18	INTANGIBLE ASSETS, NET

The movement of intangible assets and that of their related accumulated amortization, as of December 31, 2015, 2016 and 2017, 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 rights		Other assets			Total
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 and impairment		(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		—			—			(18,436	)		(14,697	)		(4,601	)		(42,117	)		—			—		(825	)		(80,676	)
Discontinued operations		—			—			(7,247	)		—			(1,432	)		—			—			—		—			(8,679	)
Translations adjustments		(15,335	)		(6,084	)		(51	)		(4,031	)		(280	)		—			—			—		—			(25,781	)

Net final carrying amount		184,808			96,534			417,893			24,194			10,218			122,421			—			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 and impairment		(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


	Goodwill			Trade- marks			Concession rights			Contractual relations with clients			Internally generated software and development costs			Costs of development of wells			Development costs			Land use rights		Other assets			Total
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 and impairment		(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			171,726
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		—			—			(19,646	)		(4,376	)		(7,407	)		(40,918	)		—			—		(1,200	)		(73,547	)
Discontinued operations		—			—			(8,560	)		—			(636	)		—			—			—		—			(9,196	)
Impairment loss		(38,680	)		(15,628	)		—			—			—			—			—			—		—			(54,308	)
Translations adjustments		12,038			3,672			(102	)		171			1,024			—			—			—		(78	)		16,725

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		34,418			1,708,082
Accumulated amortization and impairment		(60,675	)		(15,845	)		(326,453	)		(62,316	)		(40,586	)		(233,378	)		(3,623	)		—		(4,920	)		(747,796	)

Net carrying amount		144,520			93,666			517,760			32,811			20,021			108,722			—			13,288		29,498			960,286


	Goodwill			Trade- marks			Concession rights			Contractual relations with clients			Internally generated software and development costs			Costs of development of wells			Development costs			Land use rights		Other assets			Total
At January 1, 2017
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 cost		144,520			93,666			517,760			32,811			20,021			108,722			—			13,288		29,498			960,286

Net initial cost		144,520			93,666			517,760			32,811			20,021			108,722			—			13,288		29,498			960,286
Additions		—			—			64,171			5,274			3,330			49,698			—			—		20,832			143,305
Deconsolidation GMD		(3,524	)		—			(17,354	)		—			(21	)		—			—			—		(2,767	)		(23,666	)
Transfers from assets under construction (Note 17)		—			—			(11,217	)		—			2,761			5,008			—			—		3,617			169
Derecognition – cost		—			—			(537	)		—			(1,572	)		—			—			—		(355	)		(2,464	)
Amortization		—			—			(24,609	)		(4,189	)		(8,091	)		(46,695	)		—			—		(2,973	)		(86,557	)
Impairment		(20,068	)		(29,541	)		—			—			—			—			—			—		—			(49,609	)
Translations adjustments		(4,124	)		975			13			369			1,196			—			—			—		177			(1,394	)

Net final cost		116,804			65,100			528,227			34,265			17,624			116,733			—			13,288		48,029			940,070

At December 31, 2017
Cost		193,862			110,486			879,289			100,640			66,301			396,806			3,623			13,288		51,983			1,816,278
Accumulated amortization and impairment		(77,058	)		(45,386	)		(351,062	)		(66,375	)		(48,677	)		(280,073	)		(3,623	)		—		(3,954	)		(876,208	)

Net cost		116,804			65,100			528,227			34,265			17,624			116,733			—			13,288		48,029			940,070

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		2017
Engineering and construction		125,514		98,587		75,051
Electromechanical		20,737		20,737		20,737
Mining and construction services		13,366		13,366		13,366
IT equipment and services		4,172		5,102		6,720
Telecommunications services		6443		6,728		930

		170,232		144,520		116,804

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 2016 and 2017 in two CGU’s, Vial y Vives—DSD, and Morelco S.A. and was accounted as of December 31st, 2016 and 2017, respectively. 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/20.1 in 2017(S/38.7 million in 2016).

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
	%		%		%		%		%
2016
Gross margin		9.50% - 12.99%		11.10%		12.04%		15.00% - 23.19%		11.75%
Terminal growth rate		3.00% - 4.00%		2.00%		2.00%		2.00% - 3.00%		3.00%
Discount rate		9.66% - 12.72%		11.01%		11.71%		21.74%		10.02%
2017
Gross margin		9.50%		8.00%		—		20.83%		4.26%
Terminal growth rate		3.00%		2.00%		—		2.90%		3.00%
Discount rate		11.18%		11.48%		—		10.17%		4.02%

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 forecasted 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.

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 August 2013; 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.

As a result of these tests, at December 31, 2016 and 2017, the Vial y Vives—DSD trademark was partially impaired, the amount of the impairment was S/15.6 million and S/29.5 million, respectively. No provision for impairment was performed for Stracon GYM since the Company sold its shares (87.59%) for a total of US $76.8 million, generating a profit of S/41.9 million

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


	Engineering and construction						IT Equipment Services
	Morelco			Vial y Vives - DSD			Adexus
	%			%			%
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	%
2017
Average revenue growth rate		9.60	%		25.00	%		9.19	%
Terminal growth rate		3.00	%		4.00	%		3.00	%
Discount rate		11.18	%		14.80	%		16.63	%

Concessions

The intangibles of Norvial S.A. as of December 31, 2017, they mainly comprise:

i.) The EPC contract for S/78 million (S/86 million as of December 31, 2016), ii) the construction of the second section of the “Ancón-Huacho-Pativilca” highway, and the cost of financing capitalized at effective interest rates between 7.14% and 8.72% for S/331 million and S/26 million, respectively (S/297 million and S/23 million, respectively as of December 31, 2016 at interest rates between 7.14 % and 8.72%) iii) road improvement for S/17 million (S/18 million as of December 31, 2016), iv) implementation for road safety for S/4 million (S/3 million as of December 31, 2016 ), v) disbursements for the acquisition of properties for S/5 million (S/6 million as of December 31, 2016) and vi) Other intangible assets contracted for the process of delivery of the Concession for S/4 million (S/3 million as of December 31, 2016). During the year 2017, financing costs have been capitalized for S/26 million (S/22.5 million in 2016), see (Note 2.19).

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/99 million at December 31, 2017 (S/80 million at December 31, 2016).

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 unit of production method for Blocks III and IV), which is less than the total effective period of the service agreement with Perupetro.

Amortization of intangible assets

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


	2015		2016		2017
Cost of sales and services (Note 27)		74,187		66,862		74,515
Administrative expenses (Note 27)		6,489		6,685		8,227

		80,676		73,547		82,742