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Intangible Assets and Goodwill, Net
 12 Months Ended
Dec. 31, 2022
Intangible Assets [Abstract]  
Intangible Assets and Goodwill, net

16. Intangible Assets and Goodwill, net

 

The movement of intangible assets and related accumulated amortization as of December 31, 2020, 2021 and 2022 is as follows:

 

In thousands of soles  Goodwill   Trade-marks   Concession rights   Contractual relations with clients   Software   Costs of development of wells   Land use rights   Other assets   Total 
Cost                                    
Balance at January 1, 2020   93,887    92,786    710,290    72,810    63,278    558,530    13,288    113,057    1,717,926 
Additions   
-
    
-
    4,412    
-
    1,526    37,994    
-
    6,473    50,405 
Capitalization of interest expenses   
-
    
-
    
-
    
-
    
-
    
-
    
-
    1,105    1,105 
Transfers from assets under construction   
-
    
-
    
-
    
-
    (64)   (25)   
-
    
-
    (89)
Disposal   
-
    
-
    
-
    
-
    (1,413)   
-
    
-
    
-
    (1,413)
Reclassifications   
-
    (84)   (24,157)   
-
    74    
-
    
-
    10    (24,157)
Translations adjustments   1,579    7,810    
-
    4,732    470    
-
    
-
    
-
    14,591 
At December 31, 2020   95,466    100,512    690,545    77,542    63,871    596,499    13,288    120,645    1,758,368 
Balance at January 1, 2021   95,466    100,512    690,545    77,542    63,871    596,499    13,288    120,645    1,758,368 
Additions   
-
    
-
    6,185    
-
    10,312    45,518    
-
    5,726    67,741 
Capitalization of interest expenses   
-
    
-
    
-
    
-
    
-
    
-
    
-
    609    609 
Disposal   
-
    
-
    (1,921)   
-
    (11,014)   (313,110)   
-
    
-
    (326,045)
Subsidiary deconsolidation   
-
    
-
    
-
    
-
    (17,646)   
-
    
-
    
-
    (17,646)
Translations adjustments   (1,866)   (4,984)   
-
    (3,387)   (284)   
-
    
-
    
-
    (10,521)
At December 31, 2021   93,600    95,528    694,809    74,155    45,239    328,907    13,288    126,980    1,472,506 
Balance at January 1, 2022   93,600    95,528    694,809    74,155    45,239    328,907    13,288    126,980    1,472,506 
Additions   
-
    
-
    6,973    
-
    10,207    144,887    
-
    3,090    165,157 
Disposal   
-
    
-
    
-
    (111)   (3,554)   
-
    
-
    
-
    (3,665)
Reclassifications   
-
    
-
    (15,596)   
-
    
-
    
-
    
-
    (13,504)   (29,100)
Transfers   
-
    
-
    367    
-
    76    
-
    
-
    7    450 
Translations adjustments   (7,603)   (8,279)   
-
    (2,525)   (479)   
-
    
-
    
-
    (18,886)
At December 31, 2022   85,997    87,249    686,553    71,519    51,489    473,794    13,288    116,573    1,586,462 

 

In thousands of soles  Goodwill   Trade-marks   Concession rights   Contractual relations with clients   Software   Costs of development of wells   Land use rights   Other assets   Total 
Accumulated amortization and impairment                                    
Balance at January 1, 2020   (36,520)   (22,091)   (266,340)   (72,309)   (41,891)   (364,556)   (2,468)   (57,524)   (863,699)
Amortization   
-
    
-
    (52,408)   
-
    (6,037)   (36,942)   
-
    (3,234)   (98,621)
Disposal   
-
    
-
    
-
    
-
    921    
-
    
-
    
-
    921 
Translations adjustments   
-
    
-
    
-
    (4,710)   (269)   
-
    
-
    
-
    (4,979)
At December 31, 2020   (36,520)   (22,091)   (318,748)   (77,019)   (47,276)   (401,498)   (2,468)   (60,758)   (966,378)
Balance at January 1, 2021   (36,520)   (22,091)   (318,748)   (77,019)   (47,276)   (401,498)   (2,468)   (60,758)   (966,378)
Amortization   
-
    
-
    (54,304)   
-
    (7,269)   (40,501)   
-
    (4,438)   (106,512)
Disposal   
-
    
-
    1,059    
-
    9,189    313,108    
-
    
-
    323,356 
Subsidiary deconsolidation   
-
    
-
    
-
    
-
    16,895    
-
    
-
    
-
    16,895 
Translations adjustments   
-
    
-
    
-
    3,361    163    
-
    
-
    
-
    3,524 
At December 31, 2021   (36,520)   (22,091)   (371,993)   (73,658)   (28,298)   (128,891)   (2,468)   (65,196)   (729,115)
Balance at January 1, 2022   (36,520)   (22,091)   (371,993)   (73,658)   (28,298)   (128,891)   (2,468)   (65,196)   (729,115)
Amortization   
-
    
-
    (55,096)   
-
    (3,619)   (37,672)   
-
    (5,648)   (102,035)
Disposal   
-
    
-
    
-
    
-
    2,852    -    
-
    
-
    2,852 
Reclassifications   
-
    
-
    15,596    
-
    
-
    
-
    
-
    13,504    29,100 
Transfers   
-
    
-
    (272)   
-
    
-
    
-
    
-
    
-
    (272)
Impairment loss   
-
    (2,530)   
-
    
-
    
-
    
-
    
-
    
-
    (2,530)
Translations adjustments   
-
    
-
    
-
    2,422    452    
-
    
-
    
-
    2,874 
At December 31, 2022   (36,520)   (24,621)   (411,765)   (71,236)   (28,613)   (166,563)   (2,468)   (57,340)   (799,126)
                                              
Carrying amounts                                             
At January 1, 2020   

57,367

    

70,695

    

443,950

    

501

    

21,387

    

193,974

    

10,820

    

55,533

    

854,227

 
At December 31, 2020   58,946    78,421    371,797    523    16,595    195,001    10,820    59,887    791,990 
At December 31, 2021   57,080    73,437    322,816    497    16,941    200,016    10,820    61,784    743,391 
At December 31, 2022   49,477    62,628    274,788    283    22,876    307,231    10,820    59,233    787,336 

 

A. Goodwill

 

Corporation’s Management reviews the performance of its businesses based on the economic activity performed. As of December 31, the goodwill of cash generating units (CGUs) is distributed as follows:

 

In thousands of soles  2020   2021   2022 
Engineering and construction   38,211    36,344    28,741 
Electromechanical   20,735    20,736    20,736 
    58,946    57,080    49,477 

 

As of December 31, 2022, goodwill consists of an accumulated cost of S/123.8 million, accumulated impairment of S/53.2 million and a decrease due to translation effect of S/13.5 million.

 

As a result of Management’s annual impairment tests on goodwill, the recoverable value of cash-generating units was determined based on the greater their value in use and fair value less disposal costs. The value in use was determined based on the expected future cash flows generated by the evaluation of CGUs.

 

As a result of these evaluations in 2020, 2021 and 2022, no impairment was identified.

 

The main assumptions used by the Corporation to determine the recoverable value are the following:

 

   Engineering     
   and   Electro- 
In percentage  construction   mechanical 
2020        
Gross margin   12.50%   9.36%
Terminal growth rate   3.00%   2.00%
Discount rate   11.06%   11.77%
2021          
Gross margin   11.10%   9.04%
Terminal growth rate   3.30%   0.00%
Discount rate   11.97%   13.28%
2022          
Gross margin   9.23%   8.13%
Terminal growth rate   3.80%   0.00%
Discount rate   17.66%   14.89%

 

Discount rate

 

The discount rate is the cost of capital applied to determine the present value of a future payment.

 

Growth rate

 

Market-based and generally in line with projected long-term inflation for the countries in which each CGU operates.

 

Perpetual growth rate

 

The rate used to calculate the terminal or residual value in the valuation of the business.

 

These assumptions have been used for the analysis of each CGUs for a five-year period considering a recovery residual value without any growth.

 

Management determines budgeted gross margins based on past profit loss and market development expectations. Average growth rates are consistent with those prevailing in the industry. The discount rates used are pre-tax, as applicable, and reflect the specific risks associated with the CGUs evaluated.

 

B. Trademarks

 

As of December 31, 2022, this item includes the trademarks acquired in the business combination processes with Vial y Vives S.A.C. for S/ 42 million (S/ 47.4 million as of December 31, 2021) and Morelco S.A.S. for S/ 20.6 million (S/ 26.1 million as of December 31, 2021). Management determined that the Vial y Vives and Morelco trademarks have indefinite useful lives, consequently, these intangible assets are tested annually for impairment using the methodology of saving in the payment of license fees or royalties.

 

As of December 31, 2021, Vial y Vives – DSD trademark had an accumulated impairment of S/ 22.1 million and during the year 2022 it was impaired by an additional amount of S/ 2.5 million. At the end of 2022, the accumulated impairment amounts to S/ 24.6 million.

 

The main assumptions used by the Corporation to determine fair value less costs of sales are the following:

 

   Engineering 
   and construction 
In percentage  Morelco S.A.S.   Vial y Vives - DSD 
2020        
Average revenue growth rate   7.60%   5.00%
Terminal growth rate   3.00%   2.10%
Discount rate   11.06%   13.16%
2021          
Average revenue growth rate   23.16%   5.00%
Terminal growth rate   3.30%   3.00%
Discount rate   11.97%   17.60%
2022          
Average revenue growth rate   43.19%   9.03%
Terminal growth rate   3.80%   3.00%
Discount rate   17.66%   15.82%

 

Discount rate

 

The discount rate is the cost of capital applied to determine the present value of a future payment.

 

Growth rate

 

Market-based and generally in line with projected long-term inflation for the countries in which each CGU operates.

 

Perpetual growth rate

 

The rate used to calculate the terminal or residual value in the valuation of the business.

 

C. Concessions

 

As of December 31, it mainly comprises the intangible assets of the subsidiary Red Vial 5 S.A. and is made up of:

 

In thousands of soles  2021   2022 
Capitalization of second roadway   240,279    200,233 
EPC Contract   46,719    38,933 
Implementation for road safety   10,179    11,526 
Road improvement   11,795    10,997 
Disbursements for land acquisition   4,883    4,836 
Construction of the second tranche of the “Ancon- Huacho-Pativilca” highway   2,919    2,394 
Other intangible assets contracted for the delivery process   5,118    4,823 
Total Red Vial 5 S.A.   321,892    273,742 
Other concessions   924    1,046 
    322,816    274,788 

 

D. Well development cost

 

The Company, through is subsidiary Unna Energia S.A., has been operating and extracting oil from two fields (Lot I and Lot V). Lot V is operated under a long-term service agreement, under which the Company provides hydrocarbon extraction services to the Government. Lot I agreement ended in 2021 and Lot V is expiring in October 2023.

 

On December 10, 2014, the Peruvian Government granted to the Company the right to exploit oil Lots III and IV for thirty (30) years. The investment committed is estimated in US$ 435 million corresponding to the drilling of 230 wells in Lot III and 330 wells in Lot IV. The drilling work started in November 2016 in Lot IV and the first drilling campaign in Lot III started in June 2022.

 

The lots are amortized based on the useful lives of the wells (determined in the remaining terms for Lot V and the units produced for Lots III and IV), until the termination of the agreements with Perupetro S.A.

 

E. Other assets

 

Mainly corresponds to investments committed in the subsidiary Unna Energia S.A. through Consorcio TP in the execution of the investment commitment arising from the Central and North Terminals Operation contracts. At the end of the contract term, Unna Energia S.A. will transfer in favor of the contractor at zero value, the facilities and goods resulting from the execution of the investment commitment.

 

F. Amortization of intangible assets

 

Amortization of intangibles is broken down in the consolidated statements of profit or loss as follows:

 

In thousands of soles  Note   2020   2021   2022 
Cost of sales        93,135    101,578    99,210 
Administrative expenses        4,138    3,642    2,825 
Sub total   25    97,273    105,220    102,035 
(+) Amortization discontinued operations        1,348    1,292    
-
 
         98,621    106,512    102,035