plan to increase its presence in markets that present high growth potential as in Colombia, and in attractive industries, such as mining and energy.

At December 31, 2014 the Company determined goodwill resulting from this acquisition on the basis of an estimated purchase price of US$93.7 million (equivalent to S/277.1 million), which included cash payments made for US$78.5 million and cash payable estimated to be US$15.1 million (equivalent to S/45.7 million), which, under the agreement of the parties, would be defined after a review of the acquiree’s balance sheet, mainly working capital, cash and financial debt as well as the final carrying amount of the acquiree’s work backlog. The estimated purchase price was allocated to the provisional carrying amounts of the assets acquired and the liabilities assumed.

As a result of this allocation, the balance of goodwill was determined to be US$36.1 million (equivalent to S/105.8 million).

In 2015 as part of the review of the provisional allocation of the purchase price, the following situations arose:

a) The balance at December 31, 2014 of the consideration payable of US$15 million (equivalent to S/46 million) was adjusted in 2015 to US$9.1 million (S/32 million) as a result of the final determination of the working capital, cash and financial debt balances, under the purchase agreement. This amount was fully paid in 2015.

b) The provisional fair values of certain assets acquired and liabilities assumed were reviewed.

As a result of the above, the purchase price was adjusted to US $87.5 million (equivalent to S/258.6 million); the provisional fair values of certain asset and liabilities were modified, giving rise to an adjustment of goodwill to US$35.2 million (equivalent to S/103 million).

The table below summarizes the consideration paid by Morelco and the determination of the fair value of the assets acquired and liabilities assumed as well as a non-controlling interest at the date of acquisition:

	Provisional fair values				Final amounts
	S/		US$000		S/		US$000
Cash and cash equivalents		69,930		23,514		69,930		23,514
Trade receivables		92,138		30,981		67,716		22,769
Work in progress remaining to collect from customers		101,533		34,140		110,777		37,248
Other accounts receivables		63,949		21,503		63,949		21,504
Inventories		18,037		6,065		18,037		6,065
Prepaid expenses		2,133		717		2,127		715
Financial asset through profit or loss		7,291		2,452		5,747		1,932
Property, plant and equipment		70,756		23,792		69,081		23,228

F-103

(All amounts expressed in thousands of S/ unless otherwise stated)

Intangibles	64,491		21,685		64,491		21,685
Deferred income tax asset	8,031		2,700		24,560		8,258
Other short-term financial liabilities	(31,204	)	(10,492	)	(31,204	)	(10,492	)
Other long-term financial liabilities	(9,315	)	(3,132	)	(9,315	)	(3,132	)
Trade accounts payables	(103,739	)	(34,882	)	(102,438	)	(34,444	)
Other accounts payable	(87,863	)	(29,544	)	(87,863	)	(29,544	)
Contingent liabilities	(17,533	)	(5,895	)	(24,993	)	(8,404	)
Deferred income tax liabilities	(3,801	)	(1,278	)	(18,404	)	(6,188	)
Fair value of net assets	244,834		82,326		222,198		74,714
Non-controlling interest (30.00%)	(73,450	)	(24,697	)	(66,659	)	(22,414	)
Goodwill (Note 18)	105,764		36,118		103,055		35,240
Purchase consideration	277,148		93,747		258,594		87,540
Cash paid at year-end	231,464		78,462		231,464		78,462
Cash and cash equivalents of the acquired subsidiary	(69,930	)	(23,514	)	(69,930	)	(23,514	)
Direct cash outflows for acquisition for the year	161,534		54,948		161,534		54,948

Acquisition-related costs of S/4.5 million have been recognized to 2014’s profits within administrative expenses.

If Morelco had been consolidated from January 1, 2014 revenue and profit would have been S/722.57 million and S/80.8 million, respectively.

Put and call options of non-controlling interest -

Under the shareholder agreement signed for the acquisition of Morelco, the subsidiary GyM signed a purchase-sale agreement for 30% of Morelco’s capital stock held by the non-controlling shareholders. By this agreement, the non-controlling shareholders obtained a right to sell their shares over a period and for an amount set in the agreement (put option). The period to exercise the option began on the second anniversary of the acquisition of the option and expires on its tenth anniversary. The option exercise price is based on a EBITDA multiple less the net debt and until months 51 and 63 until from the date of the agreement a minimum amount is set that is based on the price per share that GyM paid to buy 70% of Morelco’s share capital.

On the other hand, the subsidiary GyM obtains call option to buy those shares over a period of 10 years and at a price that is determined the same way as the put option price is determined, except for the fact the minimum amount is effective for the entire effective period of the option (call option).

Under the IFRS framework, the put option is for the Company an obligation to purchase non-controlling interest shares, and therefore, the Group recognizes a liability measured on the basis of the present value of that option. Since the Group arrived at the conclusion that as a result of this agreement, it did not obtained the risks and rewards inherent to the ownership of this share package underlying the option, initial recognition of this liability was a charge to equity of controlling shareholders within other reserves.

The amount of the liability arising from the put option was estimated at the present value of the redemption amounts expected on the basis of minimum amount of the Morelco’s agreement and the exercise rights of the option. The Company expects that purchase options are to be exercised at the date following the date of transfer. The expected redemption of the non-controlling interest is as follows: 41.66% in the second year, 41.66% in the fourth year and the remaining shares will be sold on the fifth anniversary of the option grant date. The discount rate used to determine the present value of the expected redemption amounts is a risk-free rate available to comparable market participants and indicates the fact that the Group estimates to pay the minimum price of the agreement. At December 31, 2016 the liability is estimated to be S/109.9 million, using a 0.78% discount rate for the first year, 1.37% discount rate for the third year and 1.76% for the fourth year (at December 31, 2015 it was S/113.5 million, using a 0.65% discount rate for the first year, 1.31% discount rate for the third year

F-104

(All amounts expressed in thousands of S/ unless otherwise stated)

and 1.76% for the fourth year). In 2016 the changes in the present value of the put option estimated to be S/0.7 million were recognized in the statement of income (an expense by S/1 million stated within “Other income and expenses, net” and an income by S/1.7 million stated within “Exchange losses, net”, Note 28).

c) Acquisition of Coasin Instalaciones Ltda.

In March 2014, through the subsidiary CAM Chile S.A., the Group acquired control of Coasin Instalaciones Limited with the purchase of 100% of its capital shares. Coasin is an entity incorporated in Chile and is mainly engaged in providing installation and maintenance services for networks and equipment related to the telecommunications industry.

This acquisition is part of the Group’s plan to increase its market share considering the significant growth potential in Chile, and in other attractive industries, such as utilities.

During a period of twelve months after the date of acquisition, the Group reviewed the allocation of the purchase price for the acquisition of Coasin Instalaciones Limitada.

Over a period of twelve months after the acquisition, the Group reviewed the allocation of the purchase price and fair values determined provisionally for certain assets and liabilities. As a result of this process, the balance of goodwill was changed to US$2.2 million (equivalent to S/6.4 million).

	Provisional values						Final amounts
	S/			US$000			S/			US$000
Cash and cash equivalents		3			1			3			1
Trade accounts receivables		4,675			1,564			3,811			1,275
Inventories		276			92			276			92
Prepaid expenses		33			11			33			11
Property, plant and equipment		711			238			711			238
Intangibles		1,377			461			1,377			461
Deferred income tax liability		(178	)		(60	)		16			4
Trade accounts payables		(3,592	)		(1,202	)		(3,592	)		(1,202	)
Contingent liabilities		(2,658	)		(889	)		(2,658	)		(889	)
Fair value of net assets		647			216			(23	)		(9	)
Goodwill (Note 18)		5,743			1,921			6,413			2,146
Consideration provided for the acquisition		6,390			2,137			6,390			2,137
Payment for the acquisition settled in cash		6,390			2,137			6,390			2,137
Cash and cash equivalents of the subsidiary acquired		(3	)		(1	)		(3	)		(1	)
Direct outflow of cash for the acquisition		6,387			2,136			6,387			2,136

Revenue and profit resulting for the period between the date of acquisition and December 31, 2014 amounted to S/66.3 million and S/0.7 million, respectively.

34 DIVIDENDS

Due to the loss reported for fiscal 2016, no dividends will be paid.

At the General Shareholders’ meeting held on March 29, 2016 the decision was made to distribute dividends for S/30,853 (S/0.0467 per share), which correspond to 2015 earnings.

At the General Shareholders’ meeting held on March 27, 2015 the decision was made to distribute dividends for S/104,911 (S/0.159 per share), which correspond to 2014 earnings.

F-105

(All amounts expressed in thousands of S/ unless otherwise stated)

At the General Shareholders’ meeting held on March 28, 2014, the decision was made to distribute dividends amounting to S/112,127 (S/0.169 per share), corresponding to 2013 earnings.

35 EARNINGS (LOSSES) PER SHARE

Basic earnings per share are calculated by dividing the net profit of the period attributable to common shareholders of the Group by the weighted average number of common shares outstanding during the year. No diluted earnings per common share were calculated because there are no common or investment shares with potential dilutive effects (i.e., financial instruments or agreements that give the right to obtain common or investment shares); therefore, it is equal to basic earnings per share.

The basic earnings per share are broken down as follows:

	2014		2015		2016
Profit (Losses) attributable to the controlling interest in the Company		299,743		7,097		(509,699	)
Weighted average number of shares in issue at S/1.00 each, at December 31,		660,053,790		660,053,790		660,053,790
Basic and diluted earnings per share (in S/)		0.454		0.011		(0.772	)

36 TRANSACTIONS WITH NON-CONTROLLING INTERESTS

a) Additional acquisition of non-controlling interest -

i) In May, November and December 2016, GyM Chile SPA acquired 5.43%, 6.77% and 1.49% respectively additional capital stock in Vial y Vives—DSD S.A. at a purchase price of S/21.6 million, S/25.7 million y S/3.8 million, respectively. The carrying amounts of the non-controlling interests at the date of the acquisitions were S/13.9 million, S/17.9 million and S/3.9 million. The Group de-recognized the non-controlling interests by reducing the equity attributable to the owners of the parent Company by S/15.4 million. At December 31, 2016, there is an outstanding balance of S/32.1 million (Note 22).

ii) In January 2015, the Company acquired 0.102% of additional shares in GyM S.A. at a price of S/1.87 million. The carrying amount of non-controlling interests at the acquisition date was S/0.97 million. The Group eliminated the non-controlling interest and recognized a decrease in equity attributable to the parent owners of S/0.89 million.

iii) In July 2014, GyM S.A. acquired 13.49% of additional shares in Stracon GyM at a price of US$24.9 million (equivalent to S/72.8 million). The carrying amount of non-controlling interest at the acquisition date was S/22.5 million. The Group eliminated the non-controlling interest and recognized a decrease in equity attributable to the parent owners of S/50.7 million.

iv) In August, November and December 2014, the Company acquired 4.567% (2.25%, 1.95% and 0.367% respectively) additional shares in GyM S.A. at a total purchase price of S/93.2 million. The carrying amount of the non-controlling interest at the acquisition date was S/24.6 million. The Group eliminated non-controlling interest and recognized a decrease in equity attributable to the owners of the parent for S/71.5 million.

v) In August 2014, the Company acquired 1.37% additional shares in Viva GyM S.A. at a price of S/9.4 million. The carrying amount of the non-controlling interest at the acquisition date was S/3.4 million. The Group eliminated non-controlling interest and recorded a decrease in equity attributable to the parent owners of S/6.03 million.

F-106

(All amounts expressed in thousands of S/ unless otherwise stated)

The effect of these changes is broken down as follows:

	2014			2015			2016
Carrying amount of non-controlling interest acquired		50,109			971			35,972
Consideration provided for non-controlling interest		(178,331	)		(1,865	)		(51,139	)
Higher payment attributable to the Company’s controlling interest		(128,222	)		(894	)		(15,167	)

b) Disposal of interests in subsidiary without loss of control -

i) In March 2015, GyM S.A. sold 0.048% (S/97) of its total 87.64% interest held in Stracon GyM for a payment of S/377. The carrying amount of this non-controlling interest in Stracon GyM at the date of disposal was S/23.7 million (a 12.36% interest).

ii) In June 2015, GyM S.A. sold 1.92% (S/385) of its total 82.04% interest held in Vial y Vives - DSD S.A. for a payment of S/385. The carrying amount of this non-controlling interest in Vial y Vives - DSD S.A. at the date of disposal was S/3.6 million (a 17.96% interest).

iii) In April 2015, CAM Holding Spa sold a 2.45% (S/2,045) of its total 75.61% interest held in CAM Chile S.A. for S/880. The carrying amount of the non-controlling interest in CAM Chile at the disposal date was S/20.4 million (a 24.39% interest).

iv) In November 2014, GyM Chile Spa sold 1.01% (S/1.6 million) of its total 82.04% interest held in Vial y Vives - DSD for a total US$0.582 million (equivalent to S/1.6 million). The carrying amount of this non-controlling interest in Vial y Vives - DSD at the date of disposal was S/1.6 million

The effect of this changes at December 31 is summarized below:

	2014			2015			2016
Carrying amount of the non-controlling interest sold		(1,627	)		(2,527	)		(236	)
Consideration received from non-controlling interest		1,627			1,642			335
Decrease in equity of the Company‘s controlling interest		—			(885	)		99

c) Contributions of non-controlling shareholders -

This balance mainly corresponds to the contributions and returns made by the partners of subsidiary Viva GyM S.A. of their real estate projects. At December 31 this balance comprises:

	2014			2015			2016
Viva GyM S.A.:
Contributions received		48,793			20,446			6,380
Returns of contributions		(4,240	)		(14,987	)		(27,134	)
		44,553			5,459			(20,754	)
Plus:
Contributions from other subsidiaries		2,823			4,870			1,655
Increase (decrease) in equity of non controlling parties		47,376			10,329			(19,099	)

F-107

(All amounts expressed in thousands of S/ unless otherwise stated)

Returns of contributions mainly correspond to the following projects: “Los Parques de Comas” for S/6.3 million, “Los Parques de Villa El Salvador II” for S/12.6 million and “Klimt” for S/7.1 million in 2016 (“Los Parques del Callao” for S/6.7 million, “Los Parques de San Martín de Porres” for S/4.8 million and “Los Parques de Piura” for S/3.3 million in 2015).

d) Dividends -

At December 31, 2016, 2015 and 2014 dividends were distributed for S/25.5 million, S/4.5 million and S/68.1 million, respectively.

37 EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION

a) Early termination of the GSP’s concession agreement -

According to a notification issued by the Ministry of Energy and Mines of Peru on January 24, 2017, the early termination of the Concession Contract was declared, based on the provisions of clause 6.7 of the Concession Agreement “Improvements to the country’s energy security and development of the South Peru Gas Pipeline “, as GSP failed to certify the financial closing within the established contractual deadline and proceeded to the immediate execution of the performance guarantee. This situation generated the execution of the counter-guarantees offered by the Group to the company issuing the performance guarantee of the Concession Contract for US $ 52.5 million (S /. 176.6 million) and US $ 129 million (S / 433.3 million). for the corporate guarantee of the bridge loan granted to GSP.

On October 11, 2017, the agreement was signed for the delivery of the goods of the Southern Peru Gas Pipeline concession between GSP and the Ministry of Energy and Mines (MEM). As stated in the agreement, GSP delivered most of the Concession Assets in possession to the administrator designated by the MEM for its custody and conservation. The assets include all the works, equipment and facilities provided for the execution of the project, as well as the engineering studies that were prepared by the concessionaire company.

After the termination of the contract, the Peruvian Government, in accordance with the contract, had to hire an audit entity of recognized international prestige to calculate the Net Book Value (“VCN” for its Spanish definition “Valor Contable Neto”) of the Concession Assets and the subsequent call for up to three public auctions, being the base amount for the first of them 100% of the VCN, guaranteeing in any case that after the third auction, in case the concession has not been awarded, the payment to GSP would be at least 72.25% of the VCN. Having elapsed more than a year since the termination of the contract, the Peruvian Government has not taken any action to calculate the VCN and call for auctions. In the opinion of the external and internal legal advisors, since the previous procedure had not been done within the established deadlines, the Peruvian Government would be obliged to pay GSP 100% of the VCN. Regarding the amount of the VCN there is a previous calculation commissioned by GSP reviewed by an audit firm as an independent expert as of December 31, 2016, which determined a VCN of US $ 2,602 million.

GSP as of December 4, 2017 entered into a bankruptcy proceeding that will be carried out by the National Institute for the Defense of Competition and Intellectual Protection of Peru (hereinafter, INDECOPI), and the Group registered a claim for accounts receivable in 2017 charge for US $ 434,465.77 and the fiduciary based in its capacity as administrator accounts receivable amounting US $ 169,287,006

F-108

(All amounts expressed in thousands of S/ unless otherwise stated)

Based on the amount of the VCN, applying the payments foreseen in the insolvency proceedings, the subordination contracts and the loan cession agreements between the Group and GSP partners, the assumption that an international arbitration will be required to achieve the payment by the Government, and, in accordance with the conclusions of the internal and external legal advisors, it is estimated that the international arbitration would take approximately 5 years to resolve. This is why an impairment of the investment was recorded, which includes a finance update and estimation of costs for US $ 202.3 million before taxes at the income statement, as indicated in notes 13. c) and 16.

In addition, considering the early termination of the GSP contract, the Group evaluated the impairment of the financial statements of CCDS. As a result, a net loss before taxes of S / 15.2 million was determined (Note 5.1-f), that was recognized in gross profit in the Engineering and Construction segment.

Same as in the Emergency Decree 003, Law 30737 (see note 1 c) iii) in its First Section, includes Odebrecht and its related companies, which include GSP. According to this Law, GSP will not be able to make transfers abroad, will require the consent of the Ministry of Justice in case it wishes to sell assets and must deposit the proceeds of such sale in a guarantee trust. Likewise, the entities of the Government that must make some payment to the entities included in the Law, must withheld according to the contract 10%, equivalent to the net profit margin, and deposit it in the aforementioned trust in guarantee. According to our internal and external legal advisors, Government payment for the VCN is not within the scope of the withholding, as this payment does not include net profit margin, nor is a sale of assets.

b) Renegotiations of liabilities and credit lines -

i) Credit Suisse Syndicated Loan

On June 27, 2017, the Company renegotiated the terms of this loan to clear breaches related to the termination of the GSP concession. The new terms establish repayment by December, 2020. See Note 19-i)

ii) GSP Performance Guarantee

On March 31, 2017, the Company renegotiated the terms for repayment obligations regarding the proportional share of the performance guarantee issued in connection with the GSP concession (Note 22). The new terms require repayment by June 30, 2018, with interest accrual 6% per year, and provide a security interest over our shares in CAM, and lien on certain assets’ cash flows.

F-109

(All amounts expressed in thousands of S/ unless otherwise stated)

iii) GSP Bridge Loan

On June 27, 2017 the Company entered in a new US$78.7 million term loan with Natixis, BBVA, SMBC and MUFJ, the proceeds of which were used to repay the GSP bridge loan. The maturity is June, 2020. See Note 19-ii)

iv) Financial Stability Framework Agreement -

On July 31, 2017, GyM S.A., Graña y Montero S.A.A., CAM Peru S.A., Vial and Vives—DSD S.A. and Concesionaria Vía Expresa Sur S.A. entered into a Financial Stability Framework Agreement (together with certain complementary contracts) with the following financial entities: Scotiabank Peru S.A.A., Banco Internacional del Perú S.A.A, BBVA Banco Continental, Banco de Crédito del Perú, Citibank del Peru SA And Citibank N.A.. The Framework Agreement (together with its complementary contracts) was intended to: (i) grant GyM S.A. a line of a syndicated revolving loan for working capital of up to US$1.6 million and S/143.9 million (extendable to an additional US$14 million subject to certain conditions; (ii) grant GyM S.A. a non-revolving line of up to US$51.6 million and S/33.6 million; (iii) grant GyM S.A., Graña y Montero S.A.A., CAM Peru S.A., Vial and Vives—DSD S.A. and Concessionaire Vía Expresa Sur S.A a non-revolving line to finance the amounts payable resulting from the performance bonds that may become enforceable; (iv) grant a line of a syndicated loan to GyM S.A. and Graña y Montero S.A.A. for the newly-issued performance bonds of up to US$100 million (extendable up to US$150 million, subject to compliance with certain conditions); and (v) commit to maintaining the existing stand-by letters of credit issued at the request of GyM S.A. and Graña y Montero S.A.A as well as of CAM Perú S.A., Vial and Vives-DSD S.A. and Concesionaria Vía Expresa Sur S.A.

c) Divestment process -

• The Company has initiated a divestment process of non-strategic assets for up to US$300 million (equivalent to S/1,008 million) to meet the obligations arose from the early terminations of the GSP project. It should be noted that outside the situation described above, the subsidiaries of the Group are operating normally with their own capital and financing needs. To date these divestments are the following:

• On February 3, 2017 subsidiary Viva GyM S.A. signed a purchase-sales agreement comprising all its shares and rights (representing 50%) of the property at which Project Cuartel San Martín was to be developed jointly with another entity. The agreed selling price was US$50 million (equivalent to S/163 million), which were fully paid on April 3, 2017 with the signing of public deeds.

• On February 24, 2017 subsidiary Viva GyM S.A. signed a purchase-sales agreement comprising its equity interest (representing 22.5%) held in associate Promoción Inmobiliaria del Sur S.A. (Note 16.a-ii) The agreed selling price was US$25 million (equivalent to S/81 million), which was fully paid.

• In February and March, 2017 subsidiary Stracon GyM S.A. sold in a trade session at the Lima Stock Exchange a portion of its equity interest (representing 9.97%) of Red Eagle Mining Corporation (included as non-current assets at the consolidated financial statement), keeping an interest of 2.70%. The agreed selling price was US$13.3 million (equivalent to S/43 million), which was fully paid.

F-110

(All amounts expressed in thousands of S/ unless otherwise stated)

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

• On June 6, 2017 the Company signed a purchase-sale agreement for their total share (representing 89.19%) of GMD S.A. The selling price was agreed at US$84.7 million (equivalent to S/281.3 million), which was fully paid.

• On the other hand, on March 28, 2018, the subsidiary GYM sold its total share (87.59%) in Stracon GyM S.A. for a total of US $ 76.8 million. All of the inflows will be used to amortize their financial obligations.

d) Legal processes arising in 2017 -

i) Consorcio Rio Mantaro

a) On February 2, 2017, ULMA Encofrados Perú S.A. (hereinafter “ULMA”) started an arbitration process against Consorcio Río Mantaro (hereinafter, the “Consortium”) involving S/5.1 million for the alleged breach of returning in optimum conditions the equipment that was leased to them, and for not making the corresponding payment to ULMA for the reduction of the equipment

On September 14, 2017, the Consortium and ULMA signed an out-of-court settlement for which ULMA agrees to grant Consortium a final reduction in the amount due to shortages and unusable. Therefore, the Consortium was obliged to pay ULMA the total amount of S/2 million, amount that includes the VAT.

b) On June 1, 2017, Consorcio Rĺo Mantaro (the “Consortium”) filed a lawsuit against Andritz Hydro GmbH; Andritz Hydro SRL and Andritz Hydro S.A ( the “Subcontractors”) , who participated as electromechanical subcontractors of the Cerro del Águila Project (Hydroelectric Power Plant). The Consortium demands US$ 73.5 million (US $ 36.7 million what corresponds to GyM) for several breaches (including delays) in the execution of the electromechanical subcontract that binds them, in addition to demanding compensation for the other damages caused by the subcontractors.

To date, the Consortium has complied with submitting its briefs to the Arbitral Tribunal, so we are waiting for the counterclaim.

ii) Consorcio Ermitaño

On March 3, 2017, Consorcio Ermitaño (hereinafter, the “Consortium”) initiated an arbitration against the Potable Water and Sewerage Service of Lima S.A. (hereinafter, “SEDAPAL”) for:

a. recognition of the Extension of Term No. 5 and payment of the respective general expenses, equivalent to S/13 million (being S/6.5 million what corresponds to GyM S.A.)

On May 10, 2018, the Court heard oral arguments on this matter..

b. recognition of the Term Extensions N ° 3 and N ° 4 and payment of the respective variable general expenses, equivalent to S/9.3 million (being S/4.6 million what corresponds to GyM SA).

To date, the Arbitral Tribunal has declared that the arbitration is in a period to be waived, which expires on June 14.

c. claiming the variable general expenses corresponding to the Extension of Term No. 6, equivalent to S/10.7 million (with S/5.3 million corresponding to GyM S.A.).

F-111

(All amounts expressed in thousands of S/ unless otherwise stated)

On April 9, 2018, by means of Resolution No. 20, the Arbitral Tribunal declares that the arbitration is within a period of 30 business days

d. recognition of the Extension of Term N ° 7 and N ° 9 and payment of the respective variable general expenses, equivalent to S / 4.4 million (S / 2.2 million corresponds to GyM ).

To date, it is still pending that the Arbitral Tribunal sets the rules of the arbitration, after which the period to formulate the claim will begin.

e. On April 12, 2018, (the “Consorcio”) initiated an arbitration against “SEDAPAL” by recognition of the Extension of Term N ° 7 and N ° 9 and payment of the respective variable general expenses, equivalent to S / 4.4 million (S / 2.2 million corresponds to GyM).

iii) Consorcio Constructor Ductos del Sur

On May 31, 2017, Elecnor Perú S.A.C. (hereinafter “ELECNOR”) started an arbitration process against Consorcio Constructor Ductos del Sur, through the Companies partners of this Consortium, at their proportional share, to honor a payment of US$29.3 million (equivalent to S/95.9 million), for the alleged breach of the obligations expressly set forth in the contract.

On June 14, 2017, CCDS filed and responded to ELECNOR’s arbitration request.

At the reporting date, two arbitrators have been appointed and a third one remains pending to appoint.

iv) Consorcio La Gloria

On August 9, 2017, the Consorcio La Gloria (hereinafter, the “Consortium”) initiated an arbitration against the Drinking Water and Sewerage Service of Lima S.A. (hereinafter, “SEDAPAL”), with the aim of resolving all pending matters pertaining to the settlement of the work contract signed with SEDAPAL.

On March 7, 2018 the Consortium filed its claim with the Arbitral Tribunal, and now we are waiting for the reply from SEDAPAL.

v) GyM S.A.

On October 10, 2017, Workbe Latam S.p.A. (hereinafter, “Workbe”) initiated an arbitration to order GyM S.A. (hereinafter, “GyM”) the compensation payment of US$0.7 million (equivalent to S/2.3 million) for early termination of service contract signed between the parties in 2016.

On April 26, 2018, GyM submitted to the Arbitral Tribunal the answer to the lawsuit.

vii) Consorcio Italo Peruano

On January 26, 2018, GyM S.A. (hereinafter, “GyM”) initiated an arbitration against the National Institute of Neoplastic Diseases (hereinafter, “INEN”), its claim being the approval of the Extension of Term No. 1 for a period of 62 calendar days and, recognition of expenses S / 1.3 million (S / 664 thousands corresponds to GyM SA).

To date, the installation of the Arbitral Tribunal is pending.

F-112

(All amounts expressed in thousands of S/ unless otherwise stated)

vii) Consorcio Norte Pachacutec.

On February 8, 2018, the North Pachacutec Consortium (hereinafter, the “Consortium”) initiated an arbitration against the Drinking Water and Sewerage Service of Lima S.A. (hereinafter, “SEDAPAL”), its main claim being the determination of the final cost of the work executed by the Consortium, considering unrecognized, recognized concepts and awards previously issued and that has not yet been met with the payment in favor of the Consortium, equivalent to the sum of S / 36.3 million (S / 17.8 million corresponds to GyM).

To date, the installation of the Arbitral Tribunal is pending.

38 DISCONTINUED OPERATION

As part of the divestment process conducted by the Company (Note 37 c) subsidiaries and joint ventures were dispose. The effect in the consolidated income statement is summarized as follows:

SUBSIDIARIES

GMD
	2015			2016
Revenue		232,582			279,289
Operating costs		(219,433	)		(257,294	)
Finance costs, net		(8,249	)		(9,758	)
Operating profit from discontinued activities before taxation		4,901			12,237
Income tax expense		(3,129	)		(7,466	)
Profit from discontinued ordinary activities after taxation		1,772			4,771
Profit from discontinued activities attributable to owners of the Company		1,581			4,257
Earnings per share relating to the discontinued operation are as follows:
Basic		0.138			0.372
Cash flows relating to the discontinued operation are as follows:
Operating cash flows		(14,193	)		78,286
Investing cash flows		(17,499	)		(30,712	)
Financing cash flows		(53,501	)		(48,516	)
STRACON GyM S.A.
	2015			2016
Revenue		1,476,764			1,222,707
Operating costs		(1,305,806	)		(1,099,789	)
Finance costs, net		(21,478	)		(3,104	)
Operating loss from discontinued activities before taxation		149,480			119,814
Income tax expense		(40,492	)		(32,558	)
Profit from discontinued ordinary activities after taxation		108,988			87,256
Profit from discontinued activities attributable to owners of the Company		95,463			76,428
Earnings per share relating to the discontinued operation are as follows
Basic		1.395			1.117
Cash flows relating to the discontinued operation are as follows:
Operating cash flows		166,438			49,105
Investing cash flows		(19,914	)		(31,132	)
Financing cash flows		(120,655	)		(71,382	)

F-113

(All amounts expressed in thousands of S/ unless otherwise stated)

JOINT OPERATION

CONSORCIO CONSTRUCTOR DUCTOS DEL SUR
	2015			2016
Revenue		154,110			998,463
Operating costs		(133,674	)		(977,729	)
Finance costs		(882	)		(3,670	)
Operating profit from discontinued activities before taxation		19,554			17,064
Income tax expense		(5,471	)		(19,347	)
Profit from discontinued ordinary activities after taxation		14,083			(2,283	)

JOINT VENTURE

TECGAS N.V.
	2015			2016
Revenue		426,487			457,554
Finance costs		16			215
Operating profit from discontinued activities before taxation		1,876			(3,209	)
Income tax expense		(892	)		(4,078	)
Loss from discontinued ordinary activities after taxation		984			(7,287	)

F-114

EXHIBIT INDEX

12.01	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
12.02	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
13.01****	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
13.02****	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

*** This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. §78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to the annual report on Form 20-F on its behalf.

GRAÑA Y MONTERO S.A.A.
By:	/s/ Luis Francisco Díaz Olivero
Name:	Luis Francisco Díaz Olivero
Title:	Chief Executive Officer
By:	/s/ Monica Miloslavich
Name:	Monica Miloslavich
Title:	Chief Financial Officer

Date: May 16, 2018